INVZW - Innoviz Technologies Inc. (INVZ) CEO Omer Keilaf on Q2 2022 Results - Earnings Call Transcript

Innoviz Technologies, Inc. (INVZ)

Q2 2022 Earnings Conference Call

August 10, 2022 09:00 AM ET

Company Participants

Omer Keilaf - CEO

Eldar Cegla - CFO

Conference Call Participants

Mark Delaney - Goldman Sachs

Andres Sheppard - Cantor Fitzgerald

Kevin Cassidy - Rosenblatt Securities

Presentation

Operator

Good morning, and welcome to Innoviz Second Quarter 2022 Earnings Conference Call. Joining us today are Omer Keilaf, Chief Executive Officer; and Eldar Cegla, Chief Financial Officer. Following the formal remarks, we will open the call for your questions. I would like to remind everyone that this call is being recorded, and will be available on the Investor Relations section of our website at ir.innoviz.tech.

Before we begin, we would like to remind you that our discussions today will include forward-looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Innoviz. Actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today and we undertake no obligation to publicly update or revise them. For discussion of some of the important risk factors, that could cause actual results to differ materially from any forward-looking statements, please see the Risk Factors section of our Form 20-F filed with the SEC on March 30, 2022.

I will now turn the call over to Omer. Please go ahead.

Omer Keilaf

Hi, everyone and good morning. I'm very excited to have you today on our second quarter of 2022, we had a very successful quarter following recent announcement on our new customer Volkswagen which we are obviously very excited to talk about. Following the receiving of the contract from Volkswagen and reaching the first milestone of integration of our LiDAR's to the test because we were happy finally to provide and give a press release about the recent award. Other than that we have substantial progress on key programs additional, key programs, then we've actually already met or exceeded all of the targets that we have set for 2022. And now, I would be very happy to start with the formal presentation. Thank you.

Okay. Innoviz’s vision is to become the world's leading tier one supplier for LiDAR and perception software for the automotive industry. Last week, Innoviz was proud to announce that we will serve as the direct supplier of LiDAR sensors to several brands within the Volkswagen Group while integrating our perception software to carry out automated driving spec. As the program progresses, we expect more brands within the Volkswagen Group to be incorporated. BMW is the second largest car maker with more than 10 million cars sold annually with multiple brands including Audi, Porsche, Volkswagen, Skoda and many others. We are full steam ahead with our samples already integrated into CARIADs best makers.

We expect revenues from the program already in the coming years as the development of and testing processes of our customers require 100s to 1000s of units in the next three to four years which are priced several times greater than the official stock of production SOP. Following SOP, we expect an exponential ramp-up for the life time of the project which is 8 to 10 years. From 10s of 1000s to over a million LiDAR's annually to the Volkswagen Group at competitive price points.

The Volkswagen Group nomination is reflected in Innoviz order book as an increase of $4 billion which now aggregates to the total of $6.6 billion. Innoviz received multiple RFQs from all over the market, Volkswagen's set of requirements were the most demanding and we've seen and eventually pushed us to design the best-in-class LiDAR to-date.

Our ability to win the Volkswagen program was due to four main contributors. The first, the exceptional price and performance that our new product InnovizTwo is offering for achieving high-speed highway autonomous driving. The second, our rich automotive experience working closely with leading companies such as BMW and Magna. The third, the maturity level that InnovizTwo product is already at and the last is the tier one value proposition and capabilities that we offer. With the new Volkswagen win as a tier one, these four growing assets are the reason we are confident of our ability to win many more programs in the market.

While we are working closely with multiple OEMs to become their LiDAR supplier, we value the importance of strengthening the collaboration with the leading platform vendors. We are happy to share unique events that Innoviz will host in the coming months. Innoviz is hosting partners, customers, and analyst event on the September 19. The event will include keynote speakers and a tour to our facilities InnovizTwo automated production and test lines. We are excited that two distinguished keynotes have already confirmed their attendance. Mr. Alex Vukotich, VP of automotive product management at Qualcomm. Qualcomm will provide the Snapdragon Ride platform which was already selected by several leading OEMs and tier 1's. And Dr. Richard Rau, VP of Autonomous Driving, Sensors, Integration Platforms and Cooperation at BMW Group.

Our second event on October 23, Innoviz and NVIDIA was selected to host a 3D perception workshop during the European Conference on Computer Vision ECCV. Innoviz and NVIDIA workshop will discuss the mix challenges and advantages associated with the use of 3D data for autonomous driving. Volkswagen is our second nomination for serious production of passenger vehicles, the first being BMW. With this win, Innoviz is now servicing two of the world's leading car makers which together represent 15% of the entire automotive market. From the inception of Innoviz, our strategy has been to focus on prominent industry-leading car makers, which is well-known that the German car makers set the standards in the industry.

