TuSimple Holdings, Inc. (NASDAQ:TSP) Q3 2022 Earnings Conference Call November 1, 2022 8:00 AM ET
Company Participants
Ryan Amerman – Senior Director of Investor Relations
Ersin Yumer – Interim CEO
Eric Tapia – Interim Chief Financial Officer
Brad Buss – Chairman
Conference Call Participants
Jordan Levy – Truist Securities
Ravi Shanker – Morgan Stanley
Brian Ossenbeck – JPMorgan
Colin Rusch – Oppenheimer & Co. Inc.
Nick Doyle – Needham & Company
Joseph Spak – RBC Capital Markets
Jeffrey Osborne – Cowen and Company, LLC
Operator
Good day and welcome to the TuSimple’s Third Quarter 2022 Earnings Conference Call. All participants are now in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Keep in mind, that this call is being recorded and there will be a replay available at ir.tusimple.com following this call.
I would now like to turn the conference over to Ryan Amerman, Head of Investor Relations for TuSimple. Mr. Amerman. Please go ahead.
Ryan Amerman
Thank you, Towanda. Good morning and welcome to our third quarter 2022 earnings call. We appreciate your flexibility especially during earnings, while we would have preferred to host the call yesterday, logistically it just wasn’t possible.
With us today are TuSimple’s Interim Chief Executive Officer, Ersin Yumer; the Interim Chief Financial Officer, Eric Tapia; and the Chairman of TuSimple’s Board of Director, Brad Buss. We will first review the operating and financial highlights and then we will take questions.
As a reminder, TuSimple shareholder letter and a replay of this call will be available on the Investor Relations page of our website. This call is being recorded, if you object in anyway please disconnect now.
Please note that TuSimple’s shareholder letter, press releases, and this call contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors. Please refer to the risk factors detailed in our SEC filings.
We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Please refer to the Safe Harbor disclaimer and non-GAAP financial measures presented in our shareholder letter for more details, including a reconciliation of the non-GAAP measures to the comparable GAAP measures.
I will now turn the call over to Brad to begin.
Brad Buss
Thank you, Ryan. Hi. My name is Brad Buss, and I’m the new Chairman of TuSimple’s Board of Directors. I’ve been a member of TuSimple’s Board since prior to the IPO. Before becoming Chairman of the Board, I served as the Lead Independent Director as well as the Chairman of the Audit Committee.
Before we go much further, I want to provide a brief update in changes in the company. We’ve recently announced a leadership transition in connection with an ongoing independent investigation initiated by the Board’s Audit Committee. That led to the Board to conclude that an immediate change of CEO was necessary. Accordingly, the Board removed Xiaodi Hou from his positions as Chief Executive Officer, President and Chief Technology Officer of the company as well as being replaced his Chairman as the Board of Directors. This necessary departure became effective Sunday October 30, 2022.
We also appointed Ersin Yumer, who has been our Executive Vice President of Operations as Interim CEO and President, while we conduct a search for a permanent CEO. I want to be very clear that safety, transparency and accountability are critical values to our company, and we take these values extremely seriously.
Based on the ongoing investigation, the company also believes that during 2022, in conjunction with the company’s evaluation of Hydron as potential OEM partner. The company shared confidential information with Hydron without relevant non-disclosure and other cooperation agreements in place. This information was not brought to the attention of the audit or government security committee.
Furthermore, as of the time of this call, the company believes that based on information obtained in connection with an ongoing investigation by the Audit Committee, during 2021 certain employees of the company spent 8 hours working on matters for Hydron without disclosing this to the Audit Committee as required by company policy. The company believes that such paid hours had an estimated value of less than 300,000 that they are above the value required for an SEC disclosure. Both of these matters are detailed in our Form 8-K filed with the SEC yesterday, October 31.
The decision to terminate the CEO is independent of the Wall Street Journal article, and was made in connection with an ongoing internal investigation launched by the Audit Committee in July. The Independent Directors unanimously determined that it was necessary and in the best interest of the shareholders to terminate Xiaodi Hou. Furthermore, we lost trust and confidence in Xiaodi’s judgment, decision making and ability to lead as the company CEO.
You also may be aware that Xiaodi has been making certain statements on various social media platforms. We would like to make it crystal clear he is doing this as an individual, not as a Board member. He is not authorized to make any statements on behalf of the company, and we are disappointed in his lack of judgment in decision making and making these unauthorized statements.
