Q3 2022 Innoviz Technologies Ltd Earnings Call
Our fourth production line.
And our second win is a tier one it also signals an exciting acceleration momentum delivering back to back production with just one quarter.
We will dig a little deeper into our pipeline later in the call, but let's first take a look at this most recent.
The new contract is with an Asian, OEM, who we cannot name yet but is on a fast path to becoming an emerging global E&P leader there.
There are some very important part of the field that I want to touch on.
First and foremost this is an extremely tech forward OEM. They took a close look at our technology.
And the platform.
Platform partners that we can integrate with.
And a decisively chose our solution over any other competition and in that process and also concluded that we are well positioned as a tier one supplier.
Additionally, there are currently targeting a fast ramp up of lighter installation on two models with a quick turnaround for S&P with production revenue is expected to begin in 2004.
And this deal articulated our long term strategy extremely well.
Very large deals like the <unk> deal, we announced last quarter are going to bring the volumes will rapidly drive our unit cost economics, lower and lower volume deals with brand are higher contribution margins.
And with each new deal we win we are growing our pre production and our revenues.
Revenues and securing increased funding of production machinery and tooling overtime, each deal will move us closer and closer to our long term margin targets.
From a global standpoint. This is our first automotive win in Asia.
Spending in these geographic reach and production footprint. This is an important step in our platform expansion efforts and highlights the incredible progress we'll be making on these pumps.
Combined with recent progress on the north the motive side.
<unk> is evolving into an increasingly important geographies for innovation and we hope to have additional news for sure in the coming quarters. As this market is rapidly developing for us.
Last but not least there is one more very important part of this.
And it has to do with the technology partner that we are working with for this customer.
As many of you know there are three leading autonomous driving platforms in the auto industry that operate there.
<unk> operating <unk> and the software stack that integrates assessing a perception inputs from the various adas components, such as Lidar and radar and camera.
With this deal announcements, we're excited to share that.
Now we have production awards, not demos or partnerships, but actual production award with two out of three main platforms in the industry.
Integrating with these platforms can be an important barrier to entry.
We leave that once you are in on the platform and you have the working relationship with the partner you can gain deep domain experience together and it could accelerate future business for both parties.
I want to encourage investors to not underestimate.
Of the two several of the RF Skus that we are currently competing on have already decided to use this platform.
We believe that having this working relationship can increase our odds of winning additional business in the deal.
Needless to say we are very excited about this development.
Now, let's spend a little time on why we are winning in the automotive market.
I picked up from some of my conversations with investors that there is a belief that the success in the laser industry is going to come down to one thing like Ranger resolution, but that is obviously not alone in our experience with customers who cannot simply win by checking one or two boxes you have to check all of them you have to be strong.
Among each of these categories price performance automotive grade manufacturing company maturity and the feedback that we've gotten from customers that we aren't winning these deals by one or two points, we are winning across the board on multiple fronts.
Just take it from us.
We wanted to share with video from events, we hosted in September celebrating the opening of our new headquarters with the large group of investors and customers from all over the world.
Big building that who knows what does it actually.
To allow us to meet.
Thank you.
Okay.
Yes.
Okay.
Consistent of all the places.
I was so impressed.
By the Big one.
Mitsubishi.
And the technology.
Wade.
Sure.
Never before the automotive industry has been under.
Thus the strong.
Change.
We're looking at them sensors picking out the best centers, which you can find in the market.
In the future we will work towards.
So this reserve.
All the merits.
Efforts since you are accomplished important and this is the fruits of all your effort in this deserves a big applause from everyone. So thank you.
Okay.
Thank you.
Many companies have one or two smart engineering idea how to solve specific problems.
It's not like the most promising one.
Making the best out of those connecting things and that's why we decided to Cvs. Thanks Brandon.
Okay.
And today I think there's probably a dozen maybe a little bit more than that companies that are worth talking about.
Each of them I believe are now public independently, including in events of note.
So you also have to talk to the customers you have to talk to tier ones to the Oems and so that's what we get is how we evaluate it is overwhelmingly positive feedback renewable diesel.
This is sort of how we think about the industry and why we think <unk> is the leader.
