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spk05: Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Head of Investor Relations, Samuel Meehan. Thank you, Samuel. You may begin.
spk14: Good afternoon, everyone, and welcome to VIEW's 2021 Earnings Call. I am Samuel Mien, Head of Investor Relations at VIEW. I'm here with Dr. Raul Mopuri, our CEO, and Amy Reeves, our CFO. On the call this afternoon, Raul will discuss the current status of the company, including the financial restatement and commentary on the market, our products, and key customer announcements and verticals. Afterwards, Amy will provide a detailed review of our 2021 financial results. Finally, Rao will provide 2022 guidance and commentary on our path ahead.
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spk14: Before we begin, I'd like to remind you that shortly after the close of the market today, VUE issued a press release announcing its 2021 financial results. You may access this press release in the Investor Relations section of VUE.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. I would also like to remind you that during the call, we will discuss certain non-GAAP measures related to VIEW's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the press release. Rao, over to you.
spk13: Thank you, Samuel, and thank you all for joining us for VIEW's earnings call this afternoon. I'm very excited to come back and speak with you after more than a year since our last call. Today, you'll hear some exciting updates about VIEW. In particular, I'm very pleased to announce that we more than doubled our top line in 2021 with record revenues of $74 million. This represents 125% growth over 2020 revenues. Our presentation this afternoon will be in three parts. First, I'll provide some background and perspective on what transpired that led to the accounting restatement. Second, we will provide updates on the current status of the company and progress we made to advance our mission. And third, we will discuss our path to profitability and success. So first, let's talk about what happened last year leading up to the financial restatement. From the very beginning, VIEW's journey has been one of industry transformation. Over the last 13 years I've been building VIEW, it's been about developing our products, building our operations, and driving technological change in a risk-averse industry. The real estate industry has experienced minimal productivity gains over the last 100 years. Buildings consume 40 percent of energy and are a major contributor to climate change. They've also severely underserved the experience and well-being of the people inside them. While many saw this as a problem, we saw an opportunity to innovate and drive positive change. The ViewSmart window is a game-changing product. It takes a day-to-day object and massively improves the way we experience it. The window is programmable and automatically changes throughout the day based on user preference and the position of the sun. We eliminate blinds and shades, provide views to the outside, and we optimize natural light, which has tremendous health and productivity benefit for the people inside buildings. In addition, We save HVAC and lighting energy, reduce electricity peak load, and provide a path to net zero energy buildings. By improving user experience and health while simultaneously reducing energy, we also enable building owners to generate higher returns. People, planet, and profit. You can have all three. With that backdrop, I'd like to take the time to set the record straight on the accounting restatement. We built VIEW with the utmost care for the well-being of our customers and did everything we could to ensure that our products last a very long time. This included every product we designed, every process step in our manufacturing, and every material we sourced. We literally made thousands of decisions with great care. In spite of this, in 2019, we discovered an elevated failure rate in certain insulated glass units in the field. We investigated the issue and traced it to a component part provided by one of our suppliers. That component had been changed but had passed all industry testing standards, including testing as an integrated system. We immediately worked with the supplier to identify the root cause, solve the technical issue, and help redesign the component. No products produced after 2019 are affected by this issue. While we solved the problem going forward, we needed to support the customers that experienced failed IGUs due to this issue. Our standard warranty contractually covers only the parts we supply, and we have honored every contract by providing replacements. In addition, we voluntarily went above and beyond our contractual obligation to care for affected customers, and as a result, incurred additional costs. Our warranty liability has always included the cost to meet our contractual obligations which in most cases is the replacement of defective materials. In 2019, after we identified the quality issue, we recorded an increase in our liability. The additional costs we were incurring to go above and beyond were reported as expenses in the periods in which they occurred. Effectively, a reserve for the contractual portion and a period expense for anything above and beyond. This issue and the associated costs were disclosed in the S-4 merger documents in late 2020. Ultimately, it was determined that these above and beyond costs should have been included in the warranty reserve instead of the period costs. As Amy will discuss in more detail, we have now included these costs in the 2019 warranty accrual, which increased by a total of $28 million to be settled over the 10-year warranty period.
