Innoviz Technologies Ltd.

Good morning. This is Rob Moffitt, Vice President of Corporate Development and Investor Relations at Innoviz, and I want to welcome you to our earnings conference call. Joining us today are Omer Kalev, Chief Executive Officer, and Elder Segla, Chief Financial Officer. Following their opening remarks, we will open the call to 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, I would like to remind you that our discussion 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 important risk factors that could cause actual results to differ materially from any forward-looking statements, Please see the risk factor section of our Form 20F filed with the SEC on March 9th, 2023. I will now turn the call over to Omer. Please go ahead.

Thank you, Rob, and good morning, everyone, and thank you for joining us. I'm excited to provide an update on the focus we've been making at Innoviz. This has been another fast-moving quarter with new programs, new partnerships, new product opportunities, and our steady march toward 2023 production with BMW and the shuttle program. Let's start off with what I believe is the biggest development, our new light commercial vehicle program. Last quarter, We told you that we were in a late stage discussions with one of our major existing customers for a new program. And today we're announcing that we have delivered on that promise. This program is for a level four light commercial vehicle and more specifically a commercial van that will include three to four lighters per vehicle. And perhaps what is most exciting here is that the expected program is on a very accelerated timeline. Due to the speed at which this program is moving, we are beginning our activity based on an agreed framework while working on the final requirements and commercial terms. This program is moving quickly, targeting a mid-decade SLP. With test vehicles on the road already this year, which you will be able to see. This means that this program can contribute nicely to the revenues in the back half of 2023, with sample shipments ramping and attractive levels of NRE expected to come on sooner than they typically do. The reason this program is moving so quickly is because we are displacing a development stage competitor. This is a new milestone for InnoVis as a company, and I believe it is a very important indicator of the quality of our technology and the benefits of 905 nanometer solutions where we believe we are the leader. Another aspect of this deal that is very important is the autonomous compute platform provider that we will be working with. This is our second program with this OEM, and it is the second compute platform partner that we are integrating with for this automaker. This helps to expand our compute platform exposure and shows our flexibility to integrate with all of the major leading platform pairs. Ultimately, we believe that working with the top autonomy platform partner should enable a faster time to market, accelerate the customer evaluation process, and ease the overall customer decision process. And I believe it could help open doors to additional wins as they continue to work together going forward. And while we're on the topic of compute platforms, we have an update on another major compute platform partner, and that involves our work with NVIDIA. Investors often hear us speak about the top three autonomy platform players and why we think it is important to not only work with all three of them, but to eventually have vehicles on the road with each of them. Based on development this quarter, we think we are one step closer to making that happen. We are in discussion with NVIDIA about being integrated into series production programs leveraging the Appirion platform. These conversations span multiple major OEMs and could introduce RFI and RFQ activity that ultimately would be incremental to the NVIDIA based programs that are already in our pipeline. In order to help investors understand why this is such an important development, let me explain how OEM typically makes their decision around autonomy platform vendors. Conversations with OEMs historically have progressed in one of two ways. Sometimes they run their compute platform and ladder suppliers also in parallel, making each of the decisions independently. And sometimes they will start by picking the compute platform first and then build the sensor suite around it. In scenarios like the second situations, already being integrated with the compute platform on another program can significantly reduce the time and cost that it takes for additional automakers to deploy the same system. You essentially become an off-the-shelf solution, significantly reducing the risk for a new OEM to choose you as their lighter supplier. Our goal here is to become embedded on all major compute platforms as quickly as possible. We view this as potentially meaningful structural advantage, and we are making excellent progress on this front every quarter. And while we're discussing software, I'm excited to share some details on a new product that we are quoting in conjunction with an advanced discussion with a leading global OEM. During our evaluation process with this OEM, they were highly impressed with the capabilities that our LiDAR and perception software brings to the table. And as a result, they expanded the scope of the RFQ to include what could be the first industry, first ever LiDAR-based minimal risk maneuver, or MLM system. First, let me give a little color of what an MRM does. The MRM system is software that sits on a dedicated compute box within a vehicle and operates as a backup system. In the event of a complication with the primary system, the MRM could take over control of the vehicle, offering a transition period for the driver to retake control of the vehicle and to offer the ability to safely pull the vehicle to the side of the road if the driver does not retake control within a specific time frame. MRM systems are not new. They have been around for several years, but historically, they have been camera-based. We believe that operating a LiDAR-based system offers key structural advantages over camera systems, including a true 3D image, along with reduced risk in low light and extreme sun situations, as well as environmental considerations like rain or snow. Successfully building out this product category would be a natural extension of the success we have already demonstrated in perception software and will help us move further up the stack, potentially offering additional incremental opportunities