AEye (LIDR) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Matthew Fisch
• Chief Financial Officer - Conor Tierney
• Investor Relations Manager - Keaton Olson

TAKEAWAYS

• Revenue -- $506,000, representing 10-fold growth year over year and a 2.5-fold increase compared to the prior quarter.
• Fourth Quarter Revenue Guidance -- Approximately $1 million, doubling sequentially to establish a new quarterly baseline for the company.
• Non-GAAP Net Loss -- $7.2 million or $0.15 per share, compared to $7.6 million or $0.17 per share in the prior quarter.
• GAAP Net Loss -- $11.2 million or $0.24 per share, driven by higher stock-based compensation expenses partially offset by lower research and development costs.
• Gross Margin -- (35)%, representing a 45 percentage point improvement driven by a richer revenue mix and lower product costs as bill of materials expenses decreased.
• Cash Balance -- $63.1 million, providing what management described as ample runway to fund multiyear programs into 2028.
• 2026 Cash Consumption -- $35 million, which includes approximately $5 million in working capital to support commercial ramps.
• 2027 Cash Consumption Target -- 15% reduction, reflecting the company's software-defined architecture that requires less capital for entering new markets.
• Revenue-Generating Customers -- 32, representing 28% growth from the previous quarter as customers integrated sensors into active platforms.
• Active Technical Engagements -- More than 200, serving as the primary funnel for future paid proof-of-concept projects.
• Lunar Outpost Contract -- A multi-million-dollar binding agreement that began contributing revenue during the third quarter.
• Defense Sector Activity -- The lead defense customer placed its fifth consecutive order, confirming a pattern of repeat purchasing for U.S. and international applications.
• STRATOS Product Revenue -- Recorded first shipments nine months after the product was announced, focused on counter-UAS systems for drone detection.
• Sports Analytics Vertical -- Two customers have now entered the proof-of-concept phase, using the Apollo platform for 3D refereeing and athletic performance analysis.
• Nine-Month Revenue -- $809,000, which is approximately 3.5-fold higher than the total revenue reported for the full year of 2025.
• Inventory -- Increased by approximately $1.4 million from the end of the second quarter to support production in the fourth quarter and 2027.
• Accounts Receivable -- Rose to $969,000, primarily due to milestone billings related to the Lunar Outpost program.

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RISKS

• Tierney stated, "Revenue scale and positive gross margins come later within that phase rather than at a start," regarding the company's transition into Phase 2 of commercialization.
• Fisch indicated that "account management and servicing the inbounds that we have is a big limiter for us" as the company works to staff up its revenue operations.
• Tierney warned that 2026 cash consumption includes $5 million in working capital for the commercial ramp, while future requirements depend on the acceleration of customer conversions.

SUMMARY

AEye, Inc. (NASDAQ:LIDR) reported a significant acceleration in commercial activity during the third quarter, evidenced by 10-fold year-over-year revenue growth and the issuance of its first quarterly revenue guidance. Management stated that the company is transitioning from technical evaluation to commercial contract execution, marked by its multimillion-dollar agreement with Lunar Outpost and the first revenue recorded for its STRATOS product. The company indicated that its software-defined architecture allows for rapid expansion into diverse markets such as defense, aerospace, and sports analytics without requiring proportional increases in hardware development costs. Management reported that the current cash balance of $63.1 million supports operations into 2028, with plans to reduce cash consumption by 15% in 2027 through capital-efficient manufacturing and disciplined expense management.

• Management identified defense as the most active vertical, with CEO Fisch stating, "Apollo and STRATOS are so well suited to this market, high performance, high resolution."
• The company reported 32 customers are currently in revenue-generating proof-of-concept stages, which Fisch noted usually involve 12 to 18 months of integration and test activity.
• Management highlighted the performance of its sensors in detection, with Fisch stating, "We've seen customer-proven Apollo detecting objects up to 1 kilometer and STRATOS will extend that range to 1.5 kilometers."
• The company is realigning resources under a new Chief Revenue Officer to convert its pipeline of 200 technical engagements into commercial deployments.
• The Apollo sensor was selected for NASA's Artemis program, which management stated serves as a validation point for the sensor's durability in harsh environments.
• The company reported technical differentiation in sports analytics, with Fisch noting the system runs at 60 hertz, a frame rate management believes is unmatched in the industry.
• Management plans to unveil a new development at CES in January that is intended to demonstrate further advancements in lidar capability.

INDUSTRY GLOSSARY

• Apollo: AEye's flagship software-defined lidar sensor designed for high performance and long-range detection.
• STRATOS: A software-defined lidar product capable of detecting objects at distances up to 1.5 kilometers.
• Lidar: Light Detection and Ranging, a sensing method that uses laser light to measure distances and create 3D maps of the environment.
• POC: Proof of Concept, a phase where customers integrate and test sensors in their specific applications before full commercial deployment.
• Counter-UAS: Systems designed to detect, track, and intercept unmanned aerial systems, commonly known as drones.
• BOM: Bill of Materials, the list of raw materials, sub-assemblies, and components needed to manufacture a product.
• OPTIS: AEye's platform for full-stack sensing, compute, and perception.

