View Inc. Q1 2023 Earnings Call
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Good day, good day, and thank you for standing by welcome to the views first quarter 2023 earnings Conference call. At this time participants are in listen only mode. After the speaker's presentation there'll be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question Press Star one one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to Samuel <unk> head of Investor Relations have a great day.
Good afternoon, everyone and welcome to abuse first quarter 2023 earnings call.
I'm Samuel Mann head of Investor Relations at view.
I'm here with Dr. <unk>, <unk>, our CEO and Amy Reeves our CFO .
Before we begin I would like to remind you that after market closed today <unk> issued a press release announcing its first quarter 2023 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.
For a more detailed description of certain factors that could cause actual results to differ please refer to our filings with the SEC, including our most recent annual report on Form 10-K, and subsequent filings, including quarterly reports on Form 10-Q.
I'd like to remind you that during the call we will discuss certain non-GAAP measures related to views performance.
You can find the reconciliation of these measures to the nearest comparable GAAP measures in the press release.
Now I will turn the call over to our CEO , Dr. Rob Macquarie.
<unk> over to you.
Thank you Samuel and thank you all for joining us this afternoon.
In 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.
I'll cover the macro environment in the real estate industry dynamics as it relates to view in terms of challenges and our opportunities.
Then I'll cover how we're navigating this environment, specifically our strategy to reach profitability, including our go forward cost structure and enhance go to market approach.
First on the macro.
The real estate industry is going through significant changes and our customers are contending with two main issues.
One the office sector has been under stress in every market and to higher interest rates and the lack of availability of credit.
But given view is leading a secular trend.
And we're in a very low market share at the moment views journey is less about the macro but more about the underlying dynamics that drive the adoption of smart windows.
Despite these challenges there's plenty of opportunity in the market for view and we expect to continue to gain market share through the cycle.
Now turning to the office segment, while the overall demand for office is bad.
Tenants that are renewing leases are moving to new spaces are demanding that the offices be top spec.
And highly monetized in order to make it attractive for their employees to come into the office and do their best work.
<unk> office is doing better in class B and C offices are suffering the worst.
This flight to quality drives adoption of these smart windows since they provide a superior occupant experience.
Building owners are also under pressure to comply with regulations around climate change and view provides the perfect combination of a better building for the occupants and a better building for the planet.
Now regarding other real estate verticals as.
As we have noted in the prior calls.
It's a well known fact that there continues to be a shortage of housing across the U S and we have a significant pipeline of projects in the multifamily sector.
As you know we are in a number of notable U S airports and continue to grow with repeat business in both renovations and terminal expansions in existing airports as well as additional new airports.
We also have significant installations in hospitals and medical office buildings across North America.
Both of these institutional segments are much more resilient in this cycle compared to commercial real estate.
Now, let me describe our go forward strategy and path to profitability.
As we announced on our last earnings call. We took actions that we expect will reduce our annual structural fixed costs by approximately $50 million.
We completed these actions in the first quarter of 2023.
It's important to note that these savings start to become effective in Q2 2023.
Above and beyond the year over year improvements, we realized in our first quarter 2023 financial results.
I'd like to provide more details into the realigned cost structure of the business on a go forward strategy.
First regarding our factory fixed cost.
As you know we've had to create a very unique supply chain moving.
Moving from an ordinary window to a high tech connected smart skin for the building.
That required us to make substantial investments in capacity and years of iterative process improvements.
Through the hard work and dedication of our team our manufacturing process has now matured.
Factory is performing well with high quality and on time delivery for our customers.
In the first quarter of 2023, we adjusted our supply chain process capacity and overhead costs.
Rationalize them to reflect our improved operational performance.
The resulting in higher efficiency and lower fixed costs.
Also in Q1, we made significant strides in transitioning from our smart glass products.
Being more vertically integrated with the smart building platform.
Which allows us to optimize for the overall system performance rather than just the components.
This change is significant in that it removes inefficiencies across manufacturing and supply chains and.
