TUSIMPLE HOLDINGS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the accompanying notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled "Special Note Regarding Forward-Looking Statements" for a discussion of forward-looking statements and the section titled "Risk Factors" for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
When used in this report, the terms "TuSimple", "Company", "we", "us", and "our"
mean
We are an autonomous technology company that is revolutionizing the estimated$4 trillion global truck freight market. We have developed industry-leading autonomous technology specifically designed for semi-trucks, which has enabled us to build the world's first Autonomous Freight Network ("AFN") in partnership with world-class shippers, carriers, railroads, freight brokers, fleet asset owners, and truck hardware partners. We believe that our technology and our AFN will make long haul trucking significantly safer as well as more reliable, efficient, and environmentally friendly, creating significant benefits for all who rely on the freight ecosystem to deliver essential goods.
Our AFN provides autonomous freight capacity as a service through multiple service models based on users' needs. We believe that allowing our users the flexibility to select different service models is critical to providing a superior customer experience and will help drive rapid adoption of our network.
•Carrier-Owned Capacity. Shippers, carriers, and railroads that prefer to own
their fleet will be able to purchase our purpose-built L4 autonomous semi-truck
from a semi-truck original equipment manufacturer ("OEM") partner and subscribe
to TuSimple Path-a comprehensive turnkey product to enable autonomous operations
across our network. TuSimple Path includes features such as our on-board
autonomous driving software, TuSimple Connect cloud-based autonomous operations
oversight system, HD digital route mapping support, and emergency roadside
assistance. Users will pay TuSimple a per mile, usage-based fee for access to
TuSimple Path and benefit from lower overall freight costs with an expected
payback period of less than one year on their upfront incremental capital
investment to purchase our purpose-built L4 autonomous semi-trucks.
•TuSimple Capacity. Our fleet of purpose-built L4 autonomous semi-trucks,
financed through third party fleet asset owners, will serve users that desire
access to safe, reliable, low cost, and more environmentally friendly freight
transportation without owning semi-truck assets. Users of TuSimple Capacity can
range from relatively smaller users of freight logistics to large shippers,
carriers, and railroads seeking to supplement their own captive fleet for
incremental freight capacity. We will charge users of TuSimple Capacity a per
mile rate to ship freight, which we expect will be at a meaningful discount to
prevailing market freight rates. We believe that our competitive advantage in
terms of pricing will be enabled by our anticipated cost structure, which is
expected to be significantly lower than that of human-operated semi-trucks.
Users are expected to benefit directly from lower shipping costs compared to
conventional truck freight.
We are also working in partnership with a leading semi-truck Original Equipment
Manufacturer ("OEM"), TRATON Group ("TRATON"), specifically with its Navistar
and Scania semi-truck brands, as well as components partners to build a
purpose-built L4 autonomous semi-truck to be operated exclusively on our
network. We believe that this collaborative approach to create semi-trucks
designed and built with integrated auto-grade components and sensors will
increase our AFN's reliability at scale. Vertically integrating through
partnerships with OEMs and Tier 1 suppliers allows us to maintain strong supply
chain and hardware design control while remaining capital light and primarily
focusing on developing proprietary autonomous technology.
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We have developed a robust ecosystem of shippers, carriers, railroads, freight
brokers, fleet asset owners, and third-party service providers, including UPS ,
McLane, U.S. Xpress, Werner, Schneider, Ryder, DHL, Union Pacific, and CN, that
provide critical validation and enhance the network effect benefits of our
approach. We believe that our partnership network creates a significant and
sustainable competitive advantage, especially as we work with shippers,
carriers, and railroads to strategically locate our AFN terminals near their
distribution centers. The continued growth of our AFN infrastructure and
partnerships will continue to improve our user experience and drive more users
to our platform which will allow us to further densify our strategic terminal
network and reinforce rapid network growth. We currently expect to initially
commercialize in the "Texas triangle", a major freight area running between
Dallas , San Antonio , and Houston , under our TuSimple Capacity, by the end of
2023.