Full Conference Call Transcript

Operator: Thank you for standing by, and welcome to the AEye Q3 2026 Earnings Conference Call. [Operator Instructions] I'd now like to turn it over to Keaton Olson, Investor Relations Manager. Please go ahead.

Keaton Olson: Good afternoon, and thank you for joining AEye's Third Quarter 2026 Earnings Call. I'm Keaton Olson, Investor Relations Manager for AEye. And with me today are Matt Fisch, Chief Executive Officer; and Conor Tierney, Chief Financial Officer. Earlier today, AEye announced its financial results for the third quarter ended September 30, 2026. A copy of the press release is available in the Investor Relations section of the company's website. Before we begin, 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 performance and are based on our current expectations and assumptions.

Any forward-looking statements are subject to inherent risks, uncertainties and changes in circumstances. Our actual results may differ materially from those contemplated by 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 our 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. With that, I'll hand the call over to Matt.

Matthew Fisch: Good afternoon. Today, I'm really happy to be talking about what we believe is a fantastic quarter for the company. We're executing at a high level. And as we'll talk about here today, we expect this momentum to carry into 2027. We're seeing very positive KPIs on all major fronts, customer conversion, revenue ramps and a customer pipeline that's continuing to grow. For the first time, we're going to provide some revenue guidance. We'll get to that a little bit later. And coming to you here live with Q3 being the strongest commercial quarter in the company's history. We're seeing momentum build across the business, across verticals.

And we'll talk about our expansion into markets that weren't there even as recently as a year ago. I want to start a little bit with some important matters, and that's the numbers. While we're still early in the journey, our Q3 revenue shows 10x growth from the same quarter last year and more than 2x in the prior quarter. And most importantly, our fifth consecutive quarter of revenue growth. Our pipeline is at record level. If you take a look at the presentation, you'll see that we have more than 200 active technical engagements with potential customers. Each one of these feeds into this paid proof of concept, I'm going to refer to it as the POC stage.

And we now are up to 32 customers that have integrated our product and running these revenue-generating POCs, and that number is up 28% from last quarter. This means that those customers are integrating our sensors or have integrated them. And as we'll talk about, a number of those customers are reaching a decision point to open up a larger commercial revenue opportunity. Lunar Outpost recently converted. We announced that not too long ago. And that's also in a stage where it's generating significant commercial revenue for us.

The other piece that's really important to call out is that most of these POC projects now that launched in the second half of last year are coming close to a decision point. We're typically seeing 12 to 18 months of that integration and test activity. So given the number that started in the second half of last year, we're coming up on the one yard line for a number of those customers. So what that amounts to is that we believe we're going to see some other conversions that are happening in the near term, in the next 6 to 9 months.

And last but not least, we booked our first STRATOS product revenue this quarter through our collaboration with Swiftstrike AI. And the exciting thing about this for us is that this shipment or first revenue shipment for STRATOS is only 9 months. After we announced the product at CES. It's really a testament, we believe, to the effectiveness and the speed of our software-based integration approach and moving quickly. And so it goes without saying the theme you're going to hear in this call is our deep focus on that revenue ramp.

And with the 32 paid customers now, we've got some pretty clear signals about which markets are moving and which of those customers are likely to be converting in the near term. So we'll expect to keep converting that pipeline into sustained commercial activity, and that leads to our expectation that we see significant revenue growth in 2027. So to convert that pipeline, we're strengthening how we go to market. In August, we announced that Laura Wrisley joined the company as our Chief Revenue Officer. I'm just sitting here right now, I believe -- we believe she's really top talent in this space and historically setting the bar for building what we know today as a business around lidar.

So we're realigning company resources around Laura, and that's one focus. That's to turn this very generous pipeline we have into commercial programs and also deepening our relationships with our customers. Laura and I just finished touring U.S. and Europe and visited several OEMs. While sitting down and meeting with customers face-to-face makes such a difference. It's really pushed a number of these POCs forward into commercial negotiation. And just can't do that over Zoom. No substitute for sitting down and talking with those decision-makers. And we expect this realignment we're talking about in the company, we'll start seeing this pay off next quarter, and we believe it will continue to build from there.

So as you'll see later in the deck, we have 3 strategic priorities we're going to talk about. Revenue, converting that pipeline into commercial deployments is job one for us. On the demand side, we're seeing a set of demand that's far more diversified than it was a year ago. So beyond automotive and trucking, we're now serving the aerospace industry, including space mobility. Defense is a big one, smart infrastructure, including our sports analytics market. And look, it's this level of breadth in the short amount of time period is not an accident.

This is really thanks to the underpinnings of our software-defined lidar architecture that enables us to meet the needs across the physical AI market without starting over, having to tweak hardware without creating hardware SKUs for every new market that we entered. And by the way, this opens up our ability to operate very, very efficiently and from a capital perspective, increasingly less capital required to expand from market to market. And this is also helping us. We've got real customer feedback integrated into their solutions. And we're improving the product, reducing friction.