down the road. The benefits of having a larger software offering are clear. First, they can build upon and further expand the value that our lighter hardware technology brings to the table. And the second, the gross margin profile on software is much higher than hardware. And in the end market, like automotive, where you have more than 90 million units of volume per year, we can generate meaningful leverage and strong returns on invested capital. As part of this program, we are quoting a bundle that includes the LIDAR, the perception software, the compute box, and the MLM software. And we are starting to explore this product with additional OEMs. This could offer us incremental revenue that we believe would be positive to the gross margin profile. Next, I want to give a quick update on our largest customer, Volkswagen. There have been several industry headlines lately regarding changes in the internal software company Carriot, and we are happy to say that we continue to work towards a mid-decade SOP for our existing series production. I'm also happy to announce that we continue to explore new ways to grow our relationship with the company. And we are working with both Volkswagen and Carriot on additional programs, including several that are in advanced stages of discussion. We are also working with other compute platform partners to build a wide area of ladder integration options that would give the OEM an almost modular approach to ladder deployment that could allow integration into multiple platforms and sub-variants. The key point here is that we are making good progress with Volkswagen. And because of that progress, we believe we have additional opportunities for growth with them. As a reminder, the long-term strategy of our business is to gain an initial foothold with major OEMs with one platform, and then over time, earn the right to be the lighter vendor for every additional future program they decide to deploy lighter on in the coming years. Given the amount of ongoing momentum we are seeing with our existing customers like Volkswagen, we believe we are well along the path to proving this important milestone of our business. And we look forward to continuing growth with all of our existing customers. Our goal here is to further build upon our industry-leading $6.9 billion forward-looking order book, which will be updated on our fourth quarter 2023 earnings call. Coming into the quarter, we had four series production awards, BMW, VW, the Shuttle Program, and the Asian EV-focused OEM. Two of those awards, BMW and Shuttle Program, are on target to SOP in the back half of this year. The Asian EV-focused OEM is targeting a late 2024 to 2025 SOP, and our current Volkswagen Award is targeting a mid-decade SOP. The new light vehicle program we announced today is targeting a similar mid-decade timeline. While we have delivered on several major milestones this quarter, the progress we've seen in our pipeline during the last quarter is at least equally exciting, if not more so. We had a record number of programs move from an RFI to the RFQ process in this quarter, with roughly half of the pipeline now at the RFQ stage, which is a first in the company's history. We are now working on more than five RFQs in parallel. Between the programs we've already announced in the 10 to 15 in the LFI and RFQ pipeline, we either have already won business or are actively quoting new awards with eight out of the top 10 global automakers. Let that sink in for a minute. Eight of the top 10 largest car makers in the world are in our pipeline and are actively making sourcing decisions for our LIDAR. We ultimately believe that it's likely going to be a winner-takes-most market. The technology is safety critical. There are very high levels of tech differentiation. And the player that wins the most business is ultimately going to have a scale and cost leadership advantage that is likely going to be difficult to match. Given the fact that most of these programs will be on the road for 8 to 10 years, we believe that a major portion of the industry market share is going to be determined in the next 12 to 18 months. Looking at our customer programs, you can already see some solid evidence that the pace of programs activity is accelerating. After winning BMW in 2018, it took us over three years to win our next production award. From there, it took us a full year to announce the next one. In the past year, we've already announced two production awards along with today's new program. And looking forward, we think there are three to five programs that have the potential to make a decision before the end of the year. I believe this timeline shows some solid evidence that the pace of ladder decision making is likely accelerating. We feel very confident about how we are positioned in the process, and we hope that we will have much more to share in the coming quarters. And this outlook is embedded in our 2023 targets. As you can see, we are now targeting one to three additional programs with existing customers. Since we have announced new program today, and we have a line of sight into potentially two to three more before the end of the year, we are raising our guidance from 1 to 2 programs to 1 to 3. And on the new customer front, we are still targeting two series production awards with new customers. We have a few RFQs that we believe can advance into final commercial negotiations in mid-summer, and I'm hoping we will have something to share by late summer to early fall. And in terms of financial targets... We are introducing a very important new metric, cash collection from customers, which we target to be $20 to $30 million this year. This is a metric we consider to be even more important than the reported revenue because we target to collect large amounts of NREs that are not always counted as revenues. The purpose of this new metric is to more accurately communicate the powerful contribution of NREs to our financial picture and to encourage investors to take NREs into consideration along with revenue. Let's pause for a moment and make sure everyone understands what NRE is, because it's critical to our cash flow and the funding strategy of the business. Most investors we speak with understand our income profile once a vehicle is in production, but they often do not understand the drivers of revenue in the two to three years before production starts. During that period of time, we have three sources of income and cash, of income of cash, sample unit shipments, non-automotive shipments, and NREs. Sample unit shipments are