Coronavirus ("COVID-19") Impact
The extensive impact of the pandemic caused by COVID-19 and the measures taken in response thereto has resulted and will likely continue to result in significant disruption to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other jurisdictions have imposed, and may impose in the future, various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations, extended closures of businesses and vaccine requirements.
The COVID-19 pandemic and measures to prevent its spread have had the following impact on our business:
•Our Workforce. Employee health and safety is our priority. In response to COVID-19, we established new protocols to help protect the health and safety of our workforce. We will continue to stay up-to-date and follow county and CDC guidelines regarding requirements for a healthy work environment. •Operations and Supply Chain. As a result of COVID-19, we experienced some delays in our supply chains which temporarily limited our ability to outfit semi-trucks with key components during the initial stages of the pandemic; however, we have not experienced material disruptions in our shipping activity or in our ability to continue developing our AFN to date. In the future, we may experience supply chain disruptions from third party suppliers and any such supply chain disruptions could cause delays in our development timelines. We will continue to monitor the situation for any potential adverse impacts and execute appropriate countermeasures, as necessary. While we have not experienced significant disruptions to our business due to the COVID-19 pandemic to date, the broader and long-term implications of the COVID-19 pandemic, and the measures taken in response thereto, on our workforce, operations and supply chain, user demand, results of operations, and overall financial performance remain uncertain.
See Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q for further discussion of the possible impact of COVID-19 on our business.
Operational Highlights
As of March 31, % Change
2021 2022
Research and Development (R&D) Full Time Employees
("FTEs") ~820 ~1,100 34 %
Global FTEs ~980 ~1,400 43 %
Patents Issued 280 408 46 %
Cumulative Road Miles (in thousands)(1) ~3,700 ~7,200 95 %
Total Truck Reservations (EOQ)(2) ~5,775 ~7,475 29 %
Total Mapped Miles (EOQ)(3) ~5,000 ~11,200 124 %
Revenue Miles (in thousands)(4)(5) ~603 ~1,014 68 %
(1) The total miles our autonomous trucks have run on open public roads. We use this metric to track progress on the development of our L4 autonomous semi-trucks.
(2) The total reservations for our purpose-built L4 semi-trucks. We use this metric to track our customer relationships and demand for our purpose-built L4 autonomous semi-trucks that are in development. (3) The cumulative unique miles on the AFN which we have built a map compatible with our autonomous driving software. We use this metric to track progress on the development of our AFN.
(4) The total miles our autonomous trucks have run during the periods presented that generates revenues. We use this metric to track our revenue growth.
(5) Revenue Miles presented above are non-cumulative and represent activity for
the three months ended
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--------------------------------------------------------------------------------Highlights for Q1 2022
Cumulative Road Miles driven and Total Mapped Miles increased 95% and 124%,
respectively, to approximately 7.2 million and approximately 11,200,
respectively, as of
We experienced strong growth in our TuSimple Capacity operations, achieving approximately 1.0 million Revenue Miles, an increase of 68%, as we expanded our operations and continued to grow our customer base.
Demand for our planned purpose-built L4 autonomous semi-trucks continued to grow as our Carrier-Owned Capacity reservations increased 29%, totaling approximately 7,475 as ofMarch 31, 2022 .
Our Patents Issued increased 46% as we continued to add world-class talent to our R&D team.
We ended the quarter with
Components of Results of Operations
Revenue
To date, all of our revenue recognized has been from freight capacity services provided through the TuSimple Capacity service model on our AFN. Revenue is recognized over time as the goods are transported from one location to another based on the number of miles traveled. Shipments are completed within a short period of time, typically spanning one to two days. As we continue to grow and improve our technology, we expect a new revenue stream through our Carrier-Owned Capacity service model. We expect to derive revenue from per-mile fees charged to users of Carrier-Owned Capacity on our AFN. Recognition of this future revenue will be subject to the terms of any arrangements with our partners or users, which have not yet been negotiated. To date, we have not recorded any revenue under the Carrier-Owned Capacity service model.