Thank you.
Two years from today.
We continue to.
Make progress and develop the right technology to allow the use of <unk>.
Jason.
Yes, we will.
Nothing is better than hearing from our customers and partners.
Okay.
One of the other point that I want to make about our strategy is that we are in this book was the level two plus level three sweet spot of the automotive industry.
There has been an increase in headlines recently, highlighting the progress with level five autonomous driving is moving slower than hoped it is increasingly more looking more like <unk> 35, or even later than we wanted to take the opportunity to remind investors that it has been long our view that full level five autonomy was going to take time.
Yes.
And this is why from day, one we built the company strategy around focusing on the level two plus level three level four categories in the economy.
The recent developments of Oems, either deemphasizing or isn't fully tested and delivered five effort is happening at the same time that they are realizing that many customers are growing frustrated with level, one and level two active safety solutions like forward collision warning and lane keeping assist.
With some drivers turning the features of daily.
Looking at both of these trends together Oems are quickly realizing that level, two plus and level three autonomy systems are likely going to be the biggest differentiating factor in the automotive industry, although the next decade.
See this in our pipeline next slide.
One of the major milestones that we track that we track for our business is our OEM shelf.
Since we believe that once we are on the shelf and validated with an OEM and integrated into their software stack becomes easier for them.
Are you into more and more product lines.
Once your embedded you shouldn't be able to grow with that OEM is lidar based LTE plus and elsewhere systems are rapidly democratize and moved up the S curve over the next decade.
On that basis, our OEM share. His extensive day is roughly 15% of the global automotive market and if you look at our pipelines and the rights. We have 11 Oems that are either <unk> or RFP process collectively 11 Oems with <unk>.
Approximately 40 million vehicles per year, representing an additional of 42% of the global market when combined with 15% share of currently in the order book means that the company either has business are actively competing for new business with Oems that hold roughly 57 per se.
Of the global automotive market.
This pipeline includes many of the worlds largest Oems and a full of them. If you are familiar with in fact six of the Oems have annual production levels of 4 million units or more.
And the average production within the pipeline is about $4 2 million billion.
What's even more important areas that we believe that nearly all of the pipeline decisions will be made by 'twenty four with most of these decision likely to close in 2003, when I meet with investors I'm often asked why we should occur now.
Let's talk again when production starts.
But the question is missing is that there is a sizeable langworth taking place right now and the bulk of the early market share is going to be awarded in the next six to 12 months.
And lastly, we think this is going to be a winner takes most market with asking delayed and this market share would be very sticky for the next decade or more.
Now, let's transition from the long term.
Awesome.
We've had some very exciting developments in the third quarter that I want to spend some time.
First I'm excited to share that during the quarter, we began shipping the samples units originating from the only Michigan production line. As a reminder, that this asset is a version that ultimately is going to go to full production that needs to be produced by the final production tools and processes.
The design is already automotive grade and this is the last page of the process is used by the Oems for the final manufacturing validation before moving to serious production.
See the photos how excited we are to be disclosed for the start of the production of our customers.
One of the other exciting developments this quarter relates to the upgrades we've made to the production processes, which were acquired as part of reaching that these sample milestone.
Production process upgrades are amazing power laser with power plant downtime from our headquarters.
Which included the movement of the calibration and testing lines within our buildings.
I don't want to understate the scope of this effort I personally spent many many late nights with our engineers implementing and reengineer. The process. So we can maximize returns and minimize the time downtime so far you.
All lines.
This was a crucial step in our plan for the next stage of our strategy as it removes the key bottleneck in our production. This development achieved two important things number one it helps prepare for mass production with BMW in the shorter programs launching next year and number two it will unlock more units.
Our sales in the automotive market, beginning this quarter and ramping into 2023.
In the past the majority of our production units will be prioritized for larger volume automotive customers, but now with this upgrade we will be increasingly able to pursue both markets independently and more equal measures.
While we haven't been as vocal about our progress in the non automotive market as we have been in the market. It has the potential to become an important part of our business and we have made some early success, including the deals and partnerships on the third quarter are listed on this slide.