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spk13: In addition, as part of the restatement, our accounting team, with the assistance of outside experts, has looked deeply into other aspects of our accounting and financial reporting. I'm pleased to report that we have found no other material misstatements. In the long game of building great companies, every challenge brings with it an opportunity. At VIEW, we have a culture of iterative learning, and you will often hear us say, we win or learn, we never lose. I'm confident that we have learned from this experience and will emerge a stronger company built for the long term. Now I want to provide a perspective on the market trends in real estate, discuss our products and the benefits to our customers, and share our progress in key industry verticals. First, the market trends. Real estate, the largest asset class in the world, is going through a once-in-a-lifetime transformation. This change is driven by four key secular trends. The first trend is addressing climate change and improving energy security. Buildings consume 40% of the world's energy, more than the transportation or industrial sectors. While there were attempts to address this in the past, we are seeing an acceleration of concerted actions and investments by corporations, asset managers, regulators, and society at large. The war in Ukraine and the resultant energy challenges have brought an additional imperative that energy efficiency equals energy security. In the 13 years I've been building VIEW, this is the strongest push I have seen for energy efficiency. This includes new buildings as well as the upgrade of existing buildings. The second trend is improving human experience in buildings. As humans, we spend 90% of our time inside buildings. For the longest time, buildings have been thought of as just monuments, but as we've seen with many industries that have been disrupted, there is a new way of thinking taking shape. There's a commonsensical approach to user experience. We call it inside out as opposed to outside in. A building built around the experience of the user. UX is native to many people in tech, and this is a major opportunity to do exactly that in buildings. The third trend is improving human health and well-being. A lot of research is pointing to space impacting human health, such as quality of air we breathe, access to natural light, thermal comfort, and acoustics. The pandemic has really brought this awareness to the forefront. We are investing heavily in this science and believe this is the next major frontier for people making explicit choices about the quality of space they consume. The fourth trend is digital transformation of real estate. We carry a smartphone in our pocket, a tablet or laptop in our briefcase, drive in a modern day automobile that has sensors, connectivity, and interactivity, and then enter a building that has dead walls. There's a huge opportunity to make buildings more secure, efficient, connected, and productive. There is broad recognition that real estate has lagged behind the rest of the industries in technology adoption and associated productivity gains, and there is now a strong pull from real estate companies to adopt smart technologies. The combination of these four secular trends creates a massive opportunity And Vue is addressing all of these megatrends with its products. Now let me talk about our products. Our core product is the smart window. We recently introduced the fourth generation of our smart window, and customer response has been terrific. Gen 4 is notable for several reasons. First, it delivers a superior aesthetic and the best natural color rendition and clarity in the industry. Next, it has a greater dynamic range enabling us to better address glare in office environments and serve segments like life sciences and multifamily residential. And it also comes with our next generation smart building infrastructure, which is the backbone to securely operate and manage all of the building's smart and connected devices. In 2021, we also launched the smart building platform, which integrates our smart windows into a fully digital envelope, essentially a digital skin to the building. which includes our converged secure network infrastructure and incorporates end-to-end design and deployment services to provide customers a high-quality, one-stop shop experience. By assuming ownership of the digital envelope with a fully integrated performance solution, we build stronger customer relationships and eliminate friction with construction trades during project execution. We will provide additional value propositions to customers throughout the lifetime of their buildings by offering them seamless incorporation of upgrades and additional products that make their buildings more cyber secure, reduce energy consumption and operating costs, and improve user experiences. Included in this offering is our next generation smart building infrastructure that is the backbone to operate and manage all of the building's smart connected devices. This infrastructure is enterprise grade incorporates robust cybersecurity, future-proofs buildings by incorporating very high communication bandwidth through optical fiber, and is based on open standards like PoE, so customers can easily add new capabilities and devices from Vue and others.