Cost of Revenue
Our cost of revenue consists primarily of fuel costs, depreciation of property and equipment (including semi-trucks acquired under finance leases), labor costs, and other costs directly attributable to the provision of freight capacity services. Currently, we operate a large portion of our semi-trucks with two occupants, a safety engineer and a safety driver. We expect to gradually lower the average number of occupants in our semi-trucks as we continue to improve our autonomous technology and to the extent we ultimately remove all occupants upon achievement of full driver-out, L4 autonomous operations.
Research and Development ("R&D")
R&D costs consist primarily of personnel-related expenses, including stock-based compensation costs, associated with software developers and engineering personnel and consultants responsible for the design, development, and testing of our autonomous truck driving solutions, depreciation of equipment used in research and development, and allocated overhead costs. R&D costs are expensed as incurred and we expect them to increase in absolute dollars as we increase our investment in scaling our AFN through our proprietary technologies and as we continue to expand our technical workforce, which would impact our personnel-related and stock-based compensation costs.
Selling, General and Administrative ("SG&A")
SG&A costs consist primarily of personnel-related expenses, including stock-based compensation costs, associated with our sales, marketing, management and administration activities, professional service fees, advertising expenses, sponsorship, public relations and other related marketing activities, and other general corporate expenses. We expect that our SG&A expenses will increase in absolute dollars from period to period as we further scale our AFN, educate market participants on the benefits of autonomous trucking and our autonomous trucking solutions, increase our marketing activities, grow our operations, build brand awareness, and continue to incur costs related to operating as a public company. We also expect to increase the size of our SG&A function, which would impact our personnel-related and stock-based compensation costs, to support the growth of our business.
Change in Fair Value of Warrants Liability
The change in the fair value of warrants liability consists of the net changes in the fair value of our outstanding warrants to purchase redeemable convertible preferred stock that are remeasured at the end of each reporting period and upon their exercise. All outstanding warrants were exercised or expired during the three months endedMarch 31, 2021 , and we recorded one final remeasurement at fair value as of the exercise date.
Other Income, Net
Other income, net consists primarily of interest income earned on our cash and cash equivalents, interest expense, and foreign currency exchange gains (losses).
20
--------------------------------------------------------------------------------Provision for Income Taxes
Provision for income taxes consists primarily ofU.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. Since inception, we have incurred operating losses. We have a full valuation allowance for net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income.
Results of Operations
The following table sets forth our condensed consolidated results of operations data for the periods presented (in thousands):
Three Months Ended March 31,
2021 2022
Revenue $ 944 $ 2,264
Cost of revenue 2,246 4,089
Gross loss (1,302) (1,825)
Operating expenses:
Research and development (1) 41,434 78,158
Selling, general and administrative (1) 15,902 32,215
Total operating expenses 57,336 110,373
Loss from operations (58,638) (112,198)
Change in fair value of warrants liability (326,900) -
Other income, net 378 295
Loss before provision for income taxes (385,160) (111,903)
Provision for income taxes - -
Net loss (385,160) (111,903)
Accretion of redeemable convertible preferred stock (4,135) -
Net loss attributable to common stockholders $
(389,295)
(1) Includes stock-based compensation expense as follows (in thousands)
Three Months Ended March 31,
2021 2022
Research and development $ 1,669 $ 17,464
Selling, general and administrative 4,620 10,063
Total stock-based compensation expense$ 6,289 $
27,527
Comparison of the Three Months Ended
Revenue
Three Months Ended March 31,
(In thousands, except percentages) 2021 2022 % Change
Revenue $ 944 $ 2,264 140 %
Revenue increased by $1.3 million , or 140%, in the three months ended March 31,
2022 compared to the same period of the prior year, primarily due to growth in
our business from a higher number of revenue-generating trucks in TuSimple and
partners' fleets, increases in revenue miles and rate per mile rates, and
customer mix improvements. During the three months ended March 31, 2022 , we
expanded our revenue-miles by 68% compared to the same period in the prior year
as a result of expanded routes and commercial partnerships.
