Q2 2023 View Inc Earnings Call
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Greetings and welcome to view Inc's second quarter 2023 earnings call.
At this time.
All participants are in a listen only mode.
A question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Samuel Madden head of Investor Relations at few Thank you Samuel you may begin.
Good afternoon, everyone and welcome to abuse second quarter 2023 earnings call.
I'm Sami Ahmad head of Investor Relations at view.
I'm here with Dr. <unk>, Perry, our CEO and Amy Reeves our CFO .
Before we begin I'd like to remind you that after market close today <unk> issued a press release announcing its second quarter 2023 financial results and supplemental materials.
You may access the press release and the supplemental materials 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 SEC filings, including our most recent annual report on Form 10-K, and subsequent violent Inc.
Including quarterly reports on Form 10-Q.
I would also like to remind you that during the call we will discuss certain non-GAAP measures related to abuse performance.
You can find the reconciliation of these measures to the nearest comparable GAAP measures in the press release.
Unless otherwise stated our comments during the call refer to non-GAAP results of operations.
Now I'll turn the call over to our CEO Dr around Macquarie.
Over to you.
Thank you Samuel and thank you all for joining us this afternoon.
A quick recap of the key announcements we made today.
First we had an excellent second quarter and the results demonstrate a focused execution towards profitability.
Second we reaffirmed our full year revenue guidance of 36% year over year growth at the midpoint.
Third we're forecasting to reach gross margin positive in the third quarter of 2023. This.
This will be the first time the company achieved a positive gross margin, which represents a critical inflection point for our business.
Finally, we executed a term sheet for $150 million financing with a lead investor the $150 million of additional capital is expected to enable the company to get to three.
Positive cash flow with our current strategy.
Let's spend a minute and talk about our mission.
So the last 15 years, we've been hard at work at you to build a full stack product that transforms societal infrastructure for the better.
While many of US recognize the long term impacts of climate change societies, now waking up to the harsh realities of the acute short term effects that are impacting everyone right now.
Just in the last few months, we witnessed wildfires warming oceans floods and extreme heat events that impacted large populations.
Many of these large communities are unprepared for this new reality.
The world needs urgent solutions to address these issues, while also providing better quality of life for future generations.
It is this mission that gets me and everyone at being fired up to fight. The fight every single day in order to bring our technology to scale and make the world a better place.
Now, let's discuss the second quarter in more detail.
We recorded revenue growth of 72% year over year.
As I've mentioned in the last call we completed our pivot from majority of our business in office to majority of multifamily residential sector.
A sector that has been more resilient in the current cycle compared to commercial real estate.
In addition, the tax credit has provided a tailwind for our expansion in this vertical.
We are in the early stages of executing several multifamily projects with key platform accounts and that gives US a line of sight. These projects will help drive our top line growth throughout the remainder of the year.
With that visibility into Q3, and Q4, we have the confidence to reaffirm our revenue guidance for the whole year.
On our earnings call. We detailed the actions we took to reduce our fixed cost structure.
In the second quarter is an important proof point that these efforts are paying off.
Our gross margin improved significantly from minus 140% in Q2 of 2022 to.
To minus 48% in Q2 of 2023.
Total operating expenses improved 48% year over year and reflects a more efficient go to market strategy lower G&A spend and lower R&D spend following the lease up of our mainstream Gen four product and our multifamily offering.
I've been quite vocal on our past earnings calls about how our business model has significant leverage with scale.
We built a company from the start to be ready to scale and that required a sizable manufacturing footprint and customer support operations across the country.
As the business scales, there's an inflection point when those upfront investments create tailwind may.
It easier to scale efficiently and the business recognizes the benefits of this leverage.
This dynamic is common to vertically integrated hardware technology companies.
View is now hitting that inflection point.
In the second quarter, our revenues grew by $12 million year over year on a gross loss improved by $9 million.
Going forward, we expect to continue to benefit from this leverage as we grow our revenues.
Now looking ahead to the third quarter I'm excited to announce that we expect to be gross margin positive.
