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spk01: Good morning and welcome to Innovi's second quarter 2022 earnings conference call. Joining us today are Omri K. Laff, Chief Executive Officer, and Eldar Segla, Chief Financial Officer. Following their formal remarks, we will open the call for your questions. I would like to remind everyone that this call is being recorded and will be available on the investor relations section of our website at ir.innoviz.tech. Before we begin, we would like to remind you that our discussions today will include forward-looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Innoviz. Actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today and we undertake no obligation to publicly update or revise them. For discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the risk factors section of our Form 20F filed with the SEC on March 30, 2022. I will now turn the call over to Omer. Please go ahead.
spk06: Hi, everyone. And good morning. I'm very excited to have you today on our second quarter of 2022. We had a very successful quarter following a recent announcement on our new customer, Volkswagen, which we are obviously very excited to talk about. following the receiving of the contract from Volkswagen and reaching the first milestone of integration of our lighters to the test because we were happy, finally, to provide and give a press release about the recent award. Other than that, we had substantial progress on key programs, additional key programs, and we've actually already met or exceeded all of the targets that we have set for 2022. And now I will be very happy to start with the formal presentation.
spk03: Thank you.
spk06: Okay. InnoVis vision is to become the world's leading tier one supplier for LiDAR and perception software for the automotive industry. Last week, Innobis was proud to announce that we will serve as the direct supplier of LiDAR sensors to several brands within the Volkswagen Group while integrating our perception software to Carriag's automated driving stack. As the program progresses, we expect more brands within the Volkswagen Group to be incorporated. VW is the second largest carmaker with more than 10 million cars sold annually with multiple brands including Audi, Porsche, Volkswagen, Skoda, and many others. We are full steam ahead with first samples already integrated into Cariad's test vehicles. We expect revenues from the program already in the coming years. and testing processes of our customers require hundreds to thousands of units in the next three to four years, which are priced several times greater than the official start of production SOP. Following SOP, we expect an exponential ramp up over the lifetime of the project, which is eight to 10 years from tens of thousands to over a million lighters annually to the Volkswagen group at competitive price points. The Volkswagen Group nomination is reflected in InnoVis order book as an increase of $4 billion, which now aggregated to the total of 6.6 billion. InnoVis received multiple RFQs from all over the market. Volkswagen set of requirements were the most demanding and we've seen and eventually pushed us to design the best in class slider to date. Our ability to win the Volkswagen program was due to four main contributors. The first, the exceptional price and performance that our new product, Innovis II, is offering for achieving high-speed highway autonomous driving. The second, our rich automotive experience working closely with leading companies such as BMW and Magnum. The third, the maturity level that the Innovis II product is already at, And the last is a tier one value proposition and capabilities that we offer. With the new Volkswagen win, as a tier one, these four growing assets are the reason we are confident of our ability to win many more programs in the market. While we are working closely with multiple OEMs to become their lighter supplier, we value the importance of strengthening the collaboration with the leading platform vendors. We are happy to share unique events that Innoviz will host in the coming months. Innoviz is hosting a partners, customers, and analyst event on the 19th of September. The event will include keynote speakers and a tour to our facilities, Innoviz 2 automated production, and test lines. We are excited that two distinguished keynotes have already confirmed their attendance. Mr. Alex Vukotic, VP of Automotive Product Management at Qualcomm, Qualcomm, which provides the Snapdragon Ride platform, which was already selected by several leading OEMs and T1s. And Dr. Richard Rau, VP of Autonomous Driving Sensors, Integration Platform and Corporation at BMW Group. Our second event on October 23rd, InnoVis and NVIDIA were selected to host a 3D perception workshop during the European Conference on Computer Vision ECCB. InnoVis and NVIDIA Workshop will discuss unique challenges and advantages associated with the use of 3D data for autonomous driving. Volkswagen is our second nomination for series production of passenger vehicles, the first being BMW. With this win, InnoVis is now servicing two of the world's leading car makers, which together represent 15% of the entire automotive market. From the inception of Innovis, our strategy has been to focus on prominent, industry-leading carmakers. It is well known that the German carmakers set the standards in the industry. Therefore, we have provided these customers our highest attention. BMW and Volkswagen are both innovators who strive to bring leading-edge technologies to the automotive market. our proven track record of success in Germany has given us the maturity and global recognition of other car companies based in Europe, the US, Japan, and China, allowing us to offer our solution as a tier one. We announced in May, sorry, we announced in May appointing Scott, Craig, and Brijesh Shukla as country manager of the U.S. and Japan is the logical next step to capitalize on our growth opportunities following our