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spk13: We continue to build our capabilities in machine learning and AI, to leverage the massive amounts of data in buildings so we can deliver better experiences for people and lower the carbon footprint of buildings. To augment our organic efforts in this area, we made a couple of strategic acquisitions last year. The first is Iodium, which is a secure, managed edge cloud and remote access solution. The Iodium platform can be deployed in both new and existing buildings. It is currently providing secure converged services for over 30 million square feet of real estate including portfolio-wide deployments at Alexandria Real Estate, Kilroy, Charter Hall, and Bentle Green Oak, Canada. The second is WorksWell, a building data analytics platform we acquired from RXR, one of the leading real estate companies in New York. WorksWell aggregates all building and tenant data, including occupancy, access control, air quality, temperature, environmental factors, and data from equipment and building management systems, into consolidated dashboards to optimize every aspect of building operations and workplace experience. It generates insights to reduce energy and maintenance costs, extend equipment lifetimes, and improve user experiences. WorksWell is already deployed in 25 million square feet, and we continue to add new features to drive broader market adoption. Both the Iodium Security Suite and WorksWell are subscription-based or SaaS products that can be deployed in existing buildings. We also continue to build integrations with third-party products to give our customers greater flexibility and to establish VIEW as the smart building backbone and platform. We also launched VIEW Immersive Experiences, a transparent digital interactive surface that incorporates see-through high-definition displays into our smart windows. These next-generation displays are already installed in offices, multifamily residences, and airports, and there's a tremendous opportunity to rethink Windows as digital canvases that we can use to collaborate, educate, and entertain. As you can see, with each of our products, we are addressing climate change by optimizing energy usage, providing healthier, better experiences to benefit people, and as a result, increase differentiation for our customers and make their assets more valuable. And using technology, both hardware and software, to make buildings more connected, smarter, and more efficient. Again, a powerful combination of people, planet, and profit. Now let me discuss how VIEW is doing in key real estate verticals. In the office sector, the pandemic has clearly caused a major disruption with work from home and mixed mode trends. While there's still a debate about the future of the office, there are some clear trends taking shape. Corporations continue to build campuses because they see the office space as a necessary tool to drive culture and collaboration. Corporate shift to secondary cities such as Austin, Nashville, and Boulder is causing a need for more office space in those cities. In the more established markets, while there is overall vacancy in the office, we are seeing a clear flight to quality. Well-immunized Class A office spaces are in high demand, while older Class B and C offices are struggling. This is forcing landlords to modernize and reposition those assets. Remember, for every new building being built, there are over 100 existing buildings, often in great locations, so this is a massive opportunity. While we don't control the overall macro, we can absolutely capitalize on these trends. For Vue, some of the key customer wins and shipments in 2021 include continued growth with Google in New York and the Bay Area, Amazon in the Seattle area, Uber with their new hub in Dallas, and Walmart's new campus in Bentonville. VIEW is also the base of design in the Lake Nona Smart City with the Tavistock Development Company. We also see increased traction with office renovations with a few notable projects being 111 Wall Street, the former Citigroup building in Manhattan, being developed by Nightingale and Wafra, and other major renovations on New York's 3rd Avenue with Nuveen, and the Durst Organization. Now turning to the life sciences sector, that sector has seen significant growth in the last five years, and the pandemic has accelerated funding and resources into life sciences, making it one of the fastest growing sectors in commercial real estate. ViewSmart windows have unique benefits for life science tenants. In addition to making the building more sustainable and improving user experience, ViewSmart windows also provide enhanced UV protection for lab equipment and sensitive supplies. In life sciences, we're seeing particularly strong aversion to blinds and shades, which collect dust and germs that can contaminate lab samples and tests. And with heat and UV controlled, the labs can be placed at the perimeter of the building, as opposed to the core, allowing scientists access to natural light and views. Some of our notable wins in the life science vertical include Calen Ridge, our second project with Health Prec properties in San Diego, University Place, a life science project in Philadelphia, and VIEW is also installed in lab spaces developed by Trammell Crow in Chicago's Fulton Market neighborhood. Now turning to the airport's vertical. The U.S. is in an investment mega cycle for airport infrastructure, and construction remained robust throughout the pandemic. Airport modernization projects are focused on sustainability and improved passenger experiences, and VIEW delivers on both of these trends. Views installed are being installed in 14 major airports in the U.S., including San Francisco, Dallas-Fort Worth, Charlotte-Douglas, Boston-Logan, and Memphis, and we continue to grow our presence with several key wins, including Terminal 5 at Chicago O'Hare and Delta's new terminal at LaGuardia. And finally, multifamily residential. We've experienced very strong growth in the multifamily residential sector. Multifamily has been the fastest growing real estate segment and over 20% of our recent design wins are in multifamily, and we expect to continue to see strong growth in this area. Multifamily is particularly compelling for VIEW because we can see the direct impact of our benefit on the building owner's economics. We now have evidence that apartment renters are willing to pay $100 to $150 a month higher rents for units with ViewSmart windows compared to similar units in the same building without ViewSmart windows. Demonstrated economic benefits like this will continue to drive increased adoption of smart windows. Remember, in this case, it's not just cost reduction, but actually a revenue benefit to the developer of the building. Some notable wins in multifamily include Neighbor, co-founded by the world-renowned architect Bjarke Ingels, where VIEW will be installed in Sofa 1, Silicon Valley, Atria Development in Toronto, and the Durst Organization's 67-story apartment tower, in Long Island City, the tallest building in Queens. As you know, residential is the largest sector and product learning and success in multifamily will set us up well to enter the single family sector in the future. Stay tuned for more on that. With that, I'd like to introduce Amy Reeves, our CFO, to cover the 2021 results. Amy brings to VIEW over 20 years of public company finance and accounting experience. Amy joined VIEW last summer as our principal accounting officer and was promoted to CFO in February of this year. I'm pleased with all that Amy and her team have accomplished in getting us here today. Amy, over to you.
