Q3 2022 View Inc Earnings Call
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Greetings and welcome to view Inc's third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Samuel <unk> head of Investor Relations that view.
Thank you Samuel you May now begin.
Good afternoon, everyone and welcome to views third quarter 2022 earnings call.
I'm Samuel <unk> head of Investor Relations at you.
I'm here with Dr. <unk>, our CEO and Amy Reeves our CFO .
Before we begin I'd like to remind you that after market closed today <unk> issued a press release announcing its third quarter 2022 financial results.
You May access this press release in the Investor Relations section of <unk> Dot com.
As today's discussion includes forward looking statements. Please refer to our press release for a discussion of factors that could cause the company's actual performance to differ materially from those forward looking statements.
These forward looking statements involve risks and uncertainties many of which are beyond our control and could cause actual results to differ materially from our expectations.
These forward looking statements apply as of today and we undertake no obligation to update these statements after our call.
There are no more detailed description of certain factors that could cause actual results to differ please refer to our Form 10-Q being filed with the SEC today.
In our earnings release posted today on our website and filed with the SEC on form 8-K.
I would also like to remind you that during the call we will discuss certain non-GAAP measures related to <unk> performance.
You can find the reconciliation of these measures to the nearest comparable GAAP measures in the press release Ralph over to you.
Thank you Samuel and thank you all for joining us for earnings call. This afternoon.
Very pleased with our results in the quarter and I am proud of the team as we continue to execute on our growth and track to our full year 2022 outlook.
Our prepared remarks, I'll address important developments since our last call and Amy will go into details on the financial performance of the business.
And a big picture level, we spent 14 years building, our technology and products.
Scaling our operations and serving an amazing customer base that loves our products.
We've also been through a difficult period for the last year and a half with the financial restatement uncertain macro environment and the need to raise capital in difficult markets.
This quarter was pivotal for view on several fronts, namely continued revenue growth.
Financing to capitalize the company and the impact of ITC the investment tax credit.
With all this in place we're now taking decisive actions.
And a 100% focused on getting the business to profitability.
First on the revenue growth.
We continue to execute on our strong growth trajectory with contribution from all product lines in particular momentum from our smart buildings platform.
For Q3, 2022, we're reporting revenues of $24 million.
Which represents 46% sequential growth in.
And 26% growth compared to Q3 2021.
Yeah.
While the real estate industry is going through change and uncertainty.
We feel confident about the secular tailwind in the industry and our customers continuing to adopt our products.
This momentum is occurring across all our key market segments.
Driven by the industry's need to build and upgrade buildings that are more sustainable experiential healthier and smarter.
We remain on track to achieve our full year 2022 guidance in the range of $100 million to $110 million.
And expect revenue a record revenues for the company in the fourth quarter of this year.
Second onto financing.
We completed a 200 million capital raise.
Through the sale of convertible notes.
We couldnt access the capital markets over the last year due to a restatement and being locked out of the markets until this summer.
While the macro environment continued to get tough raising capital in this environment is a testament to the value we've created in the business.
With this financing we are well capitalized to continue to execute our growth plans and path to profitability.
Equally importantly, this financing was led by strategic real estate investors.
It's actually exciting that our customers are investing in our business.
The lead Investor in this financing is Rx are the prominent New York real estate developer with over $20 billion of assets under management in our multifamily portfolio of over 7000 apartments.
We're excited to strengthen our partnership with Rx are and we look forward to working with them to accelerate the transformation of the real estate industry.
USA real estate and Anson funds, where the other strategic real estate investors in this financing along with the environmental strategies group of BNP Paribas asset management.
I'm also pleased to announce that Cognex, <unk>, chairman and CEO of IDEXX <unk> has joined <unk> board of directors.
Todd brings deep real estate experience and he's a big believer in moving the industry forward by building better smarter and more sustainable buildings.
His knowledge of the real estate ecosystem and drive for positive change in the industry match our mission perfectly.
I am excited to welcome Scott to the beauty and Couldnt think of a better partner for our journey ahead.
Finally, let's talk about the ITC.
The inflation reduction Act of 2022 was signed into law in August and.
And as a game changing moment for the adoption of smart windows.
The legislation includes smart Windows is a new energy property in the ITC alongside solar wind and energy storage.