This is a significant milestone for the company and a testament to the relentless focus by the Vue team on achieving the path to profitability.
The key elements for our view of achieving gross margin positive our fares.
First our enhanced go to market strategy.
We've been targeting high quality revenue opportunities with our products add the most value.
We're also focused on serving and growing our strategic platform accounts.
These are leaders in the industry that are driving transformation in real estate and believe that Martin buildings should be more sustainable experiential healthier and more tech enabled.
We're also seeing an uplift in interests from the recently enacted investment tax credit, which benefits both the customer survey of affordability.
As well as our margins too.
Today I D. C is enabling us to deliver view smart windows at cost parity to conventional windows and still capture a healthy margin.
The second critical driver of gross margin comes from lower fixed costs, which enable a lower revenue breakeven point.
This includes a more efficient operation at the factory and reductions in overhead.
Factory team has worked tirelessly to perfect our manufacturing process over the past 10 years and today, our factories delivering well on large projects across the country.
It is important to note.
That we expect to get to profitability with the footprint we have in place today.
Finally on the products, we're seeing the benefit of improved execution and lower costs due to improvements we completed over the last year.
The recently completed an upgrade of being that our next generation controllers and network infrastructure.
This worked significantly reduced unit costs, while improving product industrialization.
We're starting to see the initial financial impact as we roll out the improved architecture on new projects.
We also continue to recognize cost benefits in our vertically integrated smart building platform.
And we're working closely with our customers to optimize design cost production and delivery of their buildings.
This is a continuous learning cycle and we believe there is still room for additional value capture.
To close out my prepared remarks, we've made significant progress scaling the business towards profitability.
The second quarter results are proof points that the plan is working and we expect to achieve gross margin positive in the third quarter.
We have significantly reduced our structural fixed costs of the business and plan on holding our fixed cost at these current levels until we achieve profitability.
With that I'll hand, it over to Amy to cover the financials.
Amy over to you.
Thank you Ralph and good afternoon, everyone.
I'll be covering the financial results for the second 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 $28 million, which represents a 72% year over year increase from Q2 2022.
<unk> due to the growth in our smart buildings platform product and to continue our momentum to strategically shift to this line of business.
We also saw a nice year over year growth in our smart glass business driven by product mix within that offering.
Smart building platform is our fully integrated smart window platform and given the customer reception and inherent advantages, but its product offering we expect this to be our primary product offering on a go forward basis.
Our Q2 2023, non-GAAP cost of revenues increased 6% year over year from Q2, 2022.
Secondly, less than revenue growth of 72% for the same period.
This leverage reflects the benefit of our lower fixed costs in the factory in the field and the favorable mix shift and our smart glass product offering.
We've reduced our fixed cost of revenues you're ever here driven by our cost savings initiatives put in place during 2022, and the first half of 2020 three.
These were offset by the increased cost of delivery and our smart buildings platform product associated with higher revenues.
We are now forecasting to reach gross margin positive in the third quarter of 2023, reflecting the benefit of growing revenues over our fixed manufacturing costs, a favorable mix shift in our remaining smart glass business lower product costs and improved efficiencies in the delivery of our smart buildings platform.
Thanks.
Turning to operating expenses.
Neither incurred $9 million and non-GAAP research and development expense in Q2, 2023.
A decrease of 55% from 222.
This decrease was primarily driven by the completion of certain R&D projects that Ron mentioned earlier as well as the realization of cost savings initiatives, we put in place in late 'twenty two in early 2023.
We incurred $14 million and non-GAAP SG&A expenses in Q2, 'twenty, 'twenty, three which decreased 42% compared to Q2 2022.
Reflecting lower spend on accounting and legal fees. Following the completion of our restatement and the first half of 2022.
Lower sales and marketing expenses, following our cost saving initiatives.
For the second quarter of 2023 we reported an adjusted EBITDA loss of $31 million compared to $61 million in Q2, 2022.