Again, I want to be very clear the Board and the management team take the responsibilities of this company under our CFIUS agreement extremely seriously. That includes protecting the data that is at the heart of this company, and there will be accountability for anyone who breaches this trust. But we also know that the technology developed at TuSimple’s works, we have proven it through the world’s first driver out autonomous free test runs, and we are on the path to commercialization.
My commitment to you is this we are going to make the hard decisions that set this company on a trajectory towards long-term stability and long-term success. This concludes my prepared remarks related to the CEO transition. And due to the nature of this situation, we will not be able to take any further questions related to this subject only during the Q&A. Thank you for your understanding.
I will now hand it over to Ersin, who will discuss some highlights for the quarter and enhancements we’re making to our AFN operations. And then finally, Eric, will walk up with that overview of our financials. Thank you. Ersin?
Ersin Yumer
Thank you, Brad. Good morning, and welcome to our third quarter earnings call. Today, I’d like to start by acknowledging how difficult the past few days have been for all of our stakeholders, for our investors, employees and partners. We understand the concern and uncertainty that these events have caused. And I’m humbled to be entrusted with helping to lead the company at this critical juncture. I look forward to working closely with the Board and Management to continue on our mission to provide reliable, low-cost freight capacity, while setting a new standard for fuel efficiency and safety.
Today, I’d like to highlight what we are doing to build transparency on safety with our stakeholders, discuss additions we have made to the AFN, provide an update on a key partnership. And finally, discuss key initiatives we have in place for the rest of this year and next, that will move us towards our goal of initial commercialization in 2023. I will then hand it over to Eric, who will walk through the financials.
We strive to put safety at the core of everything we do. We also understand how important it is for us to be transparent and build trust with all of our stakeholders. This is essential in order for the industry to embrace all the potential benefits autonomous technologies can bring to the transportation market. Going forward, we will highlight the processes and initiatives we employ as we work to bring take autonomous technology to the market.
Additionally, I’m pleased to announce we will be partnering with multiple independent auditors that are recognized within the industry to conduct audits verifying various aspects of our technology and operations from a safety perspective. These will include processes and procedures for our hiring, training, and on road testing. While this is not a requirement today, we believe we are leading the industry with these audits.
Our goal is to improve transportation safety for all road users by delivering the safest driver on the road. Ultimately, through safe engineering, testing and development, we have the opportunity to save thousands of lives every year.
Over the last few months, we have had some exciting additions to our AFN as we continue expanding our presence in Texas. First, we find a lease on 10 acres in South Paulo. Phase one of this terminal development is expected to be completed in the first quarter of 2023, and this terminal will play a key role in supporting our capacity plan in Texas. The location is route of I-45, a major interstate connecting Dallas to Houston. And in early October, we signed a lease on 11 acres in San Antonio. With the addition of these two properties, we have the assets we need to support our patients in the Texas triangle, then the safety case is validated.
Adding to our track record of industry first, this past quarter, our partners [indiscernible] announced a fully autonomous run powered by TuSimple technology that transported commercial goods in regular traffic conditions between logistic costs. The truck travelled about 300 kilometers in Sweden, with the first and last mile being handled manually. This was Europe’s first fully autonomous transportation of commercial goods. And we are extremely proud to partner with TRATON to mark another milestone towards advancing autonomous technology.
Next, I’d like to provide you an update on our program with an U.S Class 1 railroad. Last quarter, we discussed unplanned road construction that caused us to have to rework a route in Arizona and adjust the destination point. After much consideration, both we and our partner has decided it makes the most sense to relocate this freight move from Arizona to Texas.
Texas is an important freight market for both TuSimple and [indiscernible] our partners. And given the terminal additions to our AFN, we now have the capacity in place to support our plans for the foreseeable future. We continue to work with this partner and will continue to update you on the progress.
As we consistently stated, cost per mile reduction is a significant focus for us. A major aspect of this is removing the support vehicles which require improved reliability of key components. We are focused on upgrading our entire fleet to consist of the most updated hardware platform running a consistent version of our proprietary software. This does require us to pull trucks out of the fleet to undergo the upgrade process with the expectation that we will complete the entire upgrade by the end of 2023.
There are two main benefits to this upgrade. First, a uniform fleet of trucks provides us flexibility in how we utilize the trucks for testing and revenue generating mile. More importantly, however, we expect the upgrade will result in a more recognized and reliable autonomous system, which is a key requirement in removing the support vehicles and providing substantial opportunity to reduce our cost per mile.