And allows us to deliver more efficiently for our customers, while also reducing our cost of delivery per project.
Putting it altogether, we believe the current factory and delivery infrastructure, we have already built will.
It will allow the company to scale to profitability.
Second onto R&D as we have mentioned on prior calls.
We are now in our fourth generation product.
That transition was completed last year and has been met with terrific feedback from customers on neutral color aesthetics and visual quality.
We also recently completed R&D of our next generation network.
That is more secure lower cost and easier to install.
This is an area that effectively tax Moores law and taking advantage of the benefits of continued cost reductions in semiconductors and circuit design.
The completion of both of these initiatives allowed us to reduce R&D expenses substantially.
Gen. Four is now our mainstream product and we intend to get the profitability of this product.
Now, let me talk about sales and marketing.
First regarding marketing our customers are the best promoters of our product.
With major installations in each of the key U S markets.
Awareness of our product has gone up significantly in the last year.
This allows us to be more efficient with our marketing spend going forward.
Next onto the sales effort, while we spent the last few years getting referenced installations in building awareness in key markets.
We're now focused on what we call platform accounts.
These are customers, who have large portfolios of buildings.
Constantly building and renovating.
Instead of treating each building as a separate decision our customers are increasingly choosing view as a design standard across their portfolios.
These market leading customers also tend to be more sustainability focused and equally importantly have the ability to invest in up markets and down markets.
Once we penetrate these accounts, we also enjoy significant repeat business.
This makes the selling effort a lot more efficient.
Effectively reducing our customer acquisition costs.
So putting it altogether, the maturation of our manufacturing processes and ramp up.
Bind with a product that is fully developed and ready for the main street and.
And our sales effort Thats focused on platform customers gives us a more efficient cost structure.
We've also been very thoughtful about the go forward structure of the business and today, we believe we have the infrastructure in place to.
To achieve profitable scale.
Specifically, we plan on holding our fixed costs at this level until we achieve profitability.
In total these reductions represent a significantly lower fixed cost structure to the business and set up lower breakeven points for both gross margin positive and EBITDA positive.
Turning to the revenue side of the business.
Last year, we did $100 million in revenue, which was a significant milestone for the company.
It's worth pointing out that this was achieved prior to the investment tax credit being enacted.
Historically, our customers paid a significant premium for smart windows.
Going forward the tax credit removes that premium, making the smart window about the same cost as a traditional window.
As a result, the smart window can now be incorporated cost effectively across a bigger spectrum of our customers' portfolios.
We're seeing a significant uptick in customer interest and we anticipate this momentum will drive our demand growth going forward.
As we mentioned on our last call we have a committed backlog for 2023 that already exceeds 2022 revenues.
Today, we are guiding our 2023 revenue outlook.
To be in the range of $125 million to a $150 million or a growth of 36% at the midpoint of the range.
Now onto some details about the investment tax credit.
ITC for Smart Windows was enacted on January one.
And today customers are able to get it vastly superior window.
For around the same cost as a traditional windows.
At the same time view is able to capture higher value and better profit margins per project.
This quarter, we made substantial progress educating the industry on ITC.
And putting key operational building blocks in place for our customers.
<unk> established an insurance program to support our customers.
And enable the guarantee of the tax credit for qualifying projects.
We believe with these building blocks in place for the investment tax credit, we will see a rapid acceleration of customers benefiting from the smart window of ITC.
Finally today, we announced that we're pursuing $150 million financing.
As you know we closed a $200 million financing last year. It was led by <unk> and other strategic real estate investors.
We're currently in discussions with our existing note holders and shareholders regarding today's announced financing.
Given the progress we made this quarter in lowering our structural fixed costs and lower breakeven point.
Our strategy is that with this financing we get the company to profitability.
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 first quarter of 2023.
As we get started please note that unless otherwise stated my comments refer to non-GAAP results of operations as described by Samuel at the beginning of the call.
Please refer to the non-GAAP reconciliations in our press release.