Therefore, we have provided these customers our highest attention. BMW and Volkswagen are both innovators who strive to bring leading edge technologies to the automotive market. Our proven track record of success in Germany has given us the maturity and global recognition of other car companies based in Europe, the U.S., Japan, and China, allowing us to offer our solution as a tier 1.

We announced in May appointing Scott Craig and Brijesh Shukla as country managers of the U.S. and Japan. Is the logical next step to capitalize on our growth opportunities falling our nomination with Volkswagen. We already see the fruits of new business generation experience as we aim to break more new ground. We are in the process of conducting qualification processes to become a tier 1 with more car makers and look forward to sharing updates with you as those proceed.

We believe these future partnerships will further strengthen and solidify our position as a leading supplier for autonomous vehicles. I'd like now to explain a little bit more about our tier 1 strategy. This Slide shows the benefit of becoming a tier 1 supplier from value perspective. As the demand for lower cost solutions in the industry increases, the pricing pressure requires higher vertical integration. As you can see from the chart on the right as a direct supplier of tier 1, you can provide customers with a low averaging price while increasing our revenues and keeping [on modules]. Clearly this is a win/win and while we remain focused on obtaining this business model. Many have asked about our need to spend CapEx on our production capacity as a tier 1.

In these videos, you can see the production line we design for the InnovizOne. As you can see, there are several machines that were developed to automate the production and testing of the first product. No parts of the assembly or testing is manual. The same is true for InnovizTwo, we are developing full automation of the InnovizTwo production and testing lines. Once those machines are designed, built and tested, we plan to ship them to third-party contract manufacturers with automotive grade facilities to manage the operation of the production worldwide.

The cost of the machines is fully funded by our customers. I'm confident, our tier 1 capabilities including our ability to manage mass production manufacture ability, automotive grade quality, hardware validation, and computer vision validation will serve as a differentiating factor as other OEMs selects their direct LiDAR supplier.

Innoviz has recently moved to our new offices which include our production lines, testing facilities, and a 300 meter underground laser testing track, the longest in Israel. Having the new production lines of InnovizTwo at Innoviz will help to enhance the process and save development cost, eliminate any risk of travelling restrictions that might slow the ramp-up and reduce the production cost until volume ramps-up. We are in the process of moving the InnovizOne test lines between the offices and expect these lines to ramp-up soon. The production lines of InnovizOne continue to run and interfered as they are located offsite. In parallel, we are working to establish the InnovizTwo production line in the new offices to support volume ramp-up beginning of early 2023.

We remain focused on establishing our leading position in the automotive market with key OEMs in the near term expanding and leveraging the maturity of the InnovizOne products to benefit non-automotive segments in the industry and expand our market share to be a key driver for revenue. We'll see important opportunities in the non-automotive markets where we will leverage the maturity of our products. We expect the average selling price to be higher in the non-automotive market with volumes per program [although].

Highlighting further our strong momentum with non-automotive partnerships, we recently announced a cooperation agreement with Joowon Industrial who will serve as a distributor for a wide range of Innoviz applications across the industries from industrial machinery to have equipment in the Korean market and beyond.

We also announced that Innoviz LiDARs were selected by Japan Posts to construct digital maps on their postal delivery cost paving the way for next generation smart cities services such as autonomous driving and unmanned delivering. Turning to our sales funnel and targets. We've already met or exceeded our 2022 targets. We continue to see momentum and bring new potential customer into our sales funnel. Currently we're managing 12 automotive RFIs and RFQs at different stages where almost all of them are for passenger vehicle programs. We expect to see two to three programs being decided in the next six months. Our overall automotive market share was increased by 12% to a total of 15. We are excited about the progress we've made and know that we're just had the beginning.

We expect to drive material revenue during 2023 from our previously announced series wins with BMW and L4 shuttle program as well as from non-automotive end markets. Overall, I remain confident in our cash position, we've always been conservative with regards to how we allocate capital and will continue to do so going forward. As we win additional volume contracts and establish ourselves as a leading direct supply in the automotive market, we will manage our expenses accordingly in a varied all options available to us to ensure we're optimally positioned to continue executing our strategy.

We'll continue to invest in technology and perception software and are in the process of ramping up to give one sample which will include performance improvements, although the busy role but more importantly is designed for volume production.

We are currently focused on maturing and automating the process to support the volume ramp-up targeted to the beginning of '23. In parallel, our innovation team is working on the final design details of the Innoviz360 with most parts already in production. We plan to start integration during Q3 with the expectation of showing first samples of Innoviz360 by the end of the year as planned.