And basically, what we're seeing is this whole software-defined approach is making for rapid integration cycles on the customer side, and this is strengthening our belief that several of these POCs are nearing commercial maturity. So why are customers choosing us? We see 3 points on this repeatedly. One, the performance of our sensors; two, the durability. We really have a special piece of IP that enables this. We'll talk about that in a bit. And then third, this ease of integration or low friction integration, thanks to our architecture. And this is our -- what we believe to be our unique market.

And let me tell you how that played out with 2 new markets that we entered this quarter. The first is sports analytics. We spoke about or announced the Alive3D, selecting Apollo for their next-generation sports analytics program. And I'm happy to say today that a second company has now entered this POC phase with us and selected Apollo in the same sports analytics space. So 2 different sports we're talking about here, but the same platform. They're using it for spatial visualization and 3D refereeing and also advanced analysis of athletic performance. Again, same platform reconfigured via software.

And this is starting to build into what we see or expect to be a real category and a real market for us. Second is Lunar Outpost in space mobility. If you read the announcement that we've had today and also recently that we're now under a binding multimillion-dollar agreement with them. And Lunar Outpost has selected our Apollo sensor for its Pegasus Lunar Terrain Vehicle, and this is part of NASA's Artemis program. And we're recognizing revenue now starting this quarter. The reason why it's worth spending a little bit more time here is that this is so much more than just talking about shipping sensors to a customer.

It's a clear validation point for every one of the markets we're playing in. If Apollo, our sensor, has the confidence to perform on the moon, the harshest environment in our solar system, this is exuding confidence for the necessary level of performance certainly for highway-use trucking, mines, combat, other harsh environments. And not only that, we're seeing that it's filling an unmet need in the space mobility market. And what we see today is what we call one-dimensional lidar in that market today, think about a laser pointer, it's measuring range, how close the spaceship is to hitting a space station, for example, this kind of lidar doesn't measure up to today's autonomy, let alone what's needed for tomorrow.

And so that's directly driving follow-on inbound interest. We're seeing quite a sharp increase in that inbound interest in this market. So we're quite busy. And again, the fundamental point here is that we're serving Lunar Outpost with fundamentally the same Apollo platform without having to create a vastly different product portfolio. And so again, this is broadening our addressable market space with increasingly less capital required. And so this translates to our belief that the wins that we're seeing today are indicative of what's, again, coming out of that pipeline and ready for conversion soon. We have to talk about defense.

This has been and remains our most active vertical and the engagements in the defense space for us, POC and other technical engagements continue to grow quarter-on-quarter. It's our fastest-growing segment. And what we're seeing is that Apollo and STRATOS are so well suited to this market, high performance, high resolution. Our lead defense customer, this is a major player based in the U.S. and plays internationally as well, has now placed its fifth consecutive order for our sensors. I mean this is a clear pattern of repeat purchasing. And it really tells us that we're delivering something a very unique value here for that customer and expect that to turn into a larger long-term commercial relationship.

Also, our partnership with SynTech and other defense distributors continue to extend our international reach for both Apollo and STRATOS. And the STRATOS revenue I mentioned earlier comes from our engagement with Swifstrike AI, and this is for counter-UAS system, where we're helping to enable more reliable detection of small drone threats. And we're seeing that as one of the most urgent problems in the defense market today. So again, another set of markers here that point to more conversions happening in this space. So I'm going to sum it up, okay?

The pattern here, again, in our customer engagements and moving things forward is that our customers can quickly and easily tune our sensing performance range, resolution, field of view very quickly. They do it all in software. And we're seeing this translate to being engineered into customer programs faster and more easily than we believe our competitors can. What's more that our customers can adapt -- further adapt the behavior of the sensor as the requirements evolve. And the sensor fits the customer's use case, not the other way around.

Put simply, we're winning because we're solving problems that others can't, be it incredible range and power line detection that enables higher speed flight missions for manned and unmanned vehicles or high frame rates. We're running 60 hertz in sports analytics. We haven't seen anybody be able to do that in the industry. It's also allowing us to command a premium on our product, tiny objects on airport tarmac that can be threats and earlier detection of small drone threats. It's really generating scale for us. And on a foundation of software flexibility and detection range is a good example of how we continue to extend that performance lead.

We've seen customer-proven Apollo detecting objects up to 1 kilometer and STRATOS will extend that range to 1.5 kilometers. And beyond the range, we're bringing a very rugged design, thanks to that scanner IP in a very compact form factor. Over to our strategic priorities, tie it all up, job one, convert the pipeline into commercial deployments. I said a few times already, our 32 already revenue-generating customers in POCs to successful conclusion and bringing more of those 200-plus active engagements into the POC pipeline, scaling our operations. It's a key activity for us, especially this quarter to keep pace with that commercial ramp. We're going to do it with the utmost capital discipline.

Our manufacturing partner has been outstanding here. And I'm happy to say that we're targeting roughly 15%, 1-5, lower cash consumption in 2027. And we have the cash in the bank to fund these multiyear programs, $63.1 million provides us ample runway to do that. And then third, extending our performance lead. We'll build on STRATOS. We are seeing an uptick, and you can see some of that in the deck on full stack sensing, compute and perception OPTIS deployments, our integration with NVIDIA DRIVE AGX Thor. And one last thing on this point before I hand it off.