For the quarter, we reported revenue of $18 million, which represents an 8% year over year increase from Q1 2022.
Primarily due to growth in our smart building platform product as we continue our momentum to strategically shift to this line of business.
We expect to continue to see this ship throughout 2023, as we focus on the development of relationships with high quality customers and our differentiated approach to supporting their projects.
Our Q1, 2023, non-GAAP cost of revenues decreased 1% year over year.
<unk> seen the benefit of cost savings initiatives put in place in our factory during 2022 and.
And lower levels of inventory impairment, which more than offset the increased cost of delivery of our smart buildings platform product associated with the higher revenue.
Cost of revenues continue to improve as a percentage of revenue, reflecting the benefit of growing revenues over the company's fixed manufacturing costs.
And the favorable mix shift to our smart buildings platform product.
We expect to see continued leverage in our gross margin as we grow our revenues.
Improve our operational efficiencies and realize the impact of our lower structural fixed costs through the additional measures that Rob discussed earlier.
As a result, we expect that gross margin as a percentage of revenues will continue to improve during 2023.
Both as compared to 2022 and sequentially each quarter this year.
Turning to operating expenses do.
<unk> incurred $12 million and non-GAAP research and development expense in Q1 2023.
A year over year decrease of 40%.
This decrease was primarily driven by the completion of certain R&D projects as well.
Well as the realization of cost savings initiatives that we put in place in late 2022.
We incurred $16 million and non-GAAP SG&A expenses in Q1, 2023, which decreased 39% year over year, reflecting lower spend on accounting and legal fees. Following the completion of our restatement in the second half of 2022.
As well as lower sales as well as lower sales and marketing expenses following our cost savings initiatives that we've put in place in late 2022.
Okay.
We expect to see even lower quarterly R&D and SG&A expense beginning in the second quarter of 2023 as we further realize the cost savings that we put in place in March which rod discussed earlier.
For the first quarter of 2023, we reported an adjusted EBITDA loss of $43 million.
Compared to $63 million in Q1 2022.
Electing the impact of our lower expenses.
We expect to see continued improvement of our adjusted EBITDA loss this year.
Now turning to cash.
Cash used in operations for the first quarter of 2023 was $60 million.
And $11 million improvement compared to $71 million in the first quarter of last year.
We anticipate that our cash burn will continue to improve over the course of 2023 trillion.
Driven by leverage from higher revenues with our lower fixed cost structure. Following our recent cost savings initiatives that were put in place.
As we previously mentioned we expect that these actions will result in annualized savings of approximately $50 million.
Yes.
We anticipate sequential improvement to our cash burn each quarter this year.
Due to the cash impact of the restructuring in the second quarter, we will fully realize the impact to our cash burn beginning in the third quarter.
We ended the quarter with $130 million of cash cash equivalents and short term investments compared to $198 million as the end of as of December 31 2022.
We believe our cash and short term investments on hand should be sufficient to fund our currently anticipated operating and capital requirements into but not through the third quarter of 2023.
In light of this cash need and as Ron mentioned earlier on the call you are actively pursuing a $150 million financing to strengthen our balance sheet and support us as we progress on our path to profitability.
With that operator, we'll open for questions.
Thank you at this time, we will conduct the question and answer session. As a reminder to ask question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your.
Question. Please press star, one again and standby, while we compile the Q&A roster.
Our first question comes from the line.
Table.
From Raymond James Your line is now open.
Okay.
Thanks.
For taking the question.
Let me start with B.
Tax credit added Cninsure.
Protocol that you have created can you be little more precise.
What is being insured.
And what is <unk> role in providing that service.
Yes. So thank you for that so as you know the tax credit.
Is it 30% to 50% credit.
And we most of our projects qualify for 40% credit because we are a domestic manufacturer as well. So there is a 10% kicker.
Domestic manufacturing.
And then in certain brownfield on energy community properties, you can get up to 50%.
There is a way you estimate the percent of the project that covers for the tax credit.