spk07: Thank you, Rao, and good afternoon, everyone. I'm Amy Reeves, and I will cover the financial results included in our earnings release published earlier today. I will also provide a bit more color on the financial restatement.
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spk07: I'm very proud of the team's hard work this past year, and I'm pleased with the accounting infrastructure we've built in finance to support the remarkable opportunity that exists at VIEW. After I started at VIEW, we made several key hires to strengthen the accounting team, including a revenue and operations controller, a director of financial systems and compliance, and a director of SEC reporting and technical accounting. We've also partnered with leading global accounting advisory firms to perform a comprehensive risk assessment and to assist with the documentation, evaluation, and testing of VIEW's internal controls. We will be further investing in remediation efforts this year to address material weaknesses in our internal controls, including implementing new controls and redesigning existing controls. In summary, we've made significant investments in people and process that enable us to present our financial results with confidence. I'm confident that we have built the right team that will establish a strong foundation for success. Moving on to the warranty-related accrual issue, which Rao discussed earlier. As previously reported, the investigation of the company's audit committee into our warranty-related accruals is complete, and we are pleased to be able to share our financial results with you today. The restatement stems from a correction to our accounting for our warranty liability. This warranty liability has always included the costs to meet our contractual warranty obligations. In 2019, after we identified the root cause of the issue that Rad discussed earlier, we recorded an increase to our liability to take into consideration our contractual obligation for the additional failures we estimated would occur in the effective products during the warranty period. As Raul also mentioned, the additional costs we were incurring to go above and beyond for our customers were reported as expenses in the periods in which they occurred. We originally recorded in our financial statements included in our S4 merger documents $3 million of these above and beyond costs in 2020 and $2 million in 2019. Ultimately, it was determined that these above and beyond costs that we intended to incur should have been included in the warranty liability. We also determined that our model originally used for the calculating the warranty obligation overestimated the failure rate related to this issue. The correction of these two errors has the effect of an increase in losses in the originally stated 2019 P&L when we establish the specific liability for this issue, and correspondingly, a reduction in losses in the originally stated 2020 P&L as we settle those warranty claims. On November 9th of last year, we provided guidance for the restated balances, and today we reported that our restated warranty liabilities are within those guided ranges. As of December 31, 2020, we are reporting a restated warranty liability of $48 million, within the guidance of $38 to $55 million, and compared to the previously reported warranty accrual of $23 million. As of December 31, 2021, we are reporting a warranty liability of $42 million. I would like to note these adjustments reflect our expected obligations over the course of the 10-year product warranty period. It is also important to highlight, outside of the previously reported misstatements in our warranty liabilities, we did not identify any other material misstatements. As Rao mentioned, we invested a significant amount of time and attention, including the use of outside resources, to review our prior period financial statements in order to be confident in the accuracy of our financial reports. We announced today that NASDAQ has granted VIEW until June 30th to file our 10-K and 10-Q filings following our earnings release. These filings will allow VIEW to regain compliance with NASDAQ listing requirements. We are looking forward to putting this issue to rest. Now let's turn to our fiscal year 2021 results. 2021 was a strong year for VIEW, despite the uncertainty caused by the financial restatement. As Rao mentioned, we more than doubled revenues to $74 million, representing 125% year-over-year growth, including sales from our expanded product offerings. This growth was also driven by three other primary factors. First, increased customer demand. Second, strong ASPs. And third, repeat purchases from existing customers with large real estate portfolios. Total cost of revenues of 195 million represents a 61% increase from 2020. we grew revenues more than twice our cost of revenues, and as a result, gross margin as a percent of revenues improved significantly year over year. This improvement represents the benefit of leveraging the fixed costs in our manufacturing operations over higher revenues and demonstrates the future gross margin potential as we continue to expand the top line. The increase in cost of revenues was impacted by four primary drivers. First, higher volumes. Second, Increased labor and overhead costs as we scaled up the factory from two shifts at the beginning of 2021 to four shifts by the end of the year. Third, costs associated with the delivery of our new smart building platform offering. And fourth, contract loss accruals of $21 million for our smart building platform work that has not yet been performed. These contract losses are accrued at the beginning of a project and are released when we incur the expenses as work is completed on these projects. Given the significant fixed cost nature of our business, we expect contract losses on smart building platform projects will decrease over time as our unit economics improve on higher volumes. To put it simply, we expect contract losses will diminish as we grow our volumes and make progress on our profitability milestones.