With these upgrades, we are utilizing a greater percentage of hardware that is automotive or new automotive grade. This is the result of strengthening internal capabilities as well as a maturing supply base. A critical component of our improved internal capabilities is our recent expansion in Tucson. This gives us the capability to design and develop automotive grade components on site.
And to ensure that our autonomous systems last for many years on the road, we have added testing capabilities for factors like heat, cold and migration that will help us validate the expected failure rates of certain components. We believe these are key capabilities that will lead to a more durable autonomous fleet.
Next, I’ll discuss some exciting developments in our operations. I’d like to start by highlighting changes we have made to our AFN operation. Historically, our revenue fleet was run separately to work with our transportation partners and introduce them to our autonomous technology, while our test fleet was focused on advancing our technology and driver milestones in Arizona.
Now that we have reached our initial driver-out milestone, I began the process of combining our revenue and test into one autonomous operations. The result of this will be that we have one fleet of trucks capable of running either test or revenue generating model with the same state-of-the-art AV software and hardware. This gives us the flexibility in how we utilize the fleet for servicing our customers, as well as for maturing the technology.
For the next couple of years, we will continue working to reduce cost per mile. Our focus on generating revenue models will concentrate on a few key lanes in and around the Texas triangle. In the short-term, this has the potential to lead to a year-over-year decline in revenue mile. However, we believe it is the prudent decision as we expect to move down the cost curve, enabling our technology to become commercially viable more quickly. We are focused on winning a meaningful share of the $800 billion U.S market.
And now I will hand it over to Eric, to discuss the financials.
Eric Tapia
Thank you, Ersin. Let me start with truck reservations. This quarter, our reservation count held steady at 7,500 trucks. However, after the quarter closed, we did receive a 100 truck order from a new partner. We are pleased with the continuing interest we see from existing and potential partners.
Now shifting gears to our financial results for the third quarter of ’22. We reported $2.7 million of revenue in the quarter, a 49% year-over-year increase and 4% sequentially. The year-over-year performance was primarily driven by higher revenue loss from a larger fleet and high utilization. The potential performance, though, was primarily driven by better utilization of our brand new fleet.
While we continue to perform in line with our full year revenue guidance, it’s important to highlight Ersin’s previous comments regarding revenue miles. We believe the right actions for the long-term health of the business is to operate as one autonomous commercial operation with the goal of bringing our technology to market. That said, as we continue to upgrade the fleet and gradually shift to the Texas Triangle, we expect near-term revenue headwinds as a major focus on commercialization.
Moving to expenses. We spent $86 million on total R&D this quarter, including $17 million of stock paid compensation for SBC. This compares to $85 million in the same period last year and essentially flat compared with the second quarter of ’22. Excluding the impact of SBC, R&D increased 8% sequentially as we continue to invest in our technology, R&D assets and core tech talent. We will continue to invest in commercialization of our world-leading technology and key talent, while managing our R&D dollars as efficiently as possible.
On the SG&A front, we spent $31 million during the period, including $6 million of SBC. This compares to $30 million in the same period of last year and $22 million in the second quarter of ’22 or up 41% sequentially. Excluding the impact of SBC, SG&A was up 32% sequentially.
As a reminder, in the second quarter of ’22, we had favorable account true-up of $4.4 million. Excluding this item, SG&A was up 7% sequentially, primarily due to higher legal costs in the third quarter, partly offset by the impact of several cost reduction initiatives.
Our loss from operations was $120 million in the third quarter of ’22, up 3% versus the same period last year and up 8% sequentially. Our adjusted EBITDA loss in the third quarter of ’22 was $94 million, up 16% versus the same period last year and up 13% sequentially.
In the third quarter of ’22, we had $4.8 million of CapEx, primarily related to truck-related equipment and hardware as well as facility investments in our AFN. We ended the third quarter of ’22 with cash, cash equivalents and short-term investments totaling approximately $1.07 billion, down 8% sequentially.
I’ll now hand it back to Ersin for a few last remarks.
Ersin Yumer
Thank you, Eric. I know I speak for our entire team when I say that I’m excited about the opportunities that lay ahead as we continue to build our AFN in Texas. I expect that 2033 will be a big year for TuSimple, and I look forward to continuing to update you with our program.
With that, we are ready to start the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Jordan Levy with Truist. Your line is open.
