2023-10-12 13:55:17 ET
Summary
- Innoviz Technologies Ltd. completed a capital raise below the market price, causing the stock to plunge.
- The Lidar company eventually needed more capital to fund its business, but the timing and pricing of the offering spooked the market.
- Innoviz has boosted its revenue forecasts and has potential for growth, but investor confidence has been reduced.
As with all speculative growth stocks, the last couple of months have been brutal for Innoviz Technologies Ltd. ( INVZ ), which didn't help their cause with an unwarranted (in my view) capital raise , causing the stock to plunge. My investment thesis is ultra Bullish on the stock, but Innoviz has a lot to prove in the quarters ahead.
Source: Finviz
Surprise Capital Raise
Innoviz traded up to $4 at the end of July, and the company completed a capital raise on August 10 at an offering price of $2.50. The Lidar company sold a total of 26 million shares with an option for 3.9 million shares to raise gross proceeds of at least $65 million.
The offering was devastating because the company didn't appear to need additional capital immediately and the pricing was extremely low at only $2.50, considering the SPAC deal at $10 and the stock price prior to the offering. Innoviz had just reported Q2 2023 results with a cash balance of $130 million a week prior to announcing the secondary offering.
Clearly, the Lidar company needed more capital to fund the business into late 2024 and material production deals going into 2025. The issue is Innoviz management spooking the market by completing the deal despite the weak pricing, whereas other companies in similar industries easily raised funds via deals with partners, and the order book of $6.9 billion would surely appear to support a higher institutional investor interest.
Innoviz only had a market cap of $350 million at the time, further raising questions about the desire to immediately sell stock in the hole. On the earnings call a week prior, CEO Omer Keilaf even discussed the company working with partners for prepayments in order to strengthen the balance sheet :
So, we are expecting some NRE already this year and we're talking about bookings of NREs that the high end of it and our target is $70 million. In front of us, there is a bigger opportunity, which is very meaningful in our ability to fund our activities. I would add that in part of this, we are in discussion with our strategic customers in regards to pulling in prepayments and NREs in order to strengthen our balance sheet.
The stock price is now below the offering price, so maybe the management team was justified in raising capital at $2.50. Since the close on August 9 when Innoviz announced the secondary offering, the stock has only fallen slightly more than Luminar Technologies ( LAZR ) in a sign of the overall Lidar sector weakness.
Revenue Boost
Innoviz boosted 2023 revenue forecasts from $12 to $15 million to $15 to $20 million in an indication of growing prospects for the business. The company starting shipping Lidar units to BMW ( BMWYY ) for the 7 Series, but 1H revenues were hit from shifting from sample units to Lidar components sent to Magna International ( MGA ) as the Tier 1 supplier for full integration with BMW.
Nicolai Martin, SVP of Driving Experience for BMW Group, made the following statement about the Lidar relationship with Innoviz:
We are very pleased to have Innoviz develop the first B-samples of this new lidar generation and hope that the results of the B-sample phase create a basis for a possible future extension of our collaboration.
The problem with the secondary offering is that investors fear the order book isn't actually accurate. Polestar ( PSNY ) just announced a deal with Mobileye Global ( MBLY ) to use their Mobileye Chauffer service for the Polestar 4. The Polestar 3 used a Lidar chip from Luminar Tech. and the companies apparently had a deal for the Polestar 5 as well, though Mobileye has long used a Lidar from Luminar as well.
Innoviz reported Q2 revenue of only $1.5 million with a forecast for a boost to $3.0 million in Q3 and a massive jump to $11.8 million in Q4, presumably for the BMW vehicle. Under this scenario, Innoviz would easily sell shares at vastly higher prices than $2.50 per share, again questioning the need to rush out and dump shares on the market in the hole.
The Lidar company went through a rough period in the last couple of years with reported quarterly revenues in the $1 to $2 million range, with the 1H taking a step back. The BMW production launch and signs of actual breakout revenue growth was a positive sign of why the company shouldn't have accepted such a low offering price.
On the Q2 '23 earnings call, the CFO forecast revenues would double in Q3 based on orders already in hand when the call took place in early August (emphasis added):
...expect revenues in the third quarter to approximately double versus the second quarter, driven by a combination of high NRE service revenues coupled with additional unit volume growth. In fact, we have already secured orders for the third quarter surpassing the revenues in Q2 and we are only in the five weeks into the quarter.
Innoviz forecast 1 to 3 additional programs from existing customers, which is basically BMW. Volkswagen AG ( VWAGY ) is the other main customer, but the Lidar company hasn't talked much about them since announcing the big $4+ billion order. Also, Innoviz forecasts another 2 series production awards this year with new customers, when the stock only needs the existing customers to meet financial projections to reward shareholders.
Takeaway
The key investor takeaway is that Innoviz Technologies Ltd. executed a devastating secondary to shareholders. The company didn't need the immediate cash, and the offering price reduced investor confidence in the potential of the business. The stock should rally on Innoviz hitting financial targets for the 2H, regaining investor confidence in the process.
Investors should use this weakness to load up on Innoviz.
For further details see:
Innoviz: Recovering From Devastating Capital Raise