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spk07: Now turning to operating expenses. VUE incurred $93 million in research and development costs in 2021, an increase of $25 million, or 36% from 2020. We continue to invest in next-generation smart building technologies to accelerate the digital transformation of buildings and successfully rolled out several new product lines, including Vue Immersive Experiences, Vue Sense, Vue Security Suite, and Vue Building Analytics. The increase in research and development expenses from 2020 primarily relates to a one-time depreciation charge of $14 million. Our R&D expenses in 2021 also included $9 million of non-cash, stock-based compensation. Non-GAAP R&D of $85 million includes the one-time depreciation charge. This charge was taken as we retired older R&D assets to clear additional production space in the factory. We incurred $131 million in selling, general, and administrative expenses, an increase of $57 million, or 77%, from 2020. SG&A expenses include $60 million of non-cash thought-based compensation, primarily as a result of the grants provided in connection with the used business combination completed in March 2021, which was a $38 million increase from 2020. The SG&A increase was also related to consulting, legal, and accounting expenses during 2021 for costs associated with the financial restatement and related work. We also had higher levels of expenses due to public company costs. In addition, we grew our presence in key geographies to support our customers and growing business. Non-GAAP SG&A of $71 million includes the additional expenses incurred as a result of the financial restatement and related work. I'd like to note our stock-based compensation expense is primarily related to the executive team's long-term incentive program. that was granted as part of the merger agreement in 2021. The Executive Team's option awards are currently underwater and provide no economic value at the current stock price levels. Similarly, Officer RSUs that were granted as part of the merger will not vest and will not be earned until the closing price of our Class A common stock equals or exceeds price triggers of $15 per share and $20 per share over a 60-day trading period by 2025. These equity awards are designed to provide economic benefit only when our stockholders receive a meaningful return on their investment in the company. However, the expense associated with these awards is recorded on our financial statements based on the value that was determined at the time of the merger closing. 2021 gap loss from operations was $345 million, compared to a loss of $230 million in 2020, reflecting higher revenues, offset by higher cost of revenues due to the higher volumes, expanded product offerings, and increased factory capacity, higher stock-based compensation, and slightly higher operating expenses due to the restatement and related work and the one-time depreciation charge. Our gap net and comprehensive loss in 2021 was $343 million, and our current shares outstanding is 219 million shares. Net cash used in operating activities of $261 million compares to $166 million in 2020, reflecting higher costs associated with growing volumes, expanded product offerings, and increased factory capacity, as well as expenses incurred as a result of the financial restatement and related work. In summary, we are excited to be completing the financial restatement process and to report our 2021 results today. With that, I'll turn the call back to Rao.