These smart windows are now eligible for a 30% to 50% tax credit on the fully installed cost of a smart window.
ITC was the massive catalyst to drive widespread adoption of solar and wind and we expect it to do the same for smart windows.
The importance of this is that for our customers.
Net of the tax credit smart Windows are now expected to be the same cost as conventional windows.
And we have recently seen a dramatic increase in the customer interest.
Let me take a minute to go a bit deeper into the impact of ITC on our business as.
As it is fundamentally changing our business in three critical ways.
First on demand.
In the two months since ITC, we've seen a rapid acceleration in our pipeline and our contracting team is the busiest they've ever been.
<unk> has a proven product market, leading customers and the capacity and infrastructure in place to capitalize on this moment.
The last remaining friction to mass adoption was the incremental upfront investment to our customers and now ITC is expected to remove that premium.
Second on unit economics in order to drive the structural change in the real estate industry and the construction industry.
Our business has required significant upfront investments in capacity and infrastructure.
As you know we're shipping our fourth generation product that is very well loved by our customers.
And we've made massive upfront investments in long lead item production capacity.
The field support resources to execute large real estate projects in key geographies are also already in place.
These earlier investments in fixed costs now creates significant leverage in our business model.
<unk> and economies of scale.
<unk> increases the visibility we have on our volume ramp and accelerates our ability to achieve unit cost reductions.
Third, let's talk about the product mix.
And as you know we have three product categories Smart glass smart building platform and smart building technologies.
Last year, we started to shift from smart glass, where we used to sell components to our customers to smart building platform, which is a complete solution, providing a fully installed digital's scheme for the building.
We're seeing a dramatic acceleration of the shift from smart glass to smart building platform following the ITC.
This is beneficial to our customers as we delivered a full smart window system F scale and create delight with the users at the time of occupancy and operation.
This also allows us to capture more upfront revenue and more gross profit per project.
To summarize ITC, not only turbocharges smart window adoption and views topline growth.
But it also accelerates our path to profitability by increasing demand improving unit economics and expanding gross profit.
Now, let me talk about our journey ahead.
For full year 2022, we expect revenues in the range of $100 million to $110 million.
A significant topline milestone for the company.
Today, <unk> has a market leading product a lot of loyal top tier customer base, and growing pipeline and backlog and the capacity and infrastructure in place to support profitable growth.
With the significant tailwind from ITC, we're targeting to double our revenues in 2023.
Importantly, we're also targeting to become gross margin positive in 2023.
With that I'll hand, it over to Amy to cover the financials <unk> over to you.
Thank you al and good afternoon, everyone I will be covering the financial results for the third quarter 2022.
As I get started please note that unless otherwise stated my comments refer to non-GAAP results of operation, which excludes noncash stock based compensation expense.
Please refer to the non-GAAP reconciliations in our press release.
Fourth quarter, we reported revenue of $24 million, which represents a 26% year over year increase from Q3 2021 due to growth across all product lines, including Smart glass Smart building platform as part of building technology.
Our year to date revenue of $57 million represent the 25% year over year increase.
Our Q3 2022 non-GAAP cost of revenues decreased 4% year every year from Q3, 2021 primarily driven by a decrease in new contract loss accrual recently implemented cost savings initiatives in the factory and improved inventory management.
Actually offset by increased costs associated with the delivery of higher smart buildings platform revenues and higher production requirements in the factory.
Cost of revenues continue to improve as a percentage of revenues, reflecting the benefit of growing revenues over the company's fixed manufacturing costs and favorable mix shift to our smart building platform product.
As a result gross margin as a percent of sales significantly improved year over year.
We expect to see continued leverage in our gross margin as they forecast strong revenue growth for the remainder of 2022 and as we progress towards our profitability milestones in 2023.
Turning to operating expenses, you incurred $13 5 million and non-GAAP research and development expenses in Q3 2022 a.
A decrease of 60% from Q3 2021.
This decrease was primarily driven by a reduction in depreciation expense. Following a one time charge in Q3 2021 at $14 million.
The remaining decrease was attributable to the completion of R&D projects and the realization of cost savings initiatives as we focus on operational efficiencies.