We have something new in development that we plan to unveil at CES in January, and we think it will show the market what lidar is truly capable of. We look forward to sharing more coming up in January. And in the meantime, Conor will take you through the numbers, including our first quarterly revenue guidance that we're now in a position to provide. With that, I'll turn it over to Conor to walk through the financials. Go ahead, Conor.

Conor Tierney: Thank you, and good afternoon. The financial significance of our commercial progress is becoming clear. We are generating revenue from more customers seeing repeat and growing business and adding commercial revenue from programs such as Lunar Outpost alongside sensor shipments. Those developments matter because they give us multiple ways to participate as customer programs move from initial evaluation toward deployment. At the center of that model is an architectural advantage with direct financial implications, now validated by our first STRATOS revenue. The same software-defined platform that lets us tune Apollo and STRATOS to customer-specific requirements is what lets us enter new markets and solve new customer problems.

From defense to lunar infrastructure to sports analytics without rebuilding our stack each time. And STRATOS extends performance into new tiers without a proportional increase in development costs. That means entering a new vertical does not require a separate hardware development program, our new manufacturing infrastructure. We can apply the platform and partner relationships we've already established to a broader set of customer requirements. For AEye, that is the connection between technical differentiation and business design to scale, expanding the revenue opportunity without adding a corresponding layer of development expenses for every application. Lunar Outpost makes that connection tangible.

Apollo's selection for the Pegasus Lunar Terrain Vehicle brought us into a new market through a binding multimillion-dollar agreement that began contributing revenue in the third quarter. Alongside Alive3D and our second customer in the sports analytics market and our growing defense business, it demonstrates that the commercial opportunity extends across customers with very different operating requirements. What they share is a need for capabilities our software-defined platform is built to address because it can be iterated upon quickly enough to meet their dynamic needs. On prior calls, we described our commercialization in 3 phases. Phase 1 was laying the foundation, engineering programs, technical evaluations and proof-of-concept deployments.

Phase 2 is where those evaluations convert into commercial contracts, and we build the operational backbone to serve them. With multiple commercial agreements now signed and the manufacturing and supply chain work underway to support them, we believe we are moving out of Phase 1 and into Phase 2. Revenue scale and positive gross margins come later within that phase rather than at a start. But the conversion that defines the transition is happening now, and we expect that momentum to continue through the remainder of the year. The timing within that progression is important.

We expect commercial revenue from Lunar Outpost to continue ramping while the broader business continues to develop through product orders, customer-funded engineering and additional commercial conversions. This is an early Phase 2 revenue profile. Programs beginning to contribute and expand with the benefits of greater production and scale developing over time. For the third quarter, revenue totaled $506,000, up 2.5x from the second quarter and approximately 10x from the third quarter of 2025. This was our fifth consecutive quarter of sequential revenue growth. Through the first 9 months of 2026, revenue reached $809,000 versus $136,000 in the comparable period last year, roughly 3.5x all of 2025 revenue.

Third quarter gross margin improved by 45 percentage points, reflecting higher-margin revenues, lower product costs as our bill of materials comes down and lower warranty reserves, reflecting lower Apollo return rates. We are not yet at the scale required for positive gross margin, but this quarter illustrates how both revenue mix and operating execution affect the path toward that objective. GAAP operating expenses were $11.1 million, up from $10.6 million in the second quarter, driven by higher stock-based compensation expenses. Non-GAAP operating expenses fell to $7.7 million from $8.2 million, reflecting lower R&D spending and professional fees and personnel costs that moved into cost of sales to support Lunar Outpost delivery.

Our third quarter GAAP net loss was $11.2 million or $0.24 per share versus $10 million or $0.22 per share in the second quarter, primarily due to higher stock-based compensation, partially offset by lower research and development costs and professional fees in the third quarter. Non-GAAP net loss improved sequentially to $7.2 million or $0.15 per share from $7.6 million or $0.17 per share, primarily due to the items noted earlier. As we said last quarter, second half cash consumption is running higher as we start to ramp up the manufacturing build.

Third quarter cash consumption net of financing costs was $8.3 million, up from $7.5 million in the second quarter, primarily reflecting inventory component purchases for production in the fourth quarter and into 2027. Inventory increased approximately $1.4 million from the end of the second quarter. At the end of the third quarter, receivables rose to $969,000 and contract liabilities increased to $426,000, both mainly from Lunar Outpost milestone billings. The contract liabilities represents amounts billed ahead of revenue recognition. At September 30, cash, cash equivalents and marketable securities totaled approximately $63.1 million compared with $71.5 million at June 30. Turning to our outlook.

With Lunar Outpost now contributing revenue and repeat orders from existing customers continuing to grow, we have the visibility to begin providing revenue guidance. We expect fourth quarter revenue of approximately $1 million, roughly double the third quarter and our first $1 million quarter, driven mainly by Apollo commercial programs. We expect this to become our new quarterly baseline with revenue building from that level in 2027. We expect full year 2026 cash consumption of $35 million, including approximately $5 million of working capital to support the commercial ramp.