important because they carry much higher gross margins than production pricing. For instance, sample units to $15K range compared to automotive production ASP, which is under 1K and can eventually approach $500 per unit at extreme volumes. These sample units are not priced on gross margins. They are priced to recover fixed costs like R&D investments. And for each customer program we can bring in from our pipeline, we could typically sell several hundred units per year This could potentially translate into millions of dollars per year for each award and potentially tens of millions of dollars per year across multiple awards. Here, we are also starting to ship units into the non-automotive market. This effort began in late 2022 and is starting to ramp up as we go through 2023. As you can see, ASP for non-automotive sales are basically in line with sample unit sales ranging from 5K to 15K. So here, too, you have the potential for a very high gross margin that can help absorb your fixed costs. While our efforts in non-automotive are still in the early stages, we think this is a market that could be in the tens of thousands of units per year for us in the next few years. And the addition of the Innovis 360 is expected to be a meaningful catalyst here. And then you have NLEs. NRE stands for non-recalling engineering. Basically, it's a phrase of wide range of services that we provide to customer that center mostly around engineering of the product as it works toward SOP. At a very high level, I would encourage you to think of NREs essentially as services revenues. The communication challenge that we have, however, is that they cannot always be recognized as revenues, depending on their accounting treatment. Sometimes they can be recognized as revenue, and sometimes they have to be recognized as a contract item to expense, such as R&D. And you don't always know upfront how you will be able to classify them, since it can often depend on terms and milestones that require input from the customer. I won't go into all of the factors that play into the accounting details. What's important here is that whether it's classified as revenue or contract expense, it doesn't really matter. Either way, it's a cash payment made by the customer and received by us, and it's a critical part of our funding strategy. Last quarter, we looked across 10 to 15 programs that are in our pipeline, and we calculated the total amount of NRE that we are quoting to those customers, and the number is in the range of $150 million to $250 million. to $50 million range depending on their size. Yes, there are programs that could contribute as much as $40 to $50 million each. So here too, we have the potential to bring in tens of millions of dollars per year if we can convert several of the programs from our pipelines. One last important point here is that the NRE are usually only available to Tier 1s. Typically, the total pool of NREs allocated to the Tier 1. And if anything is allocated to the Tier 2, it is a tiny amount at best. This was a key part of our decision to invest the time and effort to become a Tier 1 so we could collect NRE as part of our funding strategy in a meaningful way. We've been getting an increasing number of questions lately on our funding strategy, and my response to it is the most important step in funding our activity, our business, is growth. We have tremendous amount of opportunity in our pipeline, and each deal we win has the potential to bring in tens of millions of dollars of NREs and sample shipments. Both of these items offer high-growth profit flow-through, and we are specifically intended to help absorb fixed costs. We don't assume that we can win every single program, but if we can continue to show the momentum that we have demonstrated lately and continue to bring in several programs per year, then these things will start to build up upon themselves, with the potential for each of these automotive sample units, non-automotive cells, and NREs, offering the potential to contribute tens of millions of dollars each, structurally lower our burn rate. extend our cash runway, and bring us one step closer to breakeven. With that, I'll turn it over to Eldar to go over the financials.

Thank you, Omer, and good morning, everybody. Starting with cash, we ended Q1 2023 with approximately $156.5 million in cash, short-term restricted cash, and marketable security on the balance sheet. Our largely matured cost structure and our operating cash outlays remained mostly stable during the quarter and were in line with our 2023 budget. Moving to the income statement, revenues in Q1 2023 came in at $1 million compared to Q1 2022 revenues of $1.8 million. Revenue were impacted by our pivot towards SOP with BMW and the Shuttle program, which will weigh on the first half of the year before revenues begin to grow in the back half of the year. The biggest factor involved here is the lower sales price as we transition from selling LiDAR sample unit to selling just the components to Magna, who is the tier one for the BMW program. As we think about revenues cadence for the year, we expect the second quarter to look largely similar to the first quarter and for the same reasons. Looking to the back half of the year, we expect revenues to step up modestly in the third quarter. and then step up to a large extent in the fourth quarter with tailwinds from improving production volumes, growing Innovis 2 volumes, revenue-based NREs, and increased sample shipments to new programs. Moving forward down to the income statement, on the cost side, operating expenses an increase from $31.1 million in Q1 2022. Q1 2023 operating expenses included $5.2 million of share-based compensation compared to $4.7 million in Q1 2022. The increase in quarterly operating expenses compared to last year Q1 operating expenses was primarily due to the higher R&D expenses mainly on Innove's two costs, a general increase in headcount, associated share-based compensation expenses, and facility costs. for Q1 2023 were $26.1 million, an increase from $22.8 million in Q1 2022. The quarter included $3.5 million attributable to share-based compensation compared to $2.7 million in Q1 2022. important year of growth for Innovis. We are launching our first series production vehicles, ramping our Innovis 2 volumes, expanding in the non-automotive market and diligently going after all of the programs in our robust pipeline. We expect to finish the year on a very strong note with lots of momentum heading into 2024. And with that, I will turn the call back to Omar. Thank you.