Jordan Levy
Good morning all and thanks for taking my questions. Maybe first for Ersin or Brad. There’s clearly a lot of potential for distraction with the recent events in the organization. And now you mentioned you won’t be taking questions on that. And this is more on kind of the business side, but I think it’s important for shareholders to get a sense of your confidence in how you’re all thinking about moving the company forward in the commercialization and strategy and time line. So I just wanted to get your high-level thoughts there.
Ersin Yumer
Thank you. Thanks for the question. First of all, our commercialization plans in terms of our strategy in 2023 is not changing with the recent changes. Given that, we are feeling confident that we can hit our milestones that we have laid out, and we will be updating you on these milestones in a lot more details in the upcoming months. Thank you.
Brad Buss
Yes. And just to echo, I think from the Board’s perspective, we are really excited on the strategy. I mean the people, the technology, the commercialization plan, everyone is in sync, it isn’t going to change. Ersin has been very involved in it. And more importantly, we got a very strong balance sheet. So I know you can sometimes see CEOs, oh my gosh, things are changing, but that is not going to happen. We are all very excited on the path we are on.
Jordan Levy
Appreciate that. And just a quick follow-up and a totally separate question. Can you all speak to the trucks that have been upgraded so far and how you’ve seen them performing from either a reliability or efficiency perspective? Like have you seen any measurable improvements in utilization or the number of rescues or that sort of thing?
Ersin Yumer
Yes. So we are currently upgrading, in fact, the first truck in the newest upgraded hardware series, and we haven’t run that on the road yet. When we do that and when we have update, we will update you. We do expect that it will increase in liability quite a bit due to the components that are maturing in our supply base as well as the in-house parts that we are building ourselves in Tucson that are automotive grade or near automotive grade.
Eric Tapia
And just to add and rest assured that in the upcoming months, as we are getting ready and computing our 2023 financial plan, we’ll share more — a lot more details and time lines around what is the CapEx spend on the upgrade and when do we expect to have this truck in circulation because that will definitely be a key driver for our revenue target, which again, we will share out in a future date.
Jordan Levy
Great. Thank you all for taking my questions.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open.
Ravi Shanker
Thanks. Good morning, everyone. So just to kind of touch on that point for the upgrade fleet, do you have all the components and the visibility and all the components that you need to do these upgrades? And kind of, Ersin, you touched on this one a little bit, but maybe — is it a little bit of a chicken and egg situation where you need to do this comprehensive testing to finalize your kind of ultimate vendors for some of these products and technologies? Or do you do the finalization and pick the vendors first and then run them through the steps? How do you solve that you chicken and egg problem?
Ersin Yumer
Thanks for the question, Ravi. So, of course, we have been doing vendor selection for quite a while right now, and we have been working with our supply base to ensure that the supply is as much ready as possible for these upgrades starting these months and rolling into 2023. So currently, we do not see big hiccups in terms of our supply for these upgrades, both internal parts that we are producing as well as the external ones.
We have been doing tests in terms of which [indiscernible] they are going to use and different suppliers. And we took — they started with a large number of supply strength [ph] and then during these tests in the past couple of months, we have been reducing our supply base down and then putting the orders in. So like I mentioned, we do not really expect big hiccups. But if that happens in later days for unexpected reasons, we will of course update you.
Eric Tapia
And just to connect it to the financial performance, so some of the uptick that you saw this quarter on CapEx is actually related to not only facility upgrades, but long lead supply chain items for our trucks. So we are keeping our guidance of CapEx for the year. So you would expect to see more CapEx in Q4. Again, just to address the need to offer this trucks and a lot of it will also spill into 2023.
Ravi Shanker
Understood. And maybe as a follow-up, again, I know you said you wouldn’t take direct questions on this, but maybe there’s a bit of an adjacency. Can you confirm if kind of Xiaodi owns any of the patents or technology that you guys used to operate? And kind of do you need him to sign off and anything? And also can you confirm that the operations are expected to run exactly as planned for this week going forward? I know it’s early days yet, but just trying to get the plan.
Ersin Yumer
Thanks, Ravi. So the patents are owned by TuSimple as the company. Of course, on some of these statements, Xiaodi’s name is listed as an inventor, but the patent rights are belonging to the company.
Ravi Shanker
And operations are running as planned?
Ersin Yumer
Sure. Yes.
Ravi Shanker
Okay. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Nathan Ho with Bank of America. Your line is open.