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--------------------------------------------------------------------------------Cost of Revenue
Three Months Ended March 31,
(In thousands, except percentages) 2021 2022 % Change
Cost of revenue $ 2,246 $ 4,089 82 %
Cost of revenue increased by $1.8 million , or 82%, in the three months ended
March 31, 2022 compared to the same period of the prior year , primarily due to
increased operating costs associated with the generation of revenue, including
fuel, truck fleet operating costs, maintenance and driver compensation. Gross
loss margin for the three months ended March 31, 2022 was 81%, an improvement
from the gross loss margin in the same period of the prior year of 138%. This
improvement in gross loss margin was primarily a result of increased
revenue-miles per truck, improved customer and truck channel mix, and improved
truck utilization and cost leverage.
Research and Development (R&D)
Three Months Ended March 31,
(In thousands, except percentages) 2021 2022 % Change
Research and development $ 41,434 $ 78,158 89 %
R&D expenses increased by $36.7 million , or 89%, in the three months ended March
31, 2022 compared to the same period of the prior year. The increase was
primarily attributable to an increase in personnel-related costs, mainly driven
by an increase in employee headcount in the ordinary course of business,
increased stock-based compensation expense, and severance costs from a company
restructuring event impacting the R&D teams. The remainder of the increase in
R&D expenses was primarily driven by increases in: depreciation, allocated
facility costs, and equipment, supplies, and materials from a higher number of
semi-trucks in our fleet. These increased costs were partially offset by a
decrease in expenses incurred under the Joint Development Agreement ("JDA") with
Navistar, as the spending cap was achieved in 2021 and no costs were incurred
under this JDA in 2022.
Selling, General and Administrative (SG&A)
Three Months Ended March 31 ,
(In thousands, except percentages) 2021 2022 % Change
Selling, general and administrative$ 15,902 $
32,215 103 %
SG&A expenses increased by$16.3 million , or 103%, in the three months endedMarch 31, 2022 compared to the same period of the prior year. The increase was primarily attributable to an increase in personnel-related costs, mainly driven by an increase in employee headcount and increased stock-based compensation expense. The remainder of the increase in SG&A expenses for the period was primarily driven by increases in: office and facility-related costs, higher insurance costs from the acquisition of director and officer insurance and the expansion of facilities and operations, sales and marketing expenses as we focus on expanding our business by attending trade shows and conferences, and legal, accounting and other professional services as we expand our business processes and operational capabilities in line with our status as a public reporting company.
Change in Fair Value of Warrants Liability
Three Months Ended March 31,
(In thousands, except percentages) 2021 2022 % Change
Change in fair value of warrants liability
- *
* Percentage not meaningful
Loss from the change in fair value of warrants liability of$326.9 million for the three months endedMarch 31, 2021 was driven by the remeasurement of redeemable convertible preferred stock warrants at fair value immediately prior to their exercise dates during the period. 22 --------------------------------------------------------------------------------
Other Income, Net
Three Months Ended March 31,
(In thousands, except percentages) 2021 2022 % Change
Other income, net $ 378 $ 295 (22) %
Other income, net decreased by $0.1 million , or 22%, in the three months ended
March 31, 2022 compared to the same period of the prior year, primarily due to
foreign exchange losses resulting from fluctuations in foreign exchange rates.
Key Metric and Non-GAAP Financial Measure
Three Months Ended March 31, % Change
(In thousands, except percentages) 2021 2022
Loss from operations $ (58,638) $ (112,198) 91 %
Adjusted EBITDA(1) $ (50,133) $ (80,235) 60 %
(1) Adjusted EBITDA is a non-GAAP financial measure. For more information regarding our use of this financial measure and a reconciliation of this financial measure to the most comparable GAAP measure, see "Reconciliation of Non-GAAP Financial Measure".
Adjusted EBITDA
Adjusted EBITDA is a performance measure that our management uses to assess our operating performance in our business. Since Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.