That estimate is based on our interpretation of how the law is written.
The regs are still coming out.
The regulations for broadly the entire 48 section 48 tax credit is still coming out from the IRS.
As you know you saw some clarifications around evs and so on and so they're getting around to.
Different aspects of the energy tax codes.
And we expect those to come out later this year.
But in the meantime, our customers are making investment decisions and they're looking for further clarity.
And as you know there is an industry.
In our legal firms accounting firms and insurance firms that are well versed in this subject given the subject of tax credits itself is not new.
And so what we have in place is a program that we can guarantee the credit for our customers.
We have third party insurance.
<unk> guarantee.
So imagine a project, where a customer may be making a $30 million investment in smart windows and they expect to get 12.
$12 million tax credit that credit.
The availability of that credit at the time. The project is put in service, which will be sometime in the future, but theyre, making the investment decision today is being guaranteed by our program.
Right and.
Given that you're.
Essentially taking this kind of potential liability.
On your balance sheet have.
Have you estimated.
The company could be on the hook for X <unk>.
Dollars for example, based on two.
2023 sales that you're guiding to.
Yes, so we're actually not taking it on our balance sheet, we have an insurance policy that covers the guarantee.
And there is a small fee paid for that that's pretty common in these in these types of situations.
Yes, we would still we would still get the full revenue and the benefit of it and it's backed by a third party insurer.
Okay.
Turning to the guidance.
Good to see you.
Reinstating.
Our revenue guidance for the year.
I remember six months ago. When you gave initial 2023 guidance.
Indicated that.
Some.
The expectation for gross margin.
Turning positive before the end of 2023.
What's the latest.
In terms of why do you think gross margin Ken.
Get above zero.
Yeah. So.
Traditionally we have focused on growth as an antidote to burn.
And that men higher volumes mean.
Foster our path to profitability that would be true for any business that has a very high amount of fixed cost and as you know volume gives us the accretive benefit of getting to profitability.
The new strategy. We have is one where we're focused on the higher quality business by way of better margins and we're expanding the margins with all of the things we talked about which is putting the tax credit into operation taking to fully vertical system of smart building platform that allows us.
To deliver more value and capture more value and running our infrastructure a lot more efficiency all of that means we're able to capture better margin.
Per square foot shipped for example.
On the cost side as you know not only in our delivery costs, which is manufacturing supply chain and are supporting the field of fulfilling our commitments to our customers.
But also in R&D sales and marketing and G&A, having reduced our breakeven points.
You will see that we're able to get to.
Gross margin positive and EBITDA positive at lower volume levels.
And also lower revenue levels than we had planned in the past. So this is a realigned strategy that's focused on the right kind of customers and projects, while delivering in a more efficient way than we thought we could a year ago.
The net impact of that is we will get very very close if not right around gross margin positive by the end of this year. So we're we're keeping the timeline to get there, but we've created a strategy, where we were able to capture better value in getting there.
Now whether we get.
Slightly positive slightly negative right around gross margin depends on the mix of projects will have in a given quarter.
But our timeline to achieve profitability remains about the same as we thought we did six months ago.
Yes.
Okay.
And then.
Maybe finally I'll ask about the.
Propose stock convertible offering 150 million that you announced today.
Youre locked convert.
To your first and only convert thus far of course was with strategic partner Rx are.
Do you envision.
Similar kind of arrangement for for this convert or are you aiming more for.
Traditional financial investors or too early to say.
I think it's a bit early to be specific but let me tell you.
As you know the real estate industry largest asset class in the world is going through changes and we will continue to go through massive changes.
And that industry will be the benefactor of that.
Our product our company and companies like us being successful in the medium to long term.
Now within the industry there are entities that manage not only portfolios of real estate, but have pockets of capital available to invest in emerging technologies and growth companies.
And <unk> is one of them.
As we had announced in the last financing we've had many others.
That have very similar thoughts in terms of change in the industry and the changes theyre looking for and the ability for them to fund and helped develop companies like ours.