nomination with Volkswagen. We already see the fruits of new business generation experience as we aim to break more new ground. We are in the process of conducting qualification processes to become a Tier 1 with more car makers and look forward to sharing updates with you as those proceed. We believe these future partnerships will further strengthen and solidify our position as a leading supplier for autonomous vehicles. I'd like now to explain a little bit more about our Tier 1 strategy. This slide shows the benefit of becoming a tier one supplier from value perspective. As the demand for lower cost solutions in the industry increases, the pricing pressure requires higher vertical integration. As you can see from the chart on the right, as a direct supplier tier one, we can provide customers with a lower averaging price while increasing our revenues and keeping our margins. Clearly, this is a win-win and why we remain focused on obtaining this business model. Many have asked about our need to spend capex on our production capacity as a tier one. In these videos, you can see the production line we designed for the InnoVis 1. As you can see, there are several machines that were developed to automate the production and testing of the first product. No part of the assembly or testing is manual. The same is true for InnoVis 2. We are developing full automation of the InnoVis 2 production and testing lines. Once those machines are designed, Built and tested, we plan to ship them to third-party contract manufacturers with automotive-grade facilities to manage the operation of the production worldwide. The cost of the machines is fully funded by our customers. I am confident our Tier 1 capabilities, including our ability to manage mass production manufacturability, automotive-grade quality, hardware validation, and computer vision validation will serve as a differentiating factor as other OEMs select their direct LiDAR supply. Innobis has recently moved to our new offices, which include our production lines, testing facilities, and a 300-meter underground laser testing track, the longest in Israel. Having the new production lines of InnoVis 2 at InnoVis will help to enhance the process and save development costs, eliminate any risk of traveling restrictions that might slow the ramp up, and reduce the production cost until volume ramps up. We are in the process of moving the InnoVis 1 test lines between the offices and expect these lines to ramp up soon. The production lines of InnoVis 1 continue to run uninterrupted as they are located off-site. In parallel, we are working to establish the InnerVis2 production line in the new offices to support volume ramp-up beginning of early 2023. We remain focused on establishing our leading position in the automotive market with key OEMs in the near term, expanding and leveraging the maturity of the Innobis One products to benefit non-automotive segments in the industry and expand our market share to be a key driver for revenue. We see important opportunities in the non-automotive markets where we will leverage the maturity of our products. We expect the average selling price to be higher in the non-automotive market where volumes per program are low. Highlighting further our strong momentum with non-automotive partnerships. We recently announced a cooperation agreement with Joe Woon Industrial, who will serve as a distributor for a wide range of innovative applications across industries from industrial machinery to heavy sliders were selected by Japan Post to construct digital maps on their postal delivery cars, paving the way for next-generation smart city services such as autonomous driving and unmanned delivery. Turning to our sales funnel and targets. We have already met or exceeded our 2022 targets. We continue to see momentum and bring new potential customers into our sales funnel. Currently, we are managing 12 automotive RFIs and RFQs at different stages, where almost all of them are for passenger vehicle programs. We expect to see two to three programs being decided in the next six months. Our overall automotive market share was increased by 12% to a total of 15%. We are excited about the progress we've made and know that we are just at the beginning. We expect to drive material revenue during 2023 from our previously announced serious wins with BMW Overall, I remain confident in our cash position. We've always been conservative with regards to how we allocate capital and will continue to do so going forward. As we win additional OEM contracts and establish ourselves as a leading direct supplier in the automotive market, we will manage our expenses accordingly and evaluate all options available to us to ensure we are optimally positioned to continue executing our strategies. We're continuing to invest in technology and perception software and are in the process of ramping up the B1 sample, which will include performance improvements over the B0, but more importantly, is designed for volume production. We are currently focused on maturing and automating the process to support the volume ramp up targeted to the beginning of 23. In parallel, our innovation team is working on the final design details of the Innobis 360, with most parts already in production. during Q3 with the expectation of showing first samples of Innobis 360 by the end of the year as planned. I'd like to show a short video on Innobis 2. As always, we are happy to share with our investors the progress we make and feel proud of what we've managed to accomplish so far. As you will see in the video, the Innobis 2 has outstanding results. that leave our customers very impressed and excited. I truly believe it's the best slider out there today. And since it has a very attractive price point and performance, I feel very confident in its ability to be widely sourced by many car makers, making their decisions in the near future. Thank you. With that, With that, I'll turn it over to Eldar to go over the financials.