We calculate Adjusted EBITDA as loss from operations, adjusted to exclude:
•depreciation and amortization;
•stock-based compensation expense;
•non-recurring restructuring expenses;
•finance lease interest expense included within cost of sales.
For more information regarding the limitations of Adjusted EBITDA and a reconciliation of loss from operations to Adjusted EBITDA, see the section titled "Reconciliation of Non-GAAP Financial Measure."
Reconciliation of Non-GAAP Financial Measure
We use Adjusted EBITDA in conjunction with GAAP measures as part of our overall
assessment of our performance, including the preparation of our operating budget
and quarterly forecasts, to evaluate the effectiveness of our business
strategies, and to communicate with our board of directors concerning our
financial performance. Because non-GAAP financial measures are not standardized,
it may not be possible to compare this measure with other companies' non-GAAP
measures having the same or similar names. In addition, other companies may not
publish similar metrics. Furthermore, this measure has certain limitations in
that it does not include the impact of certain expenses that are reflected in
our consolidated statements of operations that are necessary to run our
business. Thus, our Adjusted EBITDA should be considered in addition to, not as
a substitute for, or in isolation from, measures prepared in accordance with
GAAP.
The following table provides a reconciliation of reported net loss from
operations determined in accordance with GAAP to non-GAAP adjusted EBITDA (in
thousands):
Three Months Ended March 31,
2021 2022
Loss from Operations $ (58,638) $ (112,198)
Stock-based compensation expense 6,289 27,527
Depreciation and amortization 2,110
2,735
Nonrecurring restructuring expenses - 1,568 Interest expense 106 132 Adjusted EBITDA$ (50,133) $ (80,235) 23
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Liquidity and Capital Resources
We have financed our operations primarily through the sale of capital stock, which has historically been sufficient to meet our working capital and capital expenditure requirements. As ofMarch 31, 2022 , our principal sources of liquidity were$1.2 billion of cash and cash equivalents, exclusive of restricted cash of$1.5 million . Cash and cash equivalents consist primarily of cash on deposit with banks, certificates of deposit, and money market funds. Based on our current operating plan, we believe that our existing cash and cash equivalents and anticipated cash generated from sales of our services, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including, but not limited to, the rate of our growth, our ability to attract and retain users and their willingness to pay for our services, and the timing and extent of spending to support our efforts to develop our L4 autonomous semi-trucks and AFN. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. As such, we may be required to seek additional equity and/or debt financing. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Three Months Ended March 31,
2021 2022
Net cash (used in) provided by:
Operating activities $ (46,733) $ (100,630)
Investing activities $ (1,197) $ (1,377)
Financing activities $ 243,970 $ 1,512
Operating Activities
Net cash used in operating activities was $46.7 million and $100.6 million for
the three months ended March 31, 2021 and 2022, respectively. The increase was
primarily due to an increase in net losses as we continue to operate, develop,
and expand our AFN and L4 autonomous semi-truck technology, grow our research
and development and general support personnel, and incur incremental expenses
associated with being a public company.
Investing Activities
Net cash used in investing activities was$1.2 million and$1.4 million for the three months endedMarch 31, 2021 and 2022, respectively, and the increase represents our continued investments in technological assets and equipment to expand our AFN.
Additionally, non-cash acquisitions of property and equipment included in
liabilities were
Financing Activities
Net cash provided by financing activities was$244.0 million , which was related primarily to proceeds from the exercise of warrants for redeemable convertible preferred stock of$183.0 million , proceeds from the issuance of redeemable convertible preferred stock of$61.6 million , and$1.5 million for the three months endedMarch 31, 2021 and 2022, respectively.
Material Cash Requirements
At
24
--------------------------------------------------------------------------------Critical Accounting Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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.
There have been no material changes to our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
discussed in the Annual Report on Form 10-K for the year ended
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We expect to lose EGC status and meet all applicable criteria to become a large
accelerated filer by
Recent Accounting Pronouncements
For information on recently issued accounting pronouncements, refer to Note 1. Description of Business and Summary of Significant Accounting Policies in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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