Both the takeaway here for investors is that every time, a customer chooses to work with our lighter solution. It's a validation of both hardware and software.
Of course, not every deal is that the size of Volkswagen and BMW, but each announcements we make here is a situation where a customer takes a closer look at our technology compares to the competitive environment as well.
This validation and early momentum in the automotive markets, coupled with our increased ability to ship unit is an important development. When you combined all of the various stems from the North American market. It can approximate that down onto the market.
And the product design cycles are shorter so the revenue can come on faster and they tend to be at higher gross margins.
It's a perfect complement to the automotive market where volumes can be in the millions of units, allowing it to reach market leading unit cost economics once those volumes come on and predict a step back. There is these are both the billion dollar Tam.
That we are showing great progress.
And to accelerate our successes in the automotive market, we are planning to increasingly work with distributors distribution partners.
Fact next week, we are launching our first ever repay long global distributors Thomas here at headquarters in Israel will be hosting nine industrial and technology distributors from across Asia, Europe , and North America.
<unk> hit them on our technology are of them with our marketing tools and introduce them to our opening in logistics platforms.
Engaging distributors.
As an important evolution in our go to market strategy is.
It's a lower cost way to amplify the efforts of our sales expanding our reach in nonautomotive quickly and without meaningful increases to our head count and fixed costs.
As we've said before 2023 and will be an important year for our growth in automotive bucket and we're making progress in building the partnerships and the overall foundation for success in the coming years.
With that I'll turn it over to Dow will go over the financials.
Thank you Omer and good morning, everyone.
Starting with cash we continue to maintain a high liquidity levels with approximately $218 million in cash short term deposits restricted cash and marketable security on balance sheet as of quarter end.
And as we have said in the past our cost structure has already largely mature so our operating cash outlays remain mostly stable during the quarter and were in line with our 2022 budget.
Moving to income statement revenue in the quarter came in at zero point $9 million compared to Q3 2021 revenue of $2.1 million.
The quarters were impacted by the upgrades, we made to our caliber.
Calibration and test line during the move of our company headquarters as O'meara previously discussed.
While the timing for the upgrades took slightly longer than expected the investment was growth worth it given the meaningful improvement in throughput.
Reduced changes behind us, we expect our revenues cadence to normalize going forward.
An opportunity to integrate with one unit deliveries in the coming quarters. In fact, our current unit delivery in Q4 2022 have already surpassed Q3 2020 through delivery.
On the cost side operating expenses for the first quarter of 2022 were $31 $3 million, an increase from $30 million in the third quarter of 2021. This included $4 $9 million of share based compensation compared to $8 2 million.
In Q3 2021.
The year over year increase in operating expenses, primarily due to an increase in head count during the quarter, partially offset by the lower level of share based compensation research and development expenses for Q3 2020 through work directly for $2 million an increase.
$26 million in Q3 2021.
<unk> included three $2 million attributed attributable to share based compensation compared to $3 7 million in Q3, 2021.
In conclusion, while the setback in our unit deliveries this quarter were slightly larger than expected the volume should be recovered in the following quarter and the long term benefits that we expect to unlock.
<unk> Delaney from Goldman Sachs.
Yes. Thank you very much for taking the questions. The first one is I'm wondering if you can give any preliminary input on how well <unk> is doing with the one to three OEM decisions that could be made in the next six months and can you elaborate a bit on how impactful being qualified with two of the key platforms has been with those.
Decisions.
Okay.
So I would say that those.
Opportunities and we are already at the shows.
Yes.
And then generally I would say that a very strong position we've heard several times.
Award with VW.
Very meaningful.
And.
One of them is.
So one of them is using one of the platforms. The other one is losing the other.
And the third.
Actually I'm, not sure which platform they're using.
But I will definitely say that.
From the first two I mentioned.
That's.
Already integrated into those platforms is a key advantage.
Okay. That's helpful. My second question was.
If you can give more of an update on how the <unk> sample process is going and any more clarity you can provide on when do you think the company will be in serious production. You said next year for a couple of programs, but is there more granularity you can share or is it more first half or second half weighted.
Sure, maybe I'll explain a little bit about what we've done in the last quarter.