spk03: Thank you, Omer, and good morning, everyone. I would like to start by briefly explaining how our Volkswagen-related $4 billion forward-looking order book was calculated. In terms of volume production, the Volkswagen Group holds about 10% of the market share, which translates to over 10 million vehicles sold annually. The program plan is based on three years of development and validation followed by eight to 10 years of sales with the expectation to see growing take rate of one to 14% over the course of the program, starting with the more premium brands and car models and trickling down over the years to the less expensive car brands and models. We expect to supply our LIDAR sensors for at least 8 million cars over the lifetime of the program, multiplied by the ASP aggregates to the $4 billion order book we have announced. We maintain a high liquidity level of approximately $246 million in cash, short-term deposit restricted cash and marketable security as of June 30th, 2022. We are using our resources responsibly, staying within our expense budgets for the second quarter of 2022 and maintaining a robust cash position, which gives us both the flexibility to execute our 2022 strategy and provide us with a runway to invest in our new and innovative products and technologies. Revenues for Q2 2022 were $1.8 million, compared to Q2 2021 revenues of $1 million. Our revenues in Q2 this year were Innovis 1 related. We are also targeting to sell the first samples of Innovis 2 later this year. Operating expenses for the first quarter of 2022 were $28.8 million, a decrease from $70.7 million in the second quarter of 2021. Operating expenses in Q2 2022 included $4.4 million of share-based compensation compared to $49.9 million of share-based compensation in Q2 2021. The decrease in operating expenses in Q2 2022 compared due to a decrease in share-based compensation, partially offset by an increase in headcount during the second quarter of 2022. Research and development expenses for Q2 2022 were $21.9 million, a decrease from $32.1 million in Q2 2021. Research and development expenses in Q2 2022 included $2.7 million attributable to share-based compensation compared to $17.6 million attributable to share-based compensation in Q1 2021. To conclude, we maintain a strong position in the marketplace, as evidenced by our recent design win with Volkswagen Group, and we believe that we are well positioned to gain additional market share during this year and the years to come. And with that, I will turn the call back to Omar for closing remarks.
spk06: Thanks, Eldam. I'm energized by how far we have come in the recent months and look forward to updating you on our progress on future Ehring School. Before I open up for questions, I'm happy to share that we will be back to New York during the week of September 5th, taking part in both cities' global technology to meet with you there. Thank you for joining us today. And with that, I will turn the call over to the operator to take us into the Q&A.
spk02: Thank you. In order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Once again, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our first question today comes from the line of Mark Delaney from Goldman Sachs. Please go ahead.
spk00: Yes. Thanks very much for taking the questions. And good afternoon. Your first question is better understanding on Cariad. And I do think there's been media reports around some software challenges at Cariad. And I think some of the brands, according to the media, were rethinking what they wanted to use from Cariad versus maybe doing some stuff themselves. So I'm hoping to better understand to what extent you've already factored some of those dynamics into the order book. I think the order book calculation of $4 billion was pretty conservative, if I understood it correctly. And if anything, perhaps there's chances to expand the number models that you're on. But maybe you could speak a little bit more in terms of how confident the different brands are or how excited the different brands are in using this product and what opportunities there are to perhaps even build on the amount of the order book so far there.
spk06: Sure, and thank you for asking the question. Innoviz is contracted to be a direct supplier of T01 for all of the brands. Our agreement is with all of the brands within Volkswagen, and the program is managed by Cariad. Cariad is responsible for the driving stack that eventually will be integrated into the different brands. but our activity and integration discussions are with each brand by itself. There are already several brands that discussions are ongoing. Eventually our software is also integrated into this platform. Cariad platform will host our perception software as part of the overall software that will drive the car. No changes are related to the program. Things are going very smoothly, I would say, and the dynamics is very positive. And to your last comment, I am actually very optimistic that additional brands would be included following the discussions we are having now.
spk00: That's very helpful. Thanks for that. And for my second question, you mentioned that two to three programs could be decided in the next six to 12 months in the automotive market. Do you have any indications from those potential customers about how likely Inoviz may be to win or any more detail you can share on on your expectations for potentially winning some additional programs out of those two to three that you mentioned? Thanks.