For 2027, we are targeting an approximately 15% reduction in cash consumption while supporting the revenue ramp, helped by our capital-efficient model with lidar providing manufacturing scale we don't have to build ourselves. Our balance sheet remains virtually debt-free and our current operating plan supports runway into 2028. Looking toward 2027, we are planning for a significant revenue build from product shipments and commercial programs. Our focus is on converting evaluations into commercial business, expanding existing relationships and delivering against signed programs while keeping the expense base disciplined. This quarter's results are another step in that progression. I'll hand the call over to Matt for closing remarks.

Matthew Fisch: All right, Conor, thank you very much. And before we open it up for Q&A, just want to summarize a few key points here. Strongest quarter for us, commercial quarter in the company's history, revenue up approximately 10x year-on-year and that we expect Q4 to be our first $1 million revenue quarter, and that to be setting a new baseline as we head into 2027. And with 32 customers in paid POCs and more than 200 active engagements feeding that funnel, we're definitely in the decision window for many of those customers, and our focus will be on converting that POC pipeline into revenue. And we're doing it with discipline on the capital side from a strong balance sheet.

I want to thank the AEye team for their execution. This quarter, you guys nailed it. Our customers have been great. Our partners have been great, and thank you to our shareholders for your continued support. We look forward to sharing more at CES in January. Hope to see some of you there. And with that, operator, please open up the line for questions.

Operator: [Operator Instructions] Your first question comes from the line of Richard Shannon from Craig-Hallum.

Richard Shannon: Congratulations on a nice quarter and getting to your first guide [indiscernible] quarter. That's great to see. I think my first question is on Lunar Outpost since you've highlighted this pretty readily in your written and prepared remarks here today. So I'd love to get a sense of how you see them kind of the amount of contribution you see them in the fourth quarter and going forward here into next year. I would assume that gives you a lot of visibility into your other comments you made for next year as well. But maybe let's start with kind of the contributions there, and we'll go from there.

Conor Tierney: Richard, it's Conor here. I can tackle that question. So just referring back to our scripts, the expectation is, obviously, next quarter is going to be our first $1 million quarter, and we think Lunar Outpost is going to be a significant contributing factor to that, but it's not going to be the only factor. We'll also have repeat orders from some of our customers as well, and we'll continue -- we're expecting to continue to bring on board new customers as well. So it will be a mix of all 3 of those things. And then obviously, 2027 is looking good as well.

I think $1 million will certainly be a baseline going forward, but we're expecting to grow on that. So there is certainly an expectation there will be some significant upside in 2027 as well.

Richard Shannon: Okay. Appreciate that perspective. And maybe, Matt, I'll follow up with another more financial-oriented question for getting some other ones here maybe more from Matt. But you brought up gross margins here and love to get a sense from you, how to think about both timing and/or revenue scale-wise, when do we see that breakeven gross margin number? You described as being kind of late in Phase 2 and you said you're kind of early now. So you can help us understand when you hit that 0% or breakeven gross margin.

Conor Tierney: Yes. Look, we're really excited about the improvement in margin for this quarter, 45 percentage points. And the margins have been improving steadily quarter-over-quarter. So that's something that we're looking at. And part of the driver for that is, number one, the revenue mix, right? So different types of revenue streams that are coming into the funnel, especially here with Lunar Outpost that's having a favorable impact. And then what I would say is we're starting to see repeat business as well. And certainly, some of the verticals that we're operating in have high ASPs, which helps to contribute to that as well. The other thing that we spoke about is BOM costs.

And we managed to lock in some favorable BOM pricing early in the year, and now we're starting to see that show up in the margin. So my expectation is we're pretty close to getting to a positive margin. I would expect to see continual improvement here in the next few quarters. So we're on the right trajectory, and that definitely gives me a lot of comfort.

Richard Shannon: Okay. Fair enough then. Let me ask a question on pipeline, especially, I think both of you highlighted the importance of pipeline conversion, which is obviously very important for a company at the early stage of commercialization like you're at here. Matt, I think you made the comment here, you're kind of seeing a profile of kind of 12 to 18 months from initial contact to conversion of a POC to an order here. And I think you said you have over 200 engagements so far here. Maybe you can give us a sense of how many of those engagements are at that kind of 12 to 18 months level?

And would you fashion and guess here over the next, I don't know, say, 3, 6 months or something, how many of these can convert over to wins and to POs and backlog?

Matthew Fisch: Thanks, Richard. Appreciate the question. I want to focus a bit more on the 32 that have entered that POC stage because a couple of things typically happen when you sell a sensor or a number of sensors to customers. They may kick the tires, so to speak, and put it in a lab. And at that point, they're going to have to make a decision that they integrate it into the product and put it in the field, okay? So for example, you might imagine that sticking a sensor, a new set of sensors into an unmanned drone that flies at 300 miles an hour requires a great deal of engineering commitment.

So you have this, well, we'll kick the tires and make sure it's going to have the performance we need. And this 12- to 18-month period is really driven by that example that I said, it's different for different industries. But once a customer makes that engineering commitment to actually integrate the product and flight test it or stadium test it or whatever may be, it gets very sticky at that point. That's a pretty serious commitment and you're talking about many months of committing engineering resources at that point. So that's why I'm focusing on the 32 because that those customers, by and large, have reached that level of commitment.