Moving from <unk> resistant genes.
Means that the product see sampled the product needs to finalize.
All of the design validation for the <unk> related to the production validation so youll need to start in December when on the production processes.
Done.
Before starting the discipline, we have to go through all of the needs of changes.
On the open issues, we had in our production processes in order to meet that milestone. So we started shipping.
And now we are doing.
Ample production validation.
And basically that next year.
Hopefully by the beginning of the year.
Here, we are already able to.
With the start of production of our customers.
Thank you.
Okay. Our next call comes from Jared My morning.
Strong banner Bank. Please go ahead.
Hey, Good morning, guys first of all great great to see my colleague, Mike, Oklahoma video referencing our channel checks and there is no doubt the feedback from those customers and prospective customers. So you guys are in a great position.
First question for me you guys talked about it on the press room out on the call as well but.
On that on that new platform partners.
Given your existing partnership with Qualcomm.
As you guys pointed out that kind of leaves them video are mobilized either one of those obviously great to kind of hit yourselves to.
So I guess the question is can you expand a bit on what the mechanics of that relationship bar and then given the key a key competitor has called out past partnerships with those platform partners can you explain how your competitive positioning in the procurement process changes for you.
Sure.
So the way it works with these platforms or maybe specifically with this one.
The way that they work with existing customers is that it's actually the customer decision on which central like to source.
But eventually there is a lot of value.
Once they are already using your central collecting data practicing their algorithms.
It is.
It moves a lot of <unk>.
Overhead on doing that again and eventually although it's the customer decision in which central they want to use.
Is there certain I would say overhead they might be to pay if they want the platform to support the differences, though so in general I would say the fact that we were awarded to our program.
<unk> platform is giving us a huge benefit.
Maybe the customer the future customer a huge benefit because the leveraging of existing efforts going on and with <unk>.
The whole program costs will be lower.
I hope it's clear.
Yeah, No definitely things AMR and then a second question.
Great to hear the update on the forward looking order book just on order books in general we've been trying to get a better sense of how the kind of top water players are approaching those calculations alongside the customer.
So can you help us better understand how estimates on things like take rates are right. There and then if any unconfirmed wins are considered in there like what some of your peers are doing.
So, let's turn to the design wins, we have and those are based on volumes that were provided as part of the Q, we give some weight weighted.
Measure to these different scenarios that are given to us and based on the number of vehicles that are expected to be included.
Across.
Several years of the program.
Yes.
We are assuming a moderate.
Take rate, which is starting from 1% to 14%.
It's actually different between the different programs the cost per passenger vehicle.
There is more clarity on the number of vehicles.
For customers specifically on the southern program.
This is based on just the volumes that we got from the customer itself because there are no.
Volumes out there already.
Got it that's it for me thanks, so much.
Sure.
Okay. Our next question comes from Andres Sheppard.
<unk> Cantor. Please go ahead.
Hey, <unk>. Thanks for taking my question and congrats on another quarter.
A few quick questions from me in regards to the revenue numbers sales or so.
That was a little bit lower than Q3 in 'twenty, one looks like the primary reason Wes.
Downtime from the company's headquarters move.
I'm just wondering can you expand a little bit on that and I know youre not guiding Q4, but.
Should we expect a stronger Q4 finished the year. Thanks.
So it was very important for us this move.
Our bank is primarily due to the upgrade that we did in relation to the <unk> sample that stage if we.
Transition to reach means currently the lucrative.
Much better than we had before and as I said already know the deliveries that we made.
At this point in Q4.
Larger.
<unk>.
Deliveries that we did last quarter so definitely.
I expect the momentum to pick up.
That may be.
One important change from last quarter is the fact that we won another program.
We have.
Some NRG that.
To add some considerable NRT, essentially yes, which really impact us already next year. So this is something very important when we won that.
Nice program that will contribute to our revenues.
Next year as well I want to maybe add to this if I may.
The company pursue the promoters.
Our commitment to our customers such as BMW.
To follow their quality requirements moving to the dissenters required us to modify our production processes to meet with any.
The climax, so it's not only the product could be.
Great also.