Unidentified Analyst
Hi. This is actually Adam [indiscernible] on for Ken Hoexter, Bank of America. Thanks for taking my question. Could you talk a little bit about just retaining talent at this time? Maybe just — was the kind of headcount in this quarter sequentially flat for a reason? Or maybe just talk about that, please.
Ersin Yumer
Thank you. So just to address the flat headcount part for this quarter, this was actually us making sure that we are very careful with our spending and financials. On the other hand, the talent retention side, this has been a very significant focus for me in the past couple of months. I have been trying to be very connected and high touch with our employee base in our three main locations, San Diego, Tucson and Dallas. We will keep doing this, and we will get some help from our Board as well. We do not see a base turnover from this perspective. But of course, our people are our biggest asset, and we will make necessary investments to keep that employee base with us. Thank you.
Unidentified Analyst
Got it. Thank you. And maybe just a follow-up. Could you talk about the truck count trajectory maybe beyond 2023 on the commercial side and how you’re thinking about it? How should we expect to ramp? Thanks.
Eric Tapia
So I’ll take that on. So we’re in the process of working for our ’23 plans. So at this point, we are not ready to share more details until the fourth quarter call. But I can tell you that we are expecting to finish the year with the 75 truck count that we mentioned. And we are thinking and addressing some needs on our supply chain. But again, we will share more details as we — once we share fourth quarter results, and when we talk about ’23 plans in the next coming months.
Unidentified Analyst
All right. Thanks for your time.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is open.
Brian Ossenbeck
Thanks. Good morning. I want to come back to the topic of safety. Can you give us a sense as to what you hope to accomplish from having the independent auditors look at these processes and perhaps why need multiple of them. I don’t know if there’s if that’s for different regions or different aspects or specialties? And then specifically for Ersin, the incident in April was classified as a human error on the last call. I just wanted to see if you agreed with that characterization?
Ersin Yumer
Thanks for the question. So let’s first talk about the safety audits and the multiple — potentially multiple third-party auditors. As you know, we have been very engaged in the last couple of months with our stakeholders in terms of opening up and making them understand our processes from a safety perspective as well as the technology.
These interactions have led us to understand that we can actually provide our stakeholders a lot more visibility as well as education in this area. So we do want to do this from a third-party auditor perspective. What we would like to achieve is to, both for ourselves as well as for our stakeholders, get an independent assessment on different processes, procedures as well as our — different aspects of our technology.
Now using multiple — potentially multiple auditors, as you mentioned, it is because different aspects of the technology or operations might require different expertise. And these different expertise sometimes come from different audit body. So it’s not necessarily we would like to multiply the same audit process. It’s more about different expertise is required for different parts of the business.
On the April 6 event, we actually mentioned this in our interactions with the federal NHTSA and FMCSA as well that it’s not only a human error, but there is also software and system-related failures that had happened at the same time. So we have provided an update to the software to prevent these failure as well as the future [indiscernible] just to close this, we actually never mentioned that it’s just a human error from our perspective.
Brian Ossenbeck
Okay. Understood. And then, Brad, I know you don’t want to take direct questions on this, but wanted to see if you could at least give us some context as to why the Board lost confidence in trust in Xiaodi and the firing was determined based on the 8-K to be without cause, even though there’s an ongoing investigation, so a little hard to square those two. I wanted to see if you could give some clarification to that? And then secondarily, if you can just share some of the reaction of your stakeholders so far over the last 24, 48 hours?
Brad Buss
Yes, I mean there’s not really a lot I can add there. I mean for cause, there’s fairly high standards on materiality levels that generally go with that. So I would just probably leave it there. And then I think the confidence point is it’s just a lot of little things that have came up, and we will just go on from there. The key is I think we made a good decisive decision, and we are moving forward and nothing is changing with our strategy.
Brian Ossenbeck
And any reaction you can share from your stakeholders and conversations there in, partner safety, anything like that?
Brad Buss
I mean from my end, there’s been nothing significant. I mean we’ve been pretty focused on the earnings and obviously, we are not pleased with the stock market reaction, but we are committed to moving the company quickly forward.
Brian Ossenbeck
Okay. Thank you for the time.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Colin Rusch with Oppenheimer. Your line is open.
Colin Rusch
Thanks so much guys. I think we are all kind of getting after the same things. But on the customer side, and those folks, what sort of pushback reaction have you gotten so far? Obviously, it’s going to come over the next period of time, but how much have you shared with them? And what sort of feedback are you getting so far from those folks?