And unless something goes terribly wrong, we're seeing that it carries through to that commercialization stage. 6 to 9 months, I'm going to say several conversions as part of this call here. And again, that's based on the level of commitment we've seen to integrate our solution to the end product and the amount of engineering resource that goes through on the customer side to make that happen.

Richard Shannon: Okay. That is helpful perspective. My last question, I'll jump out of line here is on the kind of the automotive end market here. I didn't hear much of an update here, but I think last quarter, you talked about some progress in some Level 3 and Level 4 programs here. I think you also mentioned briefly kind of the partnership with NVIDIA on their DRIVE. Maybe just kind of broadly speaking, I would love to get an update on kind of the progress there as well as what you see? Any change in urgency of advanced autonomy road maps across the Western world, how that's moving?

And does that give you any greater confidence in any of those in your pipeline eventually converting over to [ revenue ]?

Matthew Fisch: Yes. Well, look, our portfolio has diversified quite a bit. Let me start with that and Conor may jump in on the end here. But a big part of what Laura and I did in terms of traveling the globe over the summer was to visit automotive OEMs in particular. And point one, I'll say that lidar is still deemed as an essential component of, we'll call it, Level 3+ driving. All those OEMs we visit have expressed a level of commitment to lidar as an essential feature in autonomy, in time. And we're just going to run at their pace for right now. It's really difficult for me to speak for an OEM, obviously, in terms of schedule.

We're confident we're running at their pace. You may have seen some recent announcements from NVIDIA about commitments and alignments for partnerships from those OEMs. So I think we view ourselves as being ready to integrate along those fronts. And I think it's just really about keeping pace with that industry and keeping in tune with evolving technical requirements, which we do on a regular basis.

Operator: The next question comes from the line of Scott Buck from Titan Partners.

Scott Buck: I'm curious, you mentioned the lead defense customer. This is their fifth order. Are order sizes getting bigger? And are these still evaluation development units? Or is there a line of sight towards like a true production platform or reoccurring volume?

Conor Tierney: Scott, this is Conor. I can take that one. So what I would say is, yes, definitely, we're seeing volumes increasing with each quarter. So certainly, that's on an upward trajectory. And they're really following the time line that Matt laid out. We engaged with this customer over a year ago and pretty consistently, every consecutive quarter, they've ordered units. And what I would say is this is for this UAV vertical that we talked about, in particular, they're looking at very thin diameter power lines. And so they've been busy designing our sensor into their vehicle. And so there's been a lot of engagement with us and the customer, I would say, over the past 12 months.

So really kind of getting into the weeds on the engineering side. So I would say, if you look at the funnel, if you look at those 32 customers, this is certainly one of those customers that is right in that yard line that we're very close to converting. And so we expect to have some positive news about that, I would say, here for the next few quarters or so.

Scott Buck: Great. I appreciate that, Conor. And second one on Lunar Outpost. I may be behind here, but how is revenue recognized on this agreement? Is it milestones or percentage of completion? And then how exposed is it to timing to kind of underlying government programs?

Conor Tierney: Yes. Look, what I would say -- look, I'll answer the first part of the question. And the way the rev rec works is it's based on hours incurred, right? So as we do the work, we will record the revenue relating to that. Milestones work a little bit differently, right? So when we bill for the work, that's tied to milestones. So it may not correlate to what we're recognizing on our books at the same time. So there might be a little bit of disconnect between the rev rec and the cash piece. So I want to just make that clear.

What I would say in terms of timing, most of the revenue will be recognized over the next 12 months or so. And as I said, we're expecting next quarter to be our first $1 million quarter, and Lunar Outpost certainly will be a big contributing factor to that, but we will continue to recognize revenue for that agreement over the course of 2027. I'm not expecting any significant delays. We certainly have very, very stringent milestones with the agreement, checkpoints in place. So at this point, I don't anticipate any delays.

Operator: Your next question comes from the line of Casey Ryan from AmerX.

Casey Ryan: Matt, I can hear the excitement in your voice, Conor as well. This is a great sign of progress. I'm curious about what's changed over the last year, I guess, maybe and maybe it's just the accumulation of all the work you're putting in, but it feels like the market is suddenly discovering you. They're giving you airtime, you're winning opportunities. Do you have any overarching sense of why things are going so well and seem to be accelerating pretty substantially in terms of customer engagements and use cases and things like that?

Matthew Fisch: Great. Thank you. Good to hear your voice again. Yes, we're excited. Look, I think the first order impact is all those things we started cooking last year, and they're just starting to come to fruition. As I mentioned earlier, we have that effect where once the customer decides to integrate the sensors into their product, that's a big commitment. And we're seeing that they're charging ahead with that. So that is certainly the first order effect.

And the thing that we're seeing that maybe piles on top of that, and this is why you're seeing the 2 new markets that we talked about is just there's some problems out there that we're seeing in these markets that customers haven't been able to solve. And as we're solving those problems and word is getting out, this is driving further inbound for us as well. So it's -- our sensor really does have some unique IP in it that, for example, it scans in such a way that makes it very stealthy for defense applications. And I get us in the door in a lot of these conversations.

