Cyngn Inc. Q1 FY2023 earnings call

• Cyngn is focused on bringing autonomy to industrial vehicles with a total addressable market over $200 billion. • The Enterprise Autonomy Suite (EAS) includes intelligent fleet management and analytics software, with 7 issued U.S. patents, 18 nonprovisional patent applications, and 20 pending PCT international applications. • Autonomy solution is available on new vehicles and as a retrofit on existing industrial fleets. • Signed a commercial contract with U.S. Continental for stock chaser deployment. • Hired key executives like Chris Wright (Head of Sales), Sean Stetson (Vice President of Engineering), and Felix Singh (Vice President of Engineering Services). • Released EAS 9.0 with new features for scalable deployment. • Focus on expanding to forklift autonomy (targeting 2024 commercial release) and mining industry solutions.

In the first quarter of 2023, Cyngn booked $873,000 in revenue, primarily from two nonrecurring engineering contracts. Total operating expenses were $6.1 million. The net loss for the quarter was $5.6 million or $0.17 per basic and diluted share. Cyngn ended the first quarter with unrestricted cash and short-term investments totaling approximately $17 million, working capital of $17.4 million, and stockholders’ equity of $19.4 million.

• Target to release commercial forklift autonomy solution in 2024. • Mining solution expected to follow forklift solution to market. • Strengthened management team to drive commercialization. • Anticipate securing additional sales channels and deployments in the second half of 2023. • Disclose additional successful milestones on paid development projects.

• Forward-looking statements are subject to risks and uncertainties from market conditions, competition, and other factors. • Risks associated with investing in Cyngn are detailed in the company’s SEC filings.

Q: Thank you very much and congratulations on a good quarter. My first question is about AI. And obviously, a lot has changed in the world of AI in the last year. I was wondering, does this present more problems or opportunities? And how might it impact product development?

A: Hi Theo, it’s Lior. We think about AI from two perspectives. One is as part of the product offering, how can we make our system more intelligent, how can it become more productive, and how can it take advantage of all the data that our vehicles are seeing when deployed. And the other side of it is how do we use AI-based tools for our own development, things like copilot, for co-development and other more recent systems. We think about AI as being a positive driver on both sides. I think that tools that are being developed help us build faster and offer faster turnaround solutions to the customer. And at the same time, the tools that allow us to develop the perception models or the decision-making or anything else in the system that helps us achieve the level of driving that only people could before also take advantage of development of tools and hardware, better GPUs, better infrastructure by other company. So, we see both these things as positive trends.

Q: And as you mentioned here on the call, as you seek additional and larger stock chaser deployments, how much of this is retrofit installing a DriveMod on an existing stock chaser versus brand-new stock chasers?

A: I think it’s a transition phase. If you look at the lifespan of these vehicles, stock chasers would usually be in service 4 years to 7 years. Companies that invested in some of our OEM partners, customers have hundreds of these vehicles. They invested in those fleets. It would be a shame for them to just throw them away and buy a complete new vehicle for automation. So, there is a big opportunity for retrofitting vehicles. And over the next several years, as new vehicle purchases come through, they are going to come off the line with our systems. So, there is a transition phase. From our perspective, we are agnostic. The third-party manufacturer that does the integration of the DriveMod Kit for our vehicles, it’s the same effort for them whether it’s an existing vehicle or a new one.

Q: The last update on the EAS system, you talked about higher functionality, lower component complexity and also reducing computing costs and you actually gave some metrics associated with those improvements. Do you have any metrics associated with the latest update on EAS?

A: Not off the top of my head. We can follow-up on that and share whatever is readily available for that. I think the release of the 9.0 was focused on other types of features, more that are customer facing, that facilitate scalable deployment and integration to customer operations and less about increasing efficiency. That was a bigger need, with the previous one, it wasn’t such a big need. This time, other things took the helm and we are at the front of the deployment. But like I said, we can follow-up with metrics if we have them.

Q: That would be great. And then you talked about significant new interest. And can you maybe give us an idea of sort of where you are seeing it? And anything that maybe if there – like is your ROI calculator and website generating leads, or just sort of what’s the nature of the significant new interest?

