AUR - Aurora Innovation: Shocking Capital Raise

2023-07-19 19:47:33 ET

Summary

• Aurora Innovation, Inc. raised a shocking $850 million in gross proceeds.
• The autonomous trucking company still has work to launch their Aurora Horizon subscription service, and the initial launch will only include one limited trucking lane.
• Aurora Innovation stock isn't appealing after the rally to $3 due to the still-long path to material revenues.

In a very surprising development, Aurora Innovation, Inc. ( AUR ) has raised a ton of capital at prices that appeared impossible only a few months ago. The autonomous trucking platform still has a ton of work to do to lunch a robust product and cut off the waterfall of disappearing cash. My investment thesis remains Bearish on the stock, but Aurora has a much better chance of surviving and thriving now.

Capital Shock

Only a few months ago, Aurora Innovation was hardly trading above $1. The autonomous driving platform was burning so much capital the company was a very high-risk investment. Now, Aurora appears set to generate gross proceeds in multiple stock offerings totaling $853 million.

A lot of the headlines mention a $220 million stock offering, but the company plans to raise at least $820 million as follows:

• Public offering of 73,333,333 shares of its Class A common stock at $3.00 per share.
• Private placement of 222,222,216 shares of its Class A common stock at $2.70 per share.

The public offering allows the underwriters to purchase another 11 million shares at $3.00 for an additional $33 million. In total, Aurora would raise $853 million in gross proceeds.

Only a few months ago, the market probably would've required an offering price below $1 and possibly not invested so much in a struggling autonomous platform. The company was able to get existing institutional and strategic investors to contribute up to $600 million of the investments.

Aurora ended March with a cash balance of $966 million after burning $136 million on operations in Q1 alone. On the Q1'23 earnings call , the CEO discussed the capital position as follows (emphasis added):

We ended the first quarter with a very strong balance sheet, including $966 million in cash and short-term investments. We remained focused on constraining expenditures were possible while continuing to invest in the critical work on our path to commercialization. In turn, we continue to expect our liquidity to fund Aurora through mid-2024 .

Again, a company usually doesn't get the market to pay double the price for a stock months after acknowledging the need to raise additional capital in just over a year. Aurora is burning cash at an annual clip topping $500 million, so the additional capital raise of $800+ million adds another 1.5 years to the operating runway getting the company to the end of 2025 without any adjustments to the financial picture.

Long Path Ahead

While Aurora Innovation appears set for a commercial launch in 2024, the company still has a massive path ahead to generate meaningful profits.

The company is focused on the autonomous trucking sector and only expects to launch the Aurora Horizon service on a trucking lane from Dallas to Houston. The service will start with a very narrow focus and require the company to test additional lanes before expanding the service offering.

The consensus analyst estimates are very limited for the years ahead. The current estimate is for revenues to only reach $55 million in 2025.

Remember, Aurora Innovation is burning over $500 million in cash annually, and $55 million in revenues a few years from now might not even generate positive gross margins. The future is likely autonomous trucking, but Aurora has a subscription platform plan likely to delay the revenue generation.

The company had long forecasted large losses through 2026. If the pattern continues, Aurora was forecast to burn over $2 billion until reaching EBITDA profits in 2027 and the current pro forma cash balance starting Q2 is in the range of $1.9 billion.

The large strategic investors clearly believe in the Aurora Innovation story. This cash could get the company close to profits by 2027, but investors are still taking on tons of risk the company doesn't need to raise additional funds.

Takeaway

The key investor takeaway is that Aurora Innovation, Inc. isn't appealing after this rally to $3. The autonomous trucking company obtained a very crucial cash infusion that changes the equation regarding viability, but the additional cash still doesn't make Aurora Innovation, Inc. stock a Buy due to the limited revenue streams for at least 3 more years.

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