Although the production tools and processes to meet silicones requirements and we had so we had those open issues to recover now to move to 50 sample in a way we have to sacrifice the short term in order to.
Do those necessarily changes so we can move to the <unk>. So the downtime was I would say unavoidable.
But in general it is.
Both of our customers that we're expecting to launch each year.
And maybe to add.
Through the <unk>.
Recent design wins and as Doug said.
This recent design win there are two very important elements related to the revenues. One is as I've said is significant.
Significant.
Yes.
But also the production tools the customers funding cost of the production.
Another element, which is supercritical is the fact that this program also the disciplined our skus that we were completing wells the ones that prolongs the earliest and with quite substantial volume already in 2024.
So for US it was very strategic to wind this program.
Because it allows us.
To see growth of our revenues.
I would say is a good way.
Already in 2024.
Wonderful. Thank you that's very very thorough I appreciate it.
Quick follow up.
Earlier this week, we saw some consolidation in the light our sector with the merger between <unk> and Vela data, which I'm sure you're aware of.
Im just wondering maybe Omar.
In regards to strategy is this something that you might.
It might be considering obviously you guys have great partnerships with BMW Carryout the Asian OEM. So in some ways. You are ahead of the competition I'm. Just wondering are you exploring or contemplating any.
Any M&A activity. Thank you.
No I'd say, it's a it's a good question.
So I can share with us.
Over the year, but we came across the different.
It is coming from banks et cetera.
<unk> that kind of path.
I'll say that in my point of view, the only thing that matters for us.
Is whether this acquisition will help us to gain momentum in the automotive space.
And whether the technology that we might need in order to have a better offering into the market will help us to do that.
From that point of view.
Didn't see any we don't see a reason to look at disciplined look.
Approach got.
Got it fair enough and maybe one last one if I could.
Eldar, maybe for you can you just remind us on your capital needs. How are you thinking about.
Capital raising needs as we go as we approach 2023 and beyond.
Yes, yes. So basically we are looking at next year in terms of what are the expected.
Revenue or inflow sources.
And as I said before we expect both the launch of the premium W program, which will both.
Generates.
The final and I read that we are expecting there in revenue, we expect a sharper programs.
To launch.
We have additional <unk>.
Revenues coming from new clients in Asia. So we have some.
Got it.
I expect that these flows.
In addition to that we have.
Our strong cash position.
So I think we are in a good position.
Of course, there might be certain opportunities depending on what we're doing in the market currently.
This is our plan.
I'll add to that as well.
Sure.
We are pursuing additional programs right now.
It's all gone.
Competing with us.
Essentially the MLB requirement.
It also supports our.
<unk>, which is quite meaningful.
So in that manner.
All of our needs.
We are also I would say the company.
Organizational structure is at Lilly.
Say efficient.
The way the company is able to support different programs is based on the fact that the technology is highly.
Flexible.
And it's actually missed the required the requirements was seen.
As such it doesn't require a lot.
Okay.
Meaningful.
The need to grow the company to support additional customers.
Basically with every company that we need to support the headcount is not that's not required.
<unk>.
Meaningfully.
Wonderful. Thank you very very much again, thanks for taking my questions. Congrats on another good quarter and I'll pass it on thanks guys.
Thank you.
Our next call comes from Sonic <unk> from JP Morgan. Please go ahead.
Hi, Thanks for taking my question and Hope you can hear me.
I guess, a couple from my side and I'll ask them together in one.
Firstly in terms of your pipeline can you talk about the sort of geographic diversity or sort of how the pipeline looks like in terms of the split between the deals are the Oems there and are there any geographies that you feel you are sort of under presented today and even in terms of the pipeline I need to focus more.
Invest more towards over the next 12 months or so and the second one the question I had was around this new win that you have where the customer is trying to rush to light <unk> production in 2020 full of addition, OEM that you referenced.
The company is the latter a company thats been providing safety how are you trying to mitigate some of the rest of the OEM trying to rush. This proceedings production what is allowing the customer to justice are compressed timeline that the software stack.
<unk> is much more developed but they're more concerned about the software side how.