As we discussed in our last earnings call, but the launch and ramp up our fourth generation product as well as the launch of smart building platform and new product offerings, and our smart building technologies behind US we anticipate a continued moderation of our non-GAAP R&D spend.
We incurred $24 million and non-GAAP SG&A expenses, which was relatively flat with an increase of less than $1 million from Q3 2021.
As Brian mentioned at the infrastructure required to grow the business support our customers and maintain compliance as a public company is largely in place.
And we expect our non-GAAP SG&A expense to continue to decrease as a percentage of revenues for the remainder of this year and in 2023.
As they leverage the infrastructure, we have built and progress towards our profitability milestones.
Just accumulate to the Q3 2022, adjusted EBITDA loss of $32 $9 million this quarter compared to $63 $8 million in Q3, 2021 reflecting the leverage of our expenses over our revenue growth.
During the first half of the year, our cash used in operations totaled $153 million on our last earnings call. We said that we anticipated cash burn, but improve in the second half of 2022.
We are pleased to report that cash used in operations was $51 million in the third quarter.
Second improvement from $82 million in Q2 2022.
This increase in pass throughs are this decrease in cash used was driven by leverage from higher revenues improved working capital management reduced general and administrative.
Followed by the completion of the restatement and the realization of certain cost savings initiatives.
We anticipate that our cash used in operations in the remainder of the year to continue to reflect a lower burn as compared to the first half of the year as they leverage revenue growth and focus on operational efficiencies and working capital management.
As Ralph stated at the start of the call, but you're 100% focused on getting the business to profitability.
Have the infrastructure in place to support our targeted revenue growth and we are committed to the keys to profitability, namely growing our topline with the right customers and projects.
<unk>, our factory economics with scale and execution and finally, a dedicated focus on operational efficiencies and working capital management.
With that operator, well open for questions.
Thank you.
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Yeah.
We have our first question from the line up all those wells.
Walter <unk> with Raymond James Please go ahead.
Thanks for taking the question.
Let me first ask about.
What you recently mentioned as the game plan, which is obviously becoming profitable.
You said that gross margin should turn positive.
By the end of 2023.
Assuming that happened as expected.
What is the additional amount of time you anticipate for EBITDA.
To turn positive.
Yes, Hi barbell.
So we're not giving precise guidance about the timing of EBITDA.
Positive, but let me give you some context.
Helpful.
So as we mentioned in our prepared remarks, as Amy pointed out we significantly reduced cash burn in the quarter Q2 to Q3 from about $80 million to about $50 million.
And we expect to continue to March on the revenue path.
Reducing unit economics are improving unit economics, as we ramp revenue and we're going to manage our opex to right size. The company based on the R&D needs based on the sales and marketing needs and of course G&A to properly run a public company.
And we expect that cash burn to continue to get better. So the sequentially. It should get better obviously will have bumping this quarter to quarter, but in the in the bigger picture. We do see continued improvement in not only gross margin, but also the path to profitability.
So and we are well capitalized for this next set of milestones.
And remember a factory when we achieved gross margin positive next year will still be at.
A fraction of its full capacity. So we still have all of those fixed costs that will be amortizing over more and more units.
So once we hit gross margin positive next year on a quarterly basis. We think were 111 turn of the crank away. If you will to getting to profitability because at that point that gross profit starts to pay for the opex.
And so the way to think about our business is we've made significant upfront investments in fixed cost.
And those fixed costs can be in the form of Opex, but they are also in the form of.
Investments in factory.
And every incremental dollar in revenue is accretive to our gross margin and so we do anticipate that it's one more crank away after that gross margin positive to be EBITDA positive.
Okay.
Given me inflation reduction that plot.
The fact that you're selling the full curtain wall and not just the panels.
You said your Fabs revenue potential has doubled.
Two 2 billion annually up from $1 billion.
What's the update.
Updated thinking about the long term gross margin profile, so I I remember from the back.
That you were talking about kind.
And about 60% 65%.
Gross margin in the long run as a steady state number.
Is that still realistic.
Yes, I mean, our revenue has now since we're selling a full system and not just the pure kind of let's say core data and technology components.
We plan to capture more gross profit.
In absolute dollars per building or per square foot shift no question about it.
Because we still have a lot of efficiencies to be had but a full window system will inherently have a slightly lower margin than if you just sold the piece parts.