Ersin Yumer
Can you repeat the question again?
Colin Rusch
Sure. In terms of the organizational changes that you’ve just made, can you just comment on customer responses and engagement at this point? Have you reached out to everyone, and what sort of feedback are you getting at this point?
Ersin Yumer
We have reached out and we are having active conversations.
Colin Rusch
Okay.
Eric Tapia
No, and certainly there’s — all our key partners are very important to our trajectory. So we kept them appraised. And again, we believe we can [indiscernible] our vision and what we are going to do as a company, and we convey that to our customers and our partners.
Brad Buss
And again, the key for them is that, hey, our strategy isn’t changing, right? So we are letting them know that very clearly, hey, it’s literally just a CEO change, not a strategy change. And quite honestly, they work directly with everyone below the CEO level very, very closely. So we are not anticipating anything to change from a strategic standpoint with the customers or the partners.
Colin Rusch
Okay. That’s helpful. And then, I guess, Brad, you’ve been involved in some boards that had to gone through some tough situations. In terms of looking at the scope and scale of what’s going on with TuSimple, can you give us a sense of like how quickly this might get resolved? Obviously, you’re going to find the right person as the new CEO, go through a whole process on the CFO as well and gets this right. Does this feel to you like this is kind of a 3 to 6-month process? Or is this going to be a little bit longer road for the company?
Brad Buss
They’re always so hard to tell. I think we’ve made very good progress on the investigation. We are running a great process. We are already actively recruiting. And again, like the key is we don’t — it’s not like there is a big disagreement on strategy, right? That is the biggest thing that company sideways were very aligned. So it’s really just getting a couple of people in place and I think the way we go. So we are hoping to have things wrapped up very quickly.
Colin Rusch
Okay. Thanks a lot guys.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Rajvindra Gill with Needham & Company. Your line is open.
Nick Doyle
Hey, guys. Good morning. This is Nick Doyle on behalf of Rajvi. Could you give us some more detail around the ramp of the self-driving projects, specifically the time line for the removal of the support vehicle you had talked about kind of second half ’23. And then on the call, you were talking about the hardware upgrades that are ongoing. I’m just wondering if that’s pushing that out at all? Or any update there would be great.
Ersin Yumer
Thank you. The removal of the support vehicles is something we are actively working on in parallel with the current hardware as well because as you might imagine, there are technology-related parts of this that are not necessarily only the hardware. On — at the same time, the hardware upgrades are continuing in parallel as well. So we do expect to hit both milestones in 2023. We will update you on the more specific dates in the upcoming months.
Nick Doyle
Okay. Thank you for that. And then for my second question, could you talk about why you moved your partner from Arizona to Texas? Any detail there? I mean off the top of my head, it just makes me think that you’re just focusing more on Texas instead of kind of expanding geographies. So any detail there would be great. Thanks.
Ersin Yumer
So the reason to move to Texas was driven by both our interest in the Texas Triangle and commercializing in the Texas Triangle and [indiscernible] lanes around it as well as our partners existence and interest in the — in Texas as well. So because of this commercialization goal, we did want to move the target into Texas so that we can move towards commercialization while hitting this goal with the partner.
Eric Tapia
And the key theme that we mentioned in the latter is we’re choosing depth over breadth, right? I think the Texas Triangle allows us to create lanes [indiscernible] on a commercial scale. I think that for us is quite critical to really prove our technology in real potentially scalable miles. So things like — beyond just the truck and the hardware, think about also the AFN in the network, right, an infrastructure that comes with that, right? With advanced lanes, we will be able to really scale maintenance operations, really scale other technicals that really support the AFN, right, versus one-off [indiscernible], right. So for us, we think that, that density, that depth in the infrastructure and depth with customer could allow us to reach our commercialization goals a lot faster.
Nick Doyle
Excellent. Thanks guys.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Joseph Spak with RBC Capital Markets. Your line is open.
Joseph Spak
Thanks everyone. I was wondering if you could update us on the potential sale of that China business and whether any of these latest developments you think complicate that potential outcome?
Ersin Yumer
So our process is progressing, but we have no material updates to share at this point.
Joseph Spak
Okay.
Brad Buss
The change is not going to impact any of the decisions, just to be clear, that we have a process.