I'd like to show a short video on InnovizTwo. As always, we are happy to share with our investors the progress we make and feel proud of what we've managed to accomplish so far. As you will see in the video, the InnovizTwo has outstanding results that leave our customers very impressed and excited. I truly believe is the best LiDAR out there today and since it has a very attractive price point in performance, I feel very confident in its ability to be widely sourced by many car makers making the decisions in the near future.

With that, I'll turn it over to Eldar to go over the financials.

Eldar Cegla

Thank you, Omer. And good morning, everyone. I would like to start by briefly explaining how our Volkswagen related $4 billion forward-looking order book was calculated. In terms of volume production, the Volkswagen group holds about 10% of the market share which translate to over 10 million vehicle sold annually. The program plan is based on three years of development and validation forward by 8 to 10 years of sales. With expectation to see growing take rate of 1% to 14% over the course of the program, starting with the more premium brands and car models and trickling down over the years to the less expensive car brands and models. We expect to supply our LiDAR sensors for at least 8 million cars over their lifetime of the program multiplied by the ASP aggregates to the $4 billion order book we have announced.

We maintain a high liquidity level of approximately $246 million in cash, short-term deposit restricted cash and marketable security as of June 30, 2022. We're using our resources responsibly, staying within our expense budget for the second quarter of 2022 and maintaining a robust cash position which gives us both the flexibility to execute our 2022 strategy and provide us with a runway to invest in our new and innovative products and technology.

Revenues for Q2 2022 were $1.8 million compared to Q2 2021 revenues of $1 million. Our revenues in Q2 this year were InnovizOne related, we are also targeting to stand the first samples of InnovizTwo later this year. Automating expenses for the first quarter of 2022 were $28.8 million, a decrease $170.7 million in the second quarter of 2021.

Operating expenses in Q2 2022 included $4.4 million of share-based compensation compared to $49.9 million of share-based compensation in Q2, 2021. The decrease in operating expenses in Q2, 2022, compared to Q2, 2021, was primarily due to a decrease in share-based compensation partially offset by an increase in headcount during the second quarter of 2022.

Research and development expenses for Q2 2022 were $21.9 million, a decrease from $32.1 million in Q2, 2021. Research and development expenses in Q2, 2022, included $2.7 million attributable to share-based compensation compared to $17.6 million attributable to share-based compensation in Q1, 2021.

To conclude, we maintain a strong position in the market place as evidenced by our recent design win with Volkswagen Group and we believe that we are well-positioned to gain additional market share during this year and the years to come.

And with that, I will turn the call back to Omer for closing remarks.

Omer Keilaf

Thanks, Eldar. And we'll rejoice for by how far we've come into these months and look forward to updating you on our progress on future earnings call. Before I open up for questions, I'm happy to share that we will be back to New York during the week of September 5, taking part in both cities Global Technology Conference as well as the Evercore ISI Annual Technology Conference. We are happy to meet with you there.

Thank you, for joining us today. And with that, I will turn the call over to the operator to take us into the Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question today comes from the line of Mark Delaney from Goldman Sachs. Please go ahead.

Mark Delaney

Hi, yes. Thanks very much for taking the questions. And good afternoon. Yes, first question is a better understanding on CARIAD and do you think there's been media reports around some software challenges at the CARIAD and I think some of the brands, according to the media we're rethinking any of what they wanted to use from CARIAD but maybe doing some stuff themselves. So, I'm hoping you better understand to what extent you've already factored some of those dynamics into the order book. I think the order book calculation of $4 billion was pretty conservative, if I understood it correctly and if anything perhaps of chances to expand the number models that you're on but maybe if you could speak a little bit more in terms of how confident the different brands are.

Perhaps there the different brands are and using this product and what opportunities there are to perhaps even build on the amount of the order books or further.

Omer Keilaf

Sure. And thank you for asking the question. Innoviz is confident of the contractor to become to be a supplier that supply tier 1 and four other brands. Our agreement is with all of the brands within Volkswagen. And the program is managed by CARIAD. CARIAD is responsible for the driving stack that eventually will we integrate it into the different brands. But our activity and integration discussions are with each brand by itself. The already similar brands that discussions are ongoing. Eventually our software is also integrated into this platform. CARIAD platform will host our perception software as part of the all the whole software that will lead will drive the car. No changes are related to the program since going very smoothly I would say. And the dynamics are very positive.

And to your last comment, I am actually very optimistic that additional brands would be included as following the discussions we are having done.