spk06: I believe that InnoVis is positioned very strongly on those programs. Obviously, eventually, it's a decision that we're pending to. But with the, I would say, the level of discussions and the nature of the details that are now discussed, I would say that I'm overall positive, but I would rather wait with the news when they would conclude. Maybe I would just say those are related to passenger vehicle programs and as such are very interesting for us. Once we have the program with Volkswagen we can guarantee the volume and having the volume in our economic scale allows InnoVis to be very competitive even with programs of car makers that are not at the size of Volkswagen and that's a very key element in our ability to be very competitive on all programs right now because we can leverage on guaranteed volume we have with a certain program And basically this is why I would say traditionally selections made by car companies like Volkswagen is so critical and why other car makers tend to follow decisions made by the Volkswagen group. Okay.
spk02: Mark, are you there? Okay, we'll proceed to our next question. Our next question comes from the line of Andrea Shepard from Cantor Fitzgerald. Please go ahead.
spk04: Hey, Omar. Hey, Eldar. Good afternoon. Congrats on the quarter, and thank you for taking my question. I thought that slide about the Volkswagen and the order book assumptions was very, very helpful. I just want to make sure I understood it correctly. So with this new agreement, the expectation is for revenues to start ramping up, I think, in between three and four years, I think, initially. But once that takes place, the expectation is that the sensors will be used in over 10 million vehicles per year? Maybe you can give a little more detail on that. I just want to make sure I understood correctly.
spk06: We definitely target that number. But no, I mean, we're talking about the penetration rate from 1% to 14% of the total volume out of the 10 million vehicles. which is related to, I mean, the kickoff is related now to several brands. There are several models that are already planning to launch with the LiDAR, and every year there will be releases of more cars every year, and there will be a ramp-up. So the total eventually of the entire program is calculated based on a sum of roughly 6 million cars for the duration of 8 to 10 years. But we believe that eventually more brands will eventually use the light down and the numbers could grow.
spk04: Got it. That's very helpful, Omar. Thanks for that color. And maybe in regards to then the switching gears for a minute, the BMW partnership. you've mentioned today that you expect material revenue starting towards the end of next year. I'm wondering, can you maybe give us a little more granularity as to how you see those ramping up? Maybe not necessarily quantifying it specifically, but just at a high level, can you just give us a sense of what that agreement will look like as those revenues begin to ramp up next year.
spk06: Okay, so there are two parts to the revenues that are expected from the program. One is related to NRE, which was agreed with BMW to be provided at the SOP time. And the second part, which is related to the sales of cars, which will be equipped with innovative sliders.
spk04: Okay, got it. And maybe, sorry, one last question, if I may. In regards to the 12 prospective customer agreements that you are working off, of which sounds like most of them are for passenger vehicle programs, so that's great. Is the... You know, is the hope, is the strategy to, I mean, how likely is it to secure those 12 agreements? Should we be a little bit more conservative, perhaps assume, you know, a handful of them? Or, I mean, how confident are you in those 12 programs?
spk06: Look, I believe that in any one of them, InnoVis is going to be or already is on the shortlist. And a shortlist means that there is either one competitor or two. Our competitors are other ones in the market because car makers would make their decision based on whether the supplier meets their group standards. So you can probably estimate who might be our competitors. And Innoviz2 is a very strong product. both from performance, but also from pricing. And with the stamp of a T1 supplier now by a very credible carmaker, which is the Volkswagen Group, gives us a very strong position and removes any friction in any discussion we had so far with any carmaker to become a direct supplier to their program. I would say that, you know, we used to say that our conversion rate is 1 to 3 because that's what we usually see between one or two companies competing on the LFQ in the last discussion. I would probably say that since we have increased our chances due to the recent win, I would probably at least take a 50% probability from my perspective, but you can be more conservative than me.
spk04: Fair enough. Thank you. And sorry, maybe one last one for me, if I could. In terms of the, I guess, do you find that now being recognized as a tier one, is that, you know, maybe talk about that. Has that given you additional credibility with these other OEMs? Are you finding that having a tier one status has increased increase the likelihood of securing these deals? Or have you seen a, you know, a quick improvement in the perception of Indivis's product as a result of the tier one status? Definitely.