We -- because, again, of the characteristics of our unique scanning IP, we're able to see very thin power lines. Think about this as they're as wide as a golf ball, and incredible business. And what we're seeing is we're the only one who can solve those kind of problems. So we're solving problems that others can't, and that's just contributing to the positive snowball effect. But just keep in mind, many of these programs we're talking about today started a year ago, and we expect to see more of those popping out soon over the next 6 to 9 months, as we talked about during the prepared remarks.

Casey Ryan: Right. And trying to sort of lump these together into trends, I guess, from my side, it feels like precision is something I hear you saying or sort of scanning sort of ability versus other solutions even within the lidar space seems to be a winning factor. I feel like maybe more than just range, which is something that I think we all used to talk about 18, 24 months as being kind of the like decisive feature. But just tell me if I'm thinking about that, that like suddenly, maybe precision has sort of grown as sort of a winning piece of the formula, I guess.

Matthew Fisch: I think it's a fair assessment. I don't want to discount the range piece. This is incredibly important. Just imagine a drone that's flying at 300 miles an hour. It needs a range to make a decision, to maneuver, to avoid an obstacle. So both are incredibly important. But yes, I think it's a fair assumption, this precision piece and ability to adapt on the fly is really starting to pay off now.

Casey Ryan: Okay. Terrific. That's sort of helpful for me. And then just in terms of -- I think a year ago when you started to report engagements, you suggested some pace of them or sort of what the ultimate count would be. Do you feel like this momentum can continue sort of in that 6, 8, 10 per quarter kind of add-on and sort of continuation with these as we go forward? I mean, does that feel reasonable with what you're seeing as you look out?

Matthew Fisch: We're not seeing that in inbounds, if that's what you're asking.

Casey Ryan: Yes, I think so.

Matthew Fisch: Laura is incredibly busy, and we're working on getting her staffed up because right now, account management and servicing the inbounds that we have is a big limiter for us. So we're not seeing that off anytime soon. In fact, I think if I go back and recall correctly, we're in the 20% to 25% range of growth quarter-on-quarter, and it picked up this quarter. We don't see that slowing down.

Conor Tierney: Also, I would say one thing to that, but inbounds certainly tend to increase when announcements come out. So take, for instance, after we made that announcement, there was certainly an uptick in inbounds from other space mobility customers. So we see that happen from time to time periodically. As we get news out of the market, it does result in other inbound leads coming in the door.

Casey Ryan: Okay. Well, that's all very exciting and this is a terrific quarterly update. So congratulations on the great progress.

Matthew Fisch: Thanks, Casey.

Operator: Your next question comes from the line of Poe Fratt from Alliance Global Partners.

Charles Fratt: Can you talk about the relative value proposition between Apollo and STRATOS? And it seems like right now, your base of $1 million per quarter is all Apollo. It seems like looking at the fourth quarter. And then can you just sort of give me an idea of sort of how STRATOS might accelerate that or whether it's an equal contributor?

Matthew Fisch: Good to hear you again. Welcome back. I'll take the first part of this. And what we mean by this unique value prop, I referred to it in the prepared remarks as solving problems that others can't. I want to emphasize that at the core of our IP, let's just talk about Apollo, STRATOS is very similar, if not the same, is the way we scan. We believe we do it differently than others out there. We have a way -- this is what really makes us feel and look and operate like a different kind of lidar. And that makes us incredibly efficient and effective at solving certain categories of problems. right?

The power line detection ability, the range we're told by our customers is incredible. And this ability to refresh because our scan rate is so much higher than what you might expect, we're running scans at 60 frames per second in high resolution on the sports field. And this is just because of the way our scanner works. Technically, it's really allowed us to solve some problems in different markets we didn't expect. It happens to play really well in the defense industry.

And I think that's another part of the reason why we have so much interest and so many in our POC pipeline, but also think based on the earlier question from Casey, range is still incredibly important as well in this unique way we scan allows us to have some incredible range. And look, we've -- personally, I've been in the commercial -- in the room for commercial discussions. We've seen 1 or 2 customers already making decisions in favor of other lidar solutions because we're performing at a level that others can't. The 60Hertz frame rate refresh is a great example of that, but really commands a premium for us.

I think you had a question about product mix that Conor can answer or anything else I missed.

Conor Tierney: Yes. Poe, look, what I would say is it certainly just depends on the customer. And what I would say is Apollo is a very versatile product. And the fact that it's configurable, means you can tune it to any number of different use cases. So if you want to change the parameters, that's something that's very easy to do. I would say there's probably certain use cases where STRATOS certainly excels at. And we obviously started shipping units in Q3, we would see that trend continuing in Q4. So I do see it making up a significant portion of revenue moving forward, but a probable increase in volumes, too.

Charles Fratt: Great. And then maybe can you give me a flavor for Slide 5? And I know it's an illustrative picture. But is it -- does it illustrate where we are right now at $1 million a quarter in the fourth quarter? And then is the scale -- is there anything here to scale, Conor? Am I reading too much into this that really the second half of the year is not going to be a -- 2027 is not going to be $1 million a quarter. It could be potentially $5 million to $10 million a quarter. Is that too much [indiscernible] to literally?