Mark Delaney

That's very helpful, thanks for that. And for my second question, you mentioned that two to three programs could be decided in the next 6 to 12 months in the automotive market. Do you have any indications from those potential customers about how likely Innoviz maybe to win or any more to tell you can share on your expectations for potentially when need some additional programs out of those two to three that you mentioned. Thanks.

Omer Keilaf

I believe that Innoviz is positioned very strongly on those programs. I obviously eventually it's a decision that we're turning to. But with I would say the level of discussions and the nature of the details that are now discussed, I would say that I'm all the whole positive. But I would rather wait with the news when they would conclude. Maybe I would just say those are related to passenger vehicle programs and as such are very interesting for us. Once we have the program with Volkswagen, we can guarantee the volume. And having the volume in our economic of scale, allows Innoviz to be very competitive even with programs of car makers that are not at the size of Volkswagen.

And that’s a very key element in our ability to be very competitive on all programs right now because we can leverage on guaranteed volume we have with certain program. And basically this is why I would say traditionally selections made by car companies like Volkswagen is so critical and why car -- other car markers tend to follow decisions made by the Volkswagen Group. Can we –

Operator

Mark are you there? We will proceed to our next question. Our next question comes from the line of Andres Sheppard from Cantor Fitzgerald. Please go ahead.

Andres Sheppard

Hey Omer, hey Eldar, good afternoon. Congrats on the quarter and thank you for taking my questions. I wanted to I saw that slide about the Volkswagen and the order book assumptions, was very helpful. I just want to make sure I understood it correctly. So with this new agreement, the expectation is for revenues to start wrapping up, I think in between three and four years, I think initially. But once that takes place, the expectation is that the sensors will be used in over 10 million vehicles per year. Maybe you can give a little more detail on that. I just want to be sure I understood you.

Omer Keilaf

We definitely target that number but no, I mean we're talking about the penetration rate from 1% to 14% of the total volume out of the 10 million. And which is related to, the kickoff is related now to several brands. There are several models that are already planning to launch with the LiDAR and every year there will be releases of more cars every year and there will be a ramp-up. So, the total eventually of the entire program is calculated based on sum of roughly 6 million cars for the duration of 8 to 10 years. But we believe that eventually more brands will eventually use the LiDAR and the numbers could grow.

Andres Sheppard

Got it. That's very helpful, Omer. Thanks for that color. And maybe in regards to then the switching gears for a minute, the BMW partnership. You mentioned today that you expect material revenue starting towards the end of next year. I'm wondering can you maybe give us a little more granularity as to how you see those ramping up, maybe not necessarily quantifying it specifically but just at a high level can you just give us a sense of what that agreement will look like as those revenues begin to ramp up next year?

Omer Keilaf

Okay. So there are two parts to the revenues that are expected from the program. One is related to NRE, which was agreed was been that will to be provided at the SOP time. And the second part which is related to the sales of cars which will be equipped within these LiDARs.

Andres Sheppard

Okay, got it. And maybe sort of one last question if I may. In regards to the 12 prospectic customer agreements that you were working off of which it sounds like most of them are for passenger vehicle programs, so that's great. Is the -- hope is the strategy to -- I mean how likely is to secure those 12 agreements, should we be a little more conservative perhaps assume a handful of them or I mean how confident are you in those 12 programs?

Omer Keilaf

Look, I believe that in any one of them Innoviz is going to be or already is on the shortlist. And shortlist means that there is either one competitor or two. Our competitors are other tier 1's in the market because car makers would make their decision based on whether the supplier missed their group standouts. So you can probably estimate who might be our competitors and Innoviz too is very strong product both on performance but also from pricing and with a stamp of a tier 1 supplier now by very credible car maker which is the Volkswagen Group. Gives us a very strong position and removes any friction in any discussion we had so far with any car maker to become a direct supplier to their program.

I would say that we used to say that our conversion rate is one to three because that’s what we usually see between one or two companies competing on the RFQ in the last discussion. I would probably say that since we have increased our chances due to the recent win, I would probably at least take a 50% probability for my perspective. But you can be conservative and more conservative than --

Andres Sheppard

I'll turn off. Thank you. And sorry, maybe one last one from me if I could. In terms of the -- I guess -- do you find that now being recognized as a tier 1, is that -- maybe talk about that as -- has that given you additional credibility with these other OEMs, are you finding that having a tier 1 status has increased the likelihood of securing the steels or have you seen a quick improvement in the perception of Innoviz's product as a result of the tier 1 status?