spk06: I mean, before we had the ability to talk about our design win with Volkswagen as a direct supplier, there were car makers that at first perceived it as a risk. But that was completely removed once we were able to talk about the fact that we were able to to go through the quality assessment process to become a direct supplier to the group and to all of the brands in the group. And therefore, we already kicked off with some car makers. We already kicked off the process to become a tier one, meaning that eventually a car maker, in order for them to add you to their supplier system, you need to go through a process and make sure that you meet the quality assessment, for production, logistics, quality, software development. And since we were able to show that we passed that with a very credible customer, the motivation grew. And therefore, those were already starting. Funny enough, now that we are a tier one to the Volkswagen group, we are on their system as a tier one. We were handed with an RFQ for radar to compete. We don't plan to answer the RFQ, but it shows that once you're a qualified tier one to the car company, basically it opens a door or you can say connects a bridge between you and the carmaker to offer the different technologies because becoming a tier one is not related to the technology. It's related to the company. It means that you're reliable supplier that the company can decide to work with. And I find it as a very strong opportunity for innovation to grow going forward.
spk04: Wonderful. Thank you so much, Omar. Thanks for answering all my questions. I'll pass it on. Thanks again and congrats.
spk02: Thank you. As a reminder, in order to ask a question, please raise your hand using your mobile or desktop application. Our next question today comes from the line of Kevin Cassidy from Rosenblatt Securities. Please go ahead.
spk05: Yeah, thanks for taking my question and congratulations on the win. Just in the CapEx discussion, you mentioned that it's customer paid for for the equipment. Can you give us a little more details on how that arrangement works?
spk03: Basically, our investment in CAPEX is offset to the client, meaning if a certain client needs a certain capacity, he's paying for the specific line that he is using. So we are designing our own machines that build up the lidars, and we can very easily duplicate these machines and locate it. everywhere in the world where it's needed. And the cost is covered by our clients. So there isn't additional burden.
spk06: Maybe I'll add to it. In order to build a LiDAR, basically there are two machines that we developed. One is for the optical assembly. simpler than Inoviz One because we only have one laser and one detector. So the cycle time or the processes have been really shortened. And the footprint of the machine is actually the size of a very similar table to what you're looking at. And the capacity of every machine is quite high. It's in the order of 100 or 200,000 lighters a year. And it's a very inexpensive, I would say, equipment. Eventually, you can imagine, and I showed it on the video, it's a robotic arm that places and we can build those machines. And as Adar said, eventually we can place them in different locations in the world where it's convenient for the different customers. The footprint is small. The operation of the production is simple because it's all automatic. The ramp up, and then we have experienced that already within Office One, meaning that the production line, which is consisting of this process, we designed it and built it and tested it in Germany. and we shipped it to the US where Magna is managing this process. and they are operating this. And eventually, this is one machine. The second one is related to the testing. It's a similar, it's a chamber where you place the lidar inside, and basically there are targets that moving in and out, and you need to calibrate and test the lidar. Once those machines are up and running, you can duplicate them and place them in different locations. They are not very expensive, and they have quite nice capacity. Other than that, when it comes to the PCBs, the electronic boards, or very standard, I would say, material, we don't need to develop those processes. Those are very standard, and we can use companies to produce the electronics, and the assembly is very simple. I hope it adds more color.
spk05: Yeah, thanks very much. That's great detail. And maybe just a simple question on the VW. What's the configuration? Is it going to be just one of your LiDAR, or are there opportunities for, say, lane change? LiDAR or other LiDAR on the vehicle?
spk06: It's a single LiDAR configuration. And I'm not sure I understand the second question.
spk05: Oh, it's just, you know, some are talking about LiDAR for lane changing, you know, side views.
spk06: Well, the field of view, yeah, so I don't know if you've seen the video, but the field of view is high enough. It's 120 over 40 degrees, which captures the field of view for any cutting scenarios that is required by the customer.
spk05: Okay.
spk06: Thank you. Welcome.
spk02: Thank you. You have no further questions. Please proceed.
spk06: Okay, thank you very much. I would say that in Tinoviz, there is a rush of excitement. We definitely see the vote of confidence from a customer like Volkswagen is a dream come true, but also we are also seeing so many other opportunities that we are excited to have as well. and I hope that we will be able to bring them to the table as well, and I'm sure we will. So thank you very much, and talk to you next time.
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