Joseph Spak
Okay. And then just, I guess, one quick point — like the release yesterday indicated all the guidance was reiterated. I didn’t see any of that in the shareholder letter. Maybe I missed it. But if you — can you just sort of confirm that and sort of — all sort of the data points from last shareholder letter are the same. And maybe if we could sort of just — to give a little bit of a peak into ’23, you’re burning about $100 million a quarter. It would seem like that might need to step up as you sort of continue to progress and ramp on commercialization and maybe even some costs for retention. But I wanted to sort of get your high-level thoughts as to sort of how to think about that for next year.
Eric Tapia
So high level, we stand by our revised guidance that we showed in Q2, as we said in the letter. In terms of expectation for ’23, as I mentioned earlier, we were not — based on our status of [indiscernible] plan, we are not ready to share more until we share fourth quarter results. I would say same trajectory that you’ve seen over the last quarters, right, where we are focusing on deploying capital with the most important milestones and keeping discretionary cost at bay. But you can expect that same thing, disciplined [technical difficulty] but we will share numbers in the next couple of months [indiscernible].
Joseph Spak
Okay. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Jeff Osborne with Cowen. Your line is open.
Jeffrey Osborn
Good morning. Just a couple of quick ones here. On the move from Arizona to Texas, is that a customer that’s a material piece of revenue? And do we need to wait for the AFN’s to open up in both Dallas and San Antonio to see that resumption of growth?
Ersin Yumer
No, this is not driven by any customer driver. Again, it’s more about what I mentioned earlier. The Texas Triangle will set a great way for us to drive lane density given the volume and depth of some existing routes. But it’s not based on customer preference or selections.
Jeffrey Osborn
Got it. And then I know you’re not giving guidance for 2023, but assuming you ended the year with 75 trucks that you mentioned before, how do you weigh the cadence of updating those or upgrading those versus revenue versus testing? And then on the — assuming you’re pumping the brakes on the testing side to some extent or not, adding new trucks, are you doing more simulation in lieu of real road testing? Can you just — I’m curious how you would articulate that the truck is progressing without the actual testing cadence being at the pace that you maybe originally intended to.
Ersin Yumer
Just to be clear about the question, are you asking whether this move from Arizona to Texas for this possible partner is affecting our testing capacity?
Jeffrey Osborn
I’m not. I think you mentioned earlier that the revenue in 2023 could be down as you likely haul less for revenue. And so I just wanted to understand, it seems like you’re adding fewer trucks next year as you’re trying to minimize cash burn. So I just wanted to understand, are you doing more simulation in lieu of real road testing?
Ersin Yumer
Right. So there are a couple of reasons for this expectation. One of them is, of course, we mentioned the hardware upgrades. The hardware upgrades are going to continue for the most part of 2023. What that means is at any given time, 2 to 6 trucks will be in the upgrade bay, right? They’re not going to be with the fleet. So there’s a circulation from the fleet to the upgrade and then upgrade to be validated and then go back to the fleet. So that particular downtime for a continuous small number of trucks is one of the effected part.
The second effect on this is our merged operations of revenue and testing. What we are really focusing on is to bring our cost per mile down, and cost per mile is something that we have introduced in the Analyst Day back in May. And you might remember us talking in detail there, but we are going to keep updating you on this. We do think that this is a really important key metric for us for commercialization and the unit economics for this industry, right? So we are really going down the path to create more visibility into commercialization and what the end goal is. And therefore, we are changing how we operate during this particular phase of going to the initial commercialization.
Eric Tapia
And just to chime in, to answer your question about tech, we foresee no slowdowns on our tech. Again, as we are upgrading trucks, but we will still focus on running the trucks with the upgraded systems for current system. So we don’t foresee any slowdown. Yes, on the revenue potentially, but not on the testing capabilities. In addition, you mentioned 75 trucks, again, that’s our expectation to this year. But we are right now in the market. We are trying to secure more trucks in our fleet. But again, we will share more on our ’23 plans. We potentially might have a higher count in ’23.
Jeffrey Osborn
Great. Look forward to it. Thanks for the detail.
Operator
Thank you. I’m showing no further questions in the queue. I would now like to turn the call back over to Ersin for closing remarks.
Ersin Yumer
Thank you all for taking the time to join us today. As I stated earlier, we understand that the last few months have been challenging for all of our stakeholders. We are committed to ensuring that we hold ourselves to the highest standards, setting this company on a trajectory towards long-term stability and success and update you with our progress. Thank you. [Indiscernible] forward. We look forward to continuing to update you with our progress. Thank you.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
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