A: Yes. This is Ben Landen here. So, I think that the new interest is really a byproduct of our readiness to both go outbound and generate that new interest as well as accept new interest. So, we are not doing anything profoundly different in terms of our lead generation and creating interest. You mentioned the ROI calculator is one tool that we have. We have had presence at trade shows recently that have been successful. We have got both inbound and outbound campaigns with marketing that are essentially always on. So, I wouldn’t say that there has been a profound shift there. It’s that we really have pushed through into the next, let’s call it, phase of commercial readiness with the stock chaser. When we IPO-ed, we were very clear about, it was a product that was what we call the beta release at the time. We would only pursue select customers through 2022, which is exactly what we did. It was a short list of customers by design. And the reality of that is that those constraints are now effectively removed. So, we are going after a wider swath of customers. We are going after larger customers. We are leveraging the partnerships that we have with Columbia and otherwise in the industry. And so I think it’s really just seeing that, that commercial readiness come to fruition more than a shift in our behavior.

Q: And then when you look at your operating expenses for the quarter with $6.1 million, you back out stock comp and get to about $5.1 million. Is that a reasonable run rate for the rest of the year?

A: Hi. This is Don speaking. Yes, I think actually, the current trajectory of our cash burn, essentially, what you are alluding to here, is will be fairly consistent through the remainder of the year. We did make a few key hires in the first quarter throughout the quarter, so not necessarily a full impact of those hires in all of Q1. So, there is potentially a bit of an uptick just for full quarter effect of some of these investments that we have made. But for the most part, I think we are directionally where we have been with respect to run rate.

Q: The first one我 just have is related to commercialization. So, I think你 had mentioned that 2024 is kind of the timeline that you are looking for forklift commercialization and then potentially having the mining commercialization happening after that. Would the expectation be based off of what you are seeing in the forklift space? Maybe that’s looking at 2025 or beyond for the mining and commercialization, just maybe just some context behind some of the prioritization that you are thinking on that.

A: Hi. This is Lior. The stock chasers, the material moving vehicles, stock chasers and their variants like tow tractors and tuggers, that family that moves things on the vehicle and tows them on carts work usually in a workflow and warehouse environment, logistics manufacturing in tandem with forklift. So, when you think about a lot of these customers, whether we start with one of these stock chasers, tuggers and then they add a forklift or happen the other way around, it’s a penetration and an expansion inside that account to expand our offering to the customer the value to them and then the efficiency of these vehicles working together. So, you can think about the stock chasers, the first product in a material handling inside warehouse, larger offering. In the mining, it’s a slightly different situation where the scope of the project is upgrading software of an existing automation solution. So, it’s more streamlined because there is already a company that manufactures these solutions and is looking to operate them. So, the go-to-market is different. It’s more skeletal because it is software only, and it’s directly through the vehicle partner that will take it to the market. So, at the moment, we think about these as two separate trends. And based on the information we have now, both the mining and the forklift are designed to be productized in 2024.

Q: And then just going back to that question on the cash burn from before, I know last quarter, we had talked about this cash burn rate. It looks like it was a little bit higher from previous quarter from those hires. And then I am just looking at this now, it looks like there is some proceeds from the maturity of some of the short-term investments and then a reinvestment of those. Is the shelf offering, is that being factored in with the cash burn, the shelf registration, can we look at that and say, hey, that might bridge the gap with some of the cash burn later on towards the latter half of 2023, or is the expectation that potentially that could be sooner?

A: We honestly don’t have any sort of expectations with respect to when we are going to raise additional capital. The filing of the S-3 was very much a housekeeping exercise just to make sure that we have the vehicle in place such that if there is movement in the market, we can very efficiently take advantage of that movement. It’s not factored into our cash burn, but it is clearly a vehicle that is in place or will be in place shortly here. That will afford us the opportunity to go to the market very effectively, very efficiently in response to, hopefully, what will be positive market trends.

Q: Would you say overall over the last few years, the pace has been in line with what你 have expected, maybe trailing behind or maybe accelerated? I wonder if you could just give us your perspective on that.

A: Sure. Hi, Rommel. Good to hear from you. If you really, really track the recent milestone and announcement, we particularly just hired the sales team a couple of months ago, right. So, I am very happy with the progress. The team is ramping up. They are starting to build the distribution channels, the sales channels, the funnel, the material, working with the marketing team. We are seeing both inbound and we are selectively going outbound for key accounts with our OEM partners. So, I am happy with the progress, but of course, there is always more we can do. We are always trying to get faster to revenues and to broader deployment. So hopefully, we will have more news to share in the coming months. But to your question, yes, I am satisfied with the pace and focus.