Matthew Fisch: Yes. Let me just tell you what we're articulating on that slide, and then Conor, I think, can answer your specific question. Really, we just want to show -- Slide 5 is about showing how our leads turn into paid programs and the amount of time those programs take and how each one of those programs starts to stack and contribute revenue. You should just look at that as illustrative for how the process works, okay? Now Conor can answer your question, I think, specifically about the ramp and what we think that might look like.

Conor Tierney: Yes. Look, what I would say, Poe, is we've held off on giving revenue guidance up to now just because there was certainly some uncertainty on timing. And what we're seeing now is with Lunar Outpost, with some of this repeat business -- and certainly, with new customers that are coming in the door, we just now have line of sight on the potential magnitude of that revenue. And that's why we're comfortable with giving revenue for Q4 and kind of anchoring on $1 million a quarter as that ongoing run rate. But what I would say is you're correct, there is room for potential significant upside in 2027, and that's something that we're certainly targeting.

Charles Fratt: Yes. Hard to predict when it kicks in, but it appears likely, right? And then...

Conor Tierney: I would say if you look at it, there's 32 customers. We've already converted several of those customers. We expect more conversions to happen here over the next few quarters. But it's basically a flywheel effect, right? As those customers convert, you're going to get commercial agreements that's going to increase volumes. And the great thing about the customers that we're converting is a lot of the times, they're in verticals where you can command a very high ASP. So all of those things are very favorable tailwinds to -- for revenue next year.

Charles Fratt: And then just -- I know that somebody asked this earlier, but when you're in Phase 2 and you potentially hit neutral to positive gross margin at the end of -- or near the latter stage of Phase 2, can you get out of Phase 2 in -- out of Phase 2 without the OEMs, the auto OEMs? Or is that the real kicker to get into the scale of the business?

Matthew Fisch: Yes. Look, I think that's certainly possible. And the way I look at it is auto gives you the volumes, but the ASPs are smaller. And in nonautomotive, you may be looking at lower volumes but higher ASPs. And I certainly think there is a pathway through just automotive -- nonautomotive alone to get there. And then obviously, if we can convert some of those opportunities in automotive, that would certainly be an accelerating factor as well.

Charles Fratt: Great. That's helpful. And just to clarify, Conor, when you talk about your 15% lower cash burn in 2027, will there be any working capital component of that lower cash burn? Or is that -- I guess, what's the base? Is it 30% or 35% that I should look at the 15% reduction?

Conor Tierney: Yes. Look at it off of the 35, right? So do the math, you're probably closer to 30. Yes, there is an assumption working capital would be part of that. And we feel like that's the number that gets us to a good execution next year. And so look, there is a potential for some of these conversions to accelerate. And if that happens, I think that would be a good thing. And in that situation, maybe we may need working capital. But I think where we're standing today, we think that's a good number to certainly execute on the plan.

Operator: Your final question comes from the line of Kevin Cassidy from Rosenblatt Securities.

Kevin Cassidy: Yes. Thanks for letting me ask the question. This is first conference call I've been on. So a lot of interesting things. But it seems like the conversion of those 32 POCs is the job one, I guess, for you. How many different industries does that 32 represent?

Matthew Fisch: Right. Look, if you take a look at our presentation, by the way, nice to meet you, Kevin. Thanks for joining us. I would say it's strongly distributed across those verticals that we talk about on Slide 7, just looking at the presentations here. We're seeing a very diversified mix of those POCs. I think defense is a standout. That's definitely, I would say, the biggest bucket, but it's pretty well distributed. I'd say we have a diverse portfolio on that front.

Kevin Cassidy: And to get each one of these across the goal line, I think, as you maybe you called it the one yard line, are they still coming back to you asking for more technical questions? Or is it mostly in their camp, the customers' camp of learning to integrate it and getting their own programs up and running?

Matthew Fisch: Right. I would say it was more of the latter. Every once in a while, they want to change something a little bit and they need a little help from us on the software side. But the vast amount of work that's happening, and that's the 12 to 18 months that we spoke about is those customers getting ready to -- in some cases, they may provide the end product. In other cases, they're providing it to a different customer, which may be the case in defense, for example.

So I would say the vast, if you just look at this from an investment perspective, that's coming from the customer and either bringing their product to maturity or demonstrating in front of their customers, that's the lion's share of where that 12-ish months is coming from.

Kevin Cassidy: Okay. Great. And maybe just one more question about that. As they go through and once they say, okay, we're going to go to production, how much lead time do they give you to -- do you have to start building ahead of actually getting the award?

Matthew Fisch: Yes. This is obviously a case-by-case discussion. The one thing that I love about the vast majority of customers in that pipe of 32. We've got a ton of transparency going back and forth. And so we're very clear about what we need to know. Conor can probably comment a little bit, and there may be some small cases where we do a little bit of look ahead. But by and large, it's just a transparent conversation customer to customer, and we haven't found any disconnects, if you will, between expectations and when they're able to provide the forecast to us.

Operator: Have a great rest of your day. That concludes today's meeting.

Matthew Fisch: Thank you, everybody. See you at CES. Take care.

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