2023-03-11 01:36:04 ET
Summary
- The production of the BMW deal is two years late and will have small revenue in 2023.
- The order book for Volkswagen describes a $4B revenue potential, but revenue is years away.
- In my take, sale of equity is a must for Innoviz to continue, but the future is unclear.
Introduction
I expected 2023 to be a year of meaningful revenue delivery for Lidar front-runners. Yet, Innoviz ( INVZ ), seen as one of the market's two leaders, has disappointed. 2023 is also the year of the 5 th anniversary of the Innoviz and BMW ( BMWYY ) deal to put a sensor called InnovizOne on consumer cars. At the time, forecasted with a $2B of revenue potential, production was to start in 2021, but for now, it will have an unknown contribution level to the projected revenue of $12M to $15M.
Magna International ( MGA ), an assembler of cars and automotive parts, is part of the deal between the two. In return for putting the Lidar chipset components to be assembled into a Lidar system, Magna received preferred shares issued by Innoviz worth $14.8M. Magna is the one who paid Innoviz $4.5M in 2021, constituting 82% of revenue for that year.
Until now, BMW confirmed that I7 EV would have a Lidar sensor. In Europe, I7, from August through December 2022, sold about 600 cars. In January 2023, I7 represented around 40% of EVs sold in the U.S. In 2022 BMW sold around 15K EVs in the U.S., and the group sold about 172K electric vehicles globally.
At one point, I7 sales were estimated to be only 7K cars per year, which at $1000 per sensor would amount to $7M. Of course, if more EVs were equipped with InnovizOne, the company could dramatically improve its revenues. By how much? We do not know. Innoviz took no opportunity to see beyond 2023.
The second deal, announced in 2022, is a relationship with Cariad, a software subsidiary of the Volkswagen Group ( VLKAF ). The company describes the deal's start of production or SOP as the middle of the decade (2025-2027 author). Per the usual optimistic presentation, at least one OEM deal with the unnamed client in Asia is listed, along with statements about opportunities across brands and models. Noticeably, dollar figures are missing, as the slide from the Q3 (below) is no longer part of it. According to the CEO, Omer Keilaf, calling out estimates like that gives away a competitive advantage. In my interpretation, using figures like that requires risk disclosure insisted on by the U.S. Securities and Exchange Commission.
Q3 Innoviz Presentation Slide (Innoviz Technologies Inc.)
Such an additional disclosure has been added to the front page, essentially calling the order book and NRE (non-reoccurring bookings) to be no more than a prediction based on expectations and assumptions. As the majority was fully aware of the situation, we can clearly describe the $2B as a prediction based on the expectation that 2023 will assist in delivering $15M revenue. Unless revenues are there, nothing of those predictions can be taken as accurate or guaranteed.
Q4 Innoviz Presentation (Innoviz Technologies Inc.)
One surprise is the inclusion under the same disclaimer of the following text "regarding the services offered by Innoviz, the anticipated technological capability of Innoviz's products." The capability of the products is also a prediction in anticipation and expectation. That dramatically changes how successful the company sees InnovizTwo based on what it can do, especially since both sensors InnovizTwo and especially Innoviz360 are prototypes. The company has never mass-produced any of its products. Magna will assemble components into a Lidar system based on chipset components from the company for InnovizOne. Still, other products cannot be guaranteed the same result in mass production as a prototype, which makes a lot of sense, and what the risk disclosure thoroughly tries to cover.
Innoviz spent $305M on research and development from 2019 to 2022. I imagine the company will continue to move InnovizTwo, described as a B sample today, through the next steps of the development cycle by spending as intensively as in the past to reach D sample status.
As my observations in all my articles emphasize, the Lidar industry is a highly contested and expensive enterprise. In 2021 6 publicly listed companies spent $395M on R&D. So far, Luminar ( LAZR ) and Innoviz spent $280M in 2022, including stock compensation. To stay in a pack, companies cannot stop improving and investing in technology. In my opinion, taking on too much or not having enough budget to develop sensors or software is catastrophic for the future of the Lidar company, as catastrophic as not being able to produce revenues. In 2023, MicroVision ( MVIS ) and Innoviz expect top-range revenue of $15M and Luminar $80M.
Opex Spent 2022 in MM (Financial Statements Yahoo- Author)
Therefore, it is so essential to understand how Innoviz will be able to deliver itself to those timelines with those costs. The company used $118M of cash based on the cash line in the balance sheet in 2022. The product revenue of $6M was achieved by spending $14.7M, resulting in a negative gross margin of 145%.
Net Cash Used in Operating Activities 2022 (Financial Statements Yahoo - Author)
Innoviz CEO Kalif or the CFO Cegla has not provided any expectations on capital expenditures or operating expenses for 2023 nor attempted to explain the path to profitability. Based on all published disclaimers and, so far, the execution with Magna/BMW, I imagine those are difficult to predict.
Financial status
Innoviz has $186M in cash. I estimate that spending a similar amount as the company did in 2022 will leave Innoviz with $53M cash to open for 2024. I have checked predictions for 2024 with Yahoo's posted analysis, which shows $77M in revenue.
As my analysis illustrates, I expect a forthcoming equity offering, ranging from $120M to $262M, varied by the gross margin.
I have made a quick table of revenues and operating expenses impacting the level of cash for Innoviz using variables of 20% and 25% gross margins. I am also very optimistic about operating expenses, which have very little spent on the G&A expenses of $10M in 2022. I am increasing it as revenue grows.
Based on the table, an equity issuance worth $190M to $262M would deliver Innoviz to 2028, a year of breakeven or profitability.
I only use $1.84B being conservative about Volkswagen SOP and revenue from the BMW deal. To remain inclusive of what is published, I also use Luminar's gross margin of 35%. Innoviz must sell only $ 120M of equity to reach the breakeven point a year sooner, in 2027.
Disclaimer: All my work in the revenues and breakdown by year are pure guesses. I feel like Innoviz, to offer my disclaimer, this work is an absolute assumption and an attempt to see where the company is heading.
Forecast for Breakeven based on the equity sale (Author)
Innoviz market cap is $540M. That is a lot when the company produces only revenue of $15M, just about 36 times the price/sales. Yes, Luminar is 42 times of $80M revenue in 2023, but the company offered triple-digit percentage growth every year after. The market can choose to build on those numbers or reject them. In the case of Innoviz, we are not even offered expectations; we need to guess.
Conclusion
I believe the low revenue prediction for 2023, lack of cost expectations, and undisclosed cash burn without a replenishment strategy, combined with continuous potential rhetoric, have failed to support the company's market capitalization.
The risks with projected revenues and margins and the impending equity sale have already produced downward pressure on the stock. Any hiccups, and the company is financially too frail to reach its deal milestones, even if the product is attracting "design" deals on paper today.
To be clear, my lack of confidence can be cured if the company offers long-term projections with the yearly operational expenses and sources of cash. Describe real revenue expectations; The company must also produce a manufacturing strategy with costing mechanisms. For me, the power of a PowerPoint presentation has reached its limit, and revenue must speak. I would not recommend buying the stock. At best, in my view, INVZ stock is a hold.
For further details see:
The Reality Of Innoviz Order Book May Surprise You