But in reality per unit of buildings being built or windows shipped we expect to capture a lot more gross profit.
So and we're not guiding the percent percent of that at this moment.
Right Okay.
Good.
Hi.
My third question is about the competitive landscape because of the new subs.
Subsidy that that will be offered in the United States starting next year.
Do you anticipate that electrochromic glass.
Produced from outside the U S.
We'll be coming into the U S market as a way of.
Trying to chase.
That tax credit.
Well currently as you know, we're a big share of the market. We do have some competitors that are U S based at the moment.
Or at least some of them have U S manufacturing and components coming from elsewhere.
We don't see anybody commercially viable.
Foreign manufacturer at the moment.
But I think we're clearly proving that a smart window is good for people. It's good for the planet and we're on our way to proving that it is a great business. So as you can imagine there should be more interest in this space I would be disappointed if more people aren't interested.
So I think we are paving the way for the world to move them windows into smart windows and naturally there'll be room for more players.
But as you know businesses like this take time to build the technology to build the operations to build the field resources. I mean this is what we've been doing for the last several years and this is why its taken this kind of capital and investment and effort.
So somebody would have to catch up to that.
And I think the inflation reduction act and the investment tax credit not just for smart windows, but for all such energy properties have a base credit component, which will be 30%.
But then there is a 10% additional as written into law for domestic content. So as a domestic manufacturer obviously we qualify.
So if a foreign manufacturer were to come in obviously, they wouldnt qualify for that and then there is another 10% for energy properties.
Depending on where they are located.
So.
I think they'd have the disadvantage for the time being of that 10% domestic content.
But the much bigger factor to answer your question is somebody would have to start these technologies from scratch and built it into scale.
And then lastly.
On the residential opportunity, we havent talk.
<unk> talked about this for a while or are you still looking to establish.
Our footprint with residential homebuilders and if so what's the timetable for getting there.
Yes, it's a great question and believe it or not it's probably the single most common incoming we get into our sales desk is can you do my home.
As you know, we traditionally started an office and we're doing corporate campuses build to suits and of course, the spec build including office renovations in major cities.
Then we did airports and we are now well known in airports. We're in about 15 airports across the United States and I don't think you can build a modern airport today without a smart window.
We've done hospitals and our fastest growing segment right now is multifamily.
So you can imagine a 10 2030 50 story building, which has three.
<unk> 300 to 1000 apartment units.
Theyre kind of glass towers, and have great views theoretically, but have incredible issues of heat and glare and so what we found is that our product is actually brilliant in a residential environment.
The way, we deliver our product the way we contract our product the way, we engage with the customer base today, our business is best suited for a b to be like a sale and support.
And so we're staying focused on large properties, where we can deliver large quantities of product to one site and thats. Our primary path to profitability, we think going into single family at the moment from a business point of view wouldn't be wise yet.
Although for the same reason, it's brilliant multifamily it is.
Very brilliant in a single family home.
We're just not set up and I think our ability to capture profit will be harder should we jump into single family at the moment.
So for all those reasons.
We're gaining a lot of learning on residential user behavior, the way humans interact with the App and then that then interacts with the window. So we have a ton of learning we are gaining in a <unk> environment and how people engage with the window and engage with the electronics on the App that is.
To help put that over very easily into single family residential.
But I'd say stay tuned and then I'd say, we should be able to fill this plant and build a profitable business without touching single family.
So for all those reasons, we're staying focused on multifamily as the residential segment at the moment, but.
But it actually helps us someday get ready for single family.
Got it thank you very much guys.
Thank you.
There are no further questions at this time and I'd like to turn the floor back over to Dr. <unk> for closing comments. Thank you Sir.
Thank you all for joining the call today.
Im extremely proud of the team and what we've accomplished so far.
What an incredible moment for the industry and for view.
And we're poised for tremendous growth in 2023, and we have the capacity and infrastructure in place to efficiently scale, the business and support our customer growth in.
In 2023, we are targeting the achievement of key profitability milestones as we grow our business and.
And benefit from the leverage that's inherent in our business model.
And we look forward to talking to you all again on our Q4 call. Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference call.
You may disconnect your lines at this time and thank you for your participation.
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