How do you as a company that would mitigate some of the challenges in trying to balance sort of safety versus compressing the time line to production.
First of all thank you for the questions.
Starting with the first question graphically we are spread now I mean, we started with German in Germany.
Because we saw it as the base.
The automotive market.
Say that even some of our.
Even though our Asia, new customer R&D team. If there was a big theme there also in Germany.
It is also helpful.
But other than that we are.
Currently in discussion on within those 11, Oems I would say that focus.
It's everywhere.
Japan.
Yes.
Other areas of Europe .
I don't think that we have a blind spots.
But glenn slipped by definition is probably something I don't know, how but I think that we I don't think there is a carmaker to that person.
Who is joining the lighter now and we're not.
Engaged.
So I hope that answered your question.
I think that the.
Maybe just on <unk> I think that there is good progress progress in.
In Japan now.
Moving faster.
Also.
In the U S. Following that.
Other than that the second question about safety.
The second program, the new program that I've mentioned.
The partner.
He is responsible for the overall.
Driving decision and testing is a very credible.
<unk>.
And I believe that eventually there would.
<unk> managed to do eventually they are responsible for all of us.
Driving.
And safety.
Are responsible for the lighter and the perceptions cluster, but eventually I believe this is it.
This is with a very credible team behind it so I'm not concerned.
Thank you.
Okay, I would like to.
Cash over the next question to.
Mclean Oliver.
Wrong.
<unk> Black Securities. Please go ahead.
This is our mcclain on for Kevin Cassidy.
So let me ask a question.
I had a few questions around the <unk> 360 RF cans.
Have you already started accumulating RF queues and as the process different than the automotive market and I had a few follow ups. Thanks.
Sure. So the short answer is no.
<unk> was designed based on discussion with a specific customer, but generally speaking I would say that the end of the 2016 would be delivered samples of different customers.
<unk>, maybe there is maybe there is one RFP.
But I would say that generally speaking the automotive market is not yet at the stage, where led before is making meaningful progress.
In terms of making decisions on the product, but we do see that trend going there.
So I believe that.
In terms of I mean, basically we started to develop <unk>.
69 that stage would come and I believe that next year. That's the time that we'll start to see more meaningfully.
Right now the discussions are more on the I would say the technical aspects to see that.
We designed the system.
It's mixed.
All of their needs.
But no I would say rfps.
The automotive market there are discussions on automotive.
Customers I would say that one of the changes made to the product.
As related to discussions about.
The industrial design, many customers that we have shows.
The product it made their comments about having a more seamless integration just by having a product that is more similar in terms of shape.
And therefore, we did change the product the way it looks and connect.
And we hope to show this product by the end of this year I think it would be very disruptive.
Technology, because it introduces a very significant improvement of the price performance.
Today by others.
Okay. Thank you that's helpful.
And for those RF queues.
About how many competitors do you have is it kind of the same.
About two to three as before.
So I would say that.
The difference.
<unk> disciplined geography, sometimes introduce different competitors.
In general, we mostly compete with tier ones.
Some.
Of all the tier ones that youre, probably familiar with that have their own lidar.
And I would say that.
In general, we don't really see a lot of the lighter.
The other lineups compete directly.
Okay. Thank you again.
That's all for me.
You're welcome thank you.
Thank you very much that shall concludes our Q&A session for today and I would like to pass the call back over to Omar. Thank you.
Okay.
Okay.
Okay. Thank you everyone.
Joining us today I just wanted to take a minute to give you.
Advertising for CES, we're excited to meet with both customers and investors in January at a conference without saying too much before we plan to highlight not just our technology, but some of our actual products that are integrated.
And we will showcase some of the capabilities of our new <unk> hundred 60, <unk>, Ireland, which is going to be an exciting. New addition to our product suite and an important part of our continued growth both the automotive and automotive market.
So in vessels that Luke.
It is not looking to connected events. This spring to free to reach out to our IR department directly with the email address on this slide.
Or in the press release or in the prices.
We will help you find the time to visit on the booth and meet the team.
Okay with that said I'm excited.
This stands today and the progress we've made over this quarter. Thank you for joining us and with that we can handle.
Thank you very much.
Okay.