Reflecting the impact of higher revenues, improving gross margin and lower operating expenses.
We expect to continue to see improvement in adjusted EBITDA led by the forecasted achievement of gross margin positive in the third quarter.
And we expect to hold our fixed operating cost structure at current levels until we achieve profitability as a company. This will continue to drive improvement in adjusted EBITDA as our revenues and gross margin growth.
Yeah.
Now turning to cash cash used in operations for the second quarter of 2023 with $47 million, a $35 million improvement compared to the second quarter of 2022 and a sequential improvement of $13 million from the first quarter of 2023.
Our Q2 2023 cash used in operations included a cash use of $3 million relating to restructuring costs.
We anticipate that cash burn will continue to improve in the second half of 2023 driven by leverage from higher revenues with the lower fixed cost structure. Following our recent cost saving initiatives.
We ended the quarter with $80 million of cash cash equivalents and short term investments compared to $130 million as of March 31 2023.
We believe cash on hand should be sufficient to fund our currently anticipated operating and capital requirements into but not through September 2023.
In light of this cash need and as Ron mentioned earlier in the call. We are actively pursuing a $150 million of financing to support us as they progressed on our path to profitability.
With that operator, we will turn it over for questions.
Thank you.
We will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you.
First question is from.
And well.
Marcelo.
With Raymond James Please proceed.
Yeah.
Okay. Thanks for taking the question.
Let me start off with the.
150 million dollar a nonbinding term sheet. So first of all can you clarify.
Is this a convertible or or is it straight debt.
So prevail as we announced today its a senior secured debt facility.
And.
You know we're focused on closing that in the coming weeks.
And but we continue to be open to all sources of financing, but this facilities in that facility.
And I understood. Okay. So good to see that our revenue guidance what was maintained and you know as you talked about.
Getting to gross margin positive.
Q3.
Is that gross margin positive.
Inclusive of depreciation or solely on.
Our cost basis.
Yeah. It includes depreciation.
Okay.
What drives.
This shift the words positive gross margin in other words, so revenue is going to be ramping presumably some <unk>.
Economies of scale and manufacturing bite or there are kind of input cost drivers et cetera pricing can you talk about that.
Yeah, well as you can imagine in our business, we have many components that drive margin.
And this is a major inflection point for us because.
When we went public we were a little over negative 250% gross margin.
And in the presentation, that's posted on our website, you'll see a progression from there to.
Coming up to zero in this quarter.
The components are many.
As you pointed out one of the most important is the top line, which is not only volume, but the quality of that revenue.
Clearly, we're hitting you know the <unk>.
<unk> credit is helping us focus on the right projects the right scale at the right price points, where it's affordable for our customers, but also allows us to capture value.
The smart building platform is allowing us to reduce or eliminate inefficiencies and the delivery of our product. So clearly not only how we make the components, but how they are installed and how they come together without mistakes on job sites, so that helps us capture value and reduce cost.
In manufacturing, obviously key components like yield and throughput.
We're firing on all cylinders, making continuous improvements as you know we've been doing this now for coming up 10 years. So that team has been hard at work improving all the key metrics I'll say processing manufacturing operation.
Overhead is significant as you point out our depreciation is a significant number but even beyond depreciation we have significant fixed costs that are still very under absorbed but we've gotten better at managing those costs.
And then on the product side, we've made improvements, especially to the electronics all the.
Window controllers, the cabling the connectors sensors, you know many of them follow Moore's law.
It's the industry I came from so clearly we're able to double the capability of these chips in short periods of time for the same cost. So we're able to source those more efficiently and pass them through.
But also how they are installed on job sites and so all of those are coming together for us to achieve this point of gross margin positive, but didn't it didn't happen in one day. If you go look at the progression over the last 10 or 12 quarters, you'll see that we've been marching towards at this point.
The beauty of this is at this point.
I tell our team the factories paying its own bills.
The rest of us have to pay our bills, which means continued growth in top line will enable us to now chomping away at the Opex by way of the margins, we generate and that provides the path to profitability.