The beauty of that Investor group is that they are operators.
To diligence.
As a user of the product and they get to support us as a user of the product and our iterative learning and enhancement.
And having that investor base in the last round has been hugely beneficial to view compared to our prior class of investors.
And that we're able to get insights into the industry dynamics.
Interest rates are impacting their ability to invest what sub segment as being more successful than not how we should evolve our product and evolve the collective collaboration and designs for example.
And one of the projects we worked on we had 50 different sizes.
We're able to bring it down to six sizes by working closely with them that has enormous benefits in our manufacturing supply chain.
And on time delivery as well as in cost.
And running our operation.
So to answer your question.
<unk>.
We should expect that same group and class of investors to be heavily involved in this next financing.
Because they have the ability to diligence view story and be confident about it and frankly help us succeed in the medium to long term.
Okay.
Let me actually squeeze one more in.
Zoom out.
Versus six months ago again, when you gave.
Our original 2023 guidance.
You talked.
I guess it was in March about.
The.
Headwinds in commercial real estate more broadly so now that you've had a little more time to kind of observe the macro landscape in real estate.
How much different do you expect the sales mix.
Our customer mix to be this year.
Compare to.
22, or 21 in terms of.
Multifamily versus versus airports versus commercial high rise.
Yes, great question I'll have two points of view on that number one from a macro and how it impacts real estate.
Our planning is not that this will turnaround anytime soon so we're fully planning for an environment.
In which all sectors of real estate will be challenged for the next couple of years now that may not be true, but as a tech company, serving the industry at a very low market share.
We believe that that's a safe assumption for us because.
And if it grows from here and does better that's upside.
In terms of segments as you know traditionally we have been.
Very strong in office and life Science and office oriented projects.
That pivot has started to make that pivot last year and today, our largest pipeline of projects is in multifamily.
And so I would say thats, a major shift from office to multifamily and our timing of being ready with our product is impeccable.
<unk>.
Two three years ago, we werent ready today, we are fully ready with our panels.
With all the.
Multifamily buildings tend to have more operable sliding doors swinging windows et cetera.
And then also the way you interact with the product, there's a b to C component, where the consumer someone in the apartment is now using the app to control their environment. So we've completed all of that work to be ready for multifamily.
We also had a number of major months multifamily installations with great feedback and data coming back and those same portfolios are now repeat buying from us and now expanding to other portfolios.
Some of our developer customers.
Actually have the ability themselves to pivot from heavily office too heavily multifamily in multiple geographies in the U S. So that's also kind of creating the symmetry, where they're moving to more multifamily than us able to deliver more multifamily.
So that's the office the multifamily transition having said that let me tell you. We are still doing a number of offices as well as life science and renovations in office sector because of the flight to quality, but we discussed.
Throughout this time as you know we've been growing in airports.
We're in a number of a dozen or so U S airports many of them with multiple projects.
They build a renovate every single year and some of these airports and we're now onto our third of fluids project and some of these airports as well as new ones.
Then healthcare is also a segment in U S and Canada, where we've been in a number of large hospitals as well as medical office buildings.
Airports and hospitals are investing relatively speaking better in this cycle and we're well positioned there as well.
So yes to your question, we have transitioned our verticals to wear.
There is money than there is build out the.
The macro to the first order is worse than it used to be but we're factoring a significantly worse macro and how we think about pipeline and our customers going forward anyway.
Very good.
Thank you guys.
Okay.
Okay.
Yeah.
Great and this concludes the Q&A section of the call.
I'll get back to you.
Thank you all for joining the call today.
<unk> has made a lot of progress to start the year with.
<unk> actions to reduce our cost structure and lowered our breakeven point for profitability.
We expect to continue to grow our revenue using our focused sales approach.
We intend to raise $150 million of financing.
And our strategy is that with this financing we get the company to profitability.
With that I look forward to speaking with you all again on our Q2 2023 earnings call.
Thank you.
Yes.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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