Omer Keilaf

Definitely. I mean, before you had the ability to talk about how design win with Volkswagen is a direct supplier. They were car makers that is first perceived it as a risk but that was completely removed once we were able to talk about the fact that we're all -- we're able to go through the quality assessment forces to become a direct supplier to the group and to the all of the brands in the group. And therefore we've already kicked off with some car markers we're already kicked off the process to become a tier 1 meaning that eventually a car maker in order for them to add you to their supplier system, you need to go through a process and make sure that you meet their group standards.

All of their quality assessment for production, logistics, quality, software development. And since we were able to show that we passed that with a very credible customer. The motivation grew. And therefore those were already starting. And funny enough, now that we are a tier 1 to the Volkswagen group, and we are on their system as a tier 1. We were handed with an RFQ for radar to compete. We don’t plan to answer the RFQ. But it shows that once you’re qualify tier 1 to the car company, basically it opens a door or you can say connects a breach between you and the car maker to offer the different technologies. Because becoming a tier 1 is not related to the technology. It's related to the company.

It means that you are a reliable supplier that the company can decide to work with. And I find it as a very strong opportunity for Innoviz to grow going forward.

Andres Sheppard

Wonderful. Thank you, so much Omer. Thanks for answering all my questions. I'll pass it on. Thanks again, and congrats.

Omer Keilaf

Thank you.

Operator

Thank you. [Operator Instructions]. Our next question today comes from the line of Kevin Cassidy from Rosenblatt Securities. Please go ahead.

Kevin Cassidy

Yes. Thanks for taking my question and congratulations on the win. Just in the CapEx discussion you mentioned but it’s customer paid for the equipment. Can you give us a little more details on how that arrangement works?

Omer Keilaf

No. I mean, Eldar, do you want to?

Eldar Cegla

Yes, sure. So our basically our investment in CapEx is offset to decline. Meaning, if a certain client needs a certain capacity, he is paying for the specific line that he's using. So we are designing our own machines that build up the LiDARs. And we can very easily duplicate these machines and located everywhere in the world where it's needed. And the cost is covered by clients. So there isn’t additional burden on our cash flow.

Omer Keilaf

Yes, maybe I'll add to it and sorry Eldar. In order to build the LiDAR, basically there are two machines that we developed. One, is for the optical assembly. So there if you know these two became significantly simpler than InnovizOne because we only have one laser and one detector. So the cycle time all the processes have been really shortened. And the footprint of the machine is actually in the size of a very similar table to what we go looking at. And the capacity of every machine is quite high, it's in the order of a 100,000 or 200,000 LiDARs a year. And it's a very inexpensive I would say equipment. Eventually you can imagine and I showed it on the video, it’s a robotic arm that places the optics. And that's the design that we developed and we can build those machines.

And as Eldar said, eventually we can place them in different locations in the world where it's convenient for the different customers. The footprint is small, the portion of the production is simple because it's automatic. The ramp-up we are and then we have experienced that already with InnovizOne meaning that the production line which is consisting of this process. We design it and built it and tested it in Germany and we shipped it to the U.S. where Magna is managing this process and they are operating this.

And eventually, this is one machine. The second one is related to the testing. It's a similar is a chamber where you place the LiDAR inside and basically the targets that moving in-and-out we need to calibrate and test the LiDAR.

Once those machines are up and running, we can duplicate them and place them at different locations. They are not very expensive and they have quite nice capacity. Other than that when it comes to the PCBs, the electronic boards are very standard, I would say material. We don’t need to develop those process, those are very standard and we can use companies to produce the electronics. And the assembly is very simple. I hope it adds more color.

Kevin Cassidy

Yes. Thanks very much. It's great detail. And maybe just a simpler question on the LiDAR viewer. What's the configuration, is it going to be just one of your LiDAR or are there opportunities for this lets say lane change LiDAR or other LiDAR on the vehicle?

Omer Keilaf

It's a single LiDAR configuration. And I'm not sure really understand the second question?

Kevin Cassidy

It was just some talking about LiDAR for lane changing, side views.

Omer Keilaf

Well, the field of view. Yes. So, I don’t know if you've seen the video of the field of view is high enough. It's 120 over a 40 degrees which captures the field of view for any cutting scenarios and that is required by the customer.

Kevin Cassidy

Okay. Thank you.

Omer Keilaf

Welcome.

Operator

Thank you. You have no further questions. Please proceed.

Omer Keilaf

Okay. Thank you, very much. And I would say that in theme of this there is a rush of excitement. We definitely see the both of confidence from customer like Volkswagen is a dream come true. But also we are also seeing so many other opportunities that we are excited to have as well. And I hope that we will be able to bring them to the table as well and I'm sure we will. So thank you very much. And talk to you next time.

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