Yeah.
And so now that you've given guidance or turning gross margin positive.
I guess, let me ask it this way if you're not ready to talk about becoming EBITDA positive.
What needs to happen before you can give that that outlook.
Yeah, we do anticipate hitting that within the next two years.
I think we've set that expectation in the past and.
Gross margin positive we're executing ahead of plan.
We're also equally managing cash burn and being thoughtful about our growth. So this is a this is a game of making sure that we're being appropriate in our thinking around growth.
But with that a cash burn as you know has been cut roughly in half and that's going to continue to go down as we land revenues.
Answer your question that the most important antidote right now for us for burn as growth.
We have the right product in place we have the right operations in place.
We're building the right customer base into the right segments and you saw in our narrative today we.
We moved from majority office, where we were doing quite well in that sector, but post pandemic that sector is going through significant effects, but multifamily because of the shortage of housing continues to be in short supply.
And their development happening today.
So it's a very resilient sector. In addition to airports and other institutional business like hospitals.
If our outlook now is in our pipeline multifamily is our biggest area of pipeline. So we moved from majority office to majority of multifamily and continued traction in that sector with the tax credit.
He's going to help us get to them.
Profitability and beyond.
And maybe just last question.
The corporate cost structure with our R&D and SG&A.
You had in the June quarter.
Should we.
Assume that stays.
People going forward or do you anticipate room to achieve further reductions.
Yeah, you should expect that we'd be maintaining at that level until we achieve profitability.
And the reason for that is let's kind of break it down into the key components on.
On sales and marketing we have the infrastructure in place.
To serve our platform accounts and those are the accounts, we're going to grow it.
And so we don't need to invest more in sales and marketing and if anything our marketing is becoming easier.
Because our existing completed buildings are our best marketing tools as you know view as a highly experiential product all we need to do is bring a customer to a building nearby and we now have practically buildings in all of the 20 key markets. We play in North America.
On the sales side, we have significant repeat business from existing customers, but also existing customers are delighted and they are enthusiastic and promoting our product helping promote the product so sales and marketing has become quite simple, especially aided by the affordability of the tax credit.
In R&D, we have been through four generations of product development.
A lot of that has been introduced over the last 10 plus years and taking the learning from the customers.
Issues, we've had in the field product improvement our.
Our Gen four product has the right colors, the right performance the right quality.
Electronics that have the right cost and we make them easier to install as well our software continues to improve we're building our software our apps and our AI.
But the cost of that is relatively small.
And our R&D is aimed at continuing to run our factory better. So we continue to focus on yield improvement equipment improvement.
Managing our suppliers with the electronics. So it's very focused on industrialization on getting to profitability as opposed to more feature development.
And then on G&A as you know compared to a year ago. The biggest drop you see is related to the public company restatement that we went through with our financials with all of that behind US we have a significantly lower G&A as well. So when you add all those components you know we've taken nearly 50% of the cost out of Opex.
From a year ago, and we expect to maintain that going forward through profitability.
Alright.
Appreciate the update.
Okay.
Thank you.
Yeah.
There are no further questions at this time.
I am turning the call back to Doctor Al Valkyrie for closing comments.
Please proceed sir.
Thank you all for joining the call today.
This is an important moment for view and I'm proud of the views team's dedication and perseverance to get us through this point.
Over the past 15 years, we've developed a mainstream product that is loved by our customers. We have a manufacturing process and footprint that is ready to scale.
We have a sales effort that is partnered with industry, leading strategic accounts and is focused on the right verticals for growth.
And we've taken the right actions as a company to achieve a more efficient cost structure at which we can build a profitable business.
Second quarter results and third quarter outlook demonstrates that the plan is working and we are executing well on the path to profitability.
With that I look forward to speaking with you all again in Q3 2023 earnings call.
Q.
Thank you. This concludes today's teleconference. Thank you for your participation you may now disconnect your lines.
Goodbye.
Oh.
Yeah.
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Uh huh.
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Yeah.
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