spk13: Thank you, Amy. Now let's talk about the journey ahead and a path to profitability. All of our accomplishments to date have prepared us very well. Looking to the future, we have the three ingredients needed already in place. First, Vue's readiness for the market. Second, market awareness and acceptance of our products. And third, secular macro conditions over the next few years. First, about Vue being ready Over the years, we made sustained investments in R&D and built a complete product, resulting in over 1,250 patents issued and applied, an investment of over $400 million in manufacturing capacity, as well as significant investments to support our customers with regional capabilities in sales, customer service, and field support. Second, about the market awareness. As you heard, we made tremendous progress in addressing some of the biggest barriers to market adoption, such as getting more and more people to experience the product, collapsing the gap between the buyer and the user, doing larger and larger projects in key geographies, and achieving strong ASPs. The 125% growth in 2021 is a strong validation of that. But more importantly, as you heard, we generated that revenue from large, repeatable market-making customers. Thus, we expect to continue to have a flywheel effect to the market adoption. Third, we're entering a secular environment that is very favorable to our products. Climate change and a path to net zero move towards user-centric buildings that are experiential and healthy, and technology adoption and machine learning and AI are all colliding, providing fantastic tailwinds to our business. Given those three things in place, the key to success is now scale and execution. With growing volumes, we expect to rapidly realize fixed cost absorption and improving margins. We project our burn rate to improve in the second half of this year, driven by higher volumes and improving operations and factory metrics. All of these factors set us up well for 2022 and the years ahead. Our customers have shown strong belief in us, and the entire industry has been waiting for us to get through the restatement. With this issue behind us, we are forecasting growth for 2022 with revenues in the range of $100 to $110 million. Now let me talk about cash. We believe the capital needs of our business going forward are a fraction of what has already been invested to date. Over the last 13 years, significant capital has been invested in the business, which has created all this value and set us up for this unique position. And we have a clean balance sheet with no substantial debt. While we have not pursued raising additional capital during the restatement period, We intend to begin that process after the conclusion of the restatement. Again, we're excited to get back in front of you and look forward to the journey ahead. This concludes our prepared remarks. Operator, we're happy to open up the call and take any questions.
spk05: Thank you. And we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
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spk05: Our first question comes from Pavel Mokhanov with Raymond James. Please state your question.
spk15: Thank you for taking the question and good to reconnect. The guidance you've given on revenue is obviously on the slower side compared to the kind of 100% annual doubling that you talked about as a baseline. as part of the SPAC process last year. What explains the cooling off of the growth rate from over 100% last year to less than half of that this year?
spk13: Hey, Pavel. Thanks for the question. So first of all, as you heard, we achieved record revenues of $74 million in 2021. with well over 100%, 125% year over year growth. Looking to 22, we're forecasting 100 to 110 million until point yes, it's a lower growth rate somewhere between 35 to 50% over last year. The most important thing here is, you know, the products are getting better, our operations capabilities are getting better, and our customers continues to realize value and have belief in the business. But there's also a sense that some of our customers are waiting for us to emerge from this process that we've been through with the risk of delisting and restatement. So there's a little bit of temporary slowdown in acquiring new customers. But with this issue behind us, we do expect to resume much higher growth rates. But that does explain kind of where we are in 22. But going forward, we do anticipate that we'll be in a much higher growth rate.
spk15: OK, understood. Gross margin turning positive. I know you're not giving any specific timetable for that particular milestone, but can you just talk about what utilization of olive branch needs to reach before you can turn gross margin positive just at the plant level?
spk13: Yeah. So as you've heard us talk about this in the past, our projections are roughly same for what we expect this factory to be able to do for us. That factory and our products are designed to do about a billion dollars of revenue when it's running at full scale. It needs some more CapEx to get there. Not a lot. It's a fraction of what we've already invested. But clearly, you know, we need to kind of manage the demand and then match the supply, including people, processes, and of course, some more equipment to be installed. To answer your question, the path to gross margin positive and profitability, which will be achieved well before that plant is fully ramped up, is all dependent on scale for us. And that means continuing to turn the crank on the front end, the flywheel effect with the industry, bring in the orders, and keep ramping the factory. And we anticipate being in gross margin positive in the second half of next year.
spk15: Okay, that's very useful. And then lastly, you know, we talked about this, you know, about a year ago on the last call. What are your thoughts on expanding the footprint of the business outside of North America, particularly in the context of what you talked about Rao, which is the urgency of energy efficiency in the context of the war you know, record high gas prices, record high electricity prices across the Atlantic?
spk13: Yeah, so clearly, I mean, look, someday every window will be smart and should be smart because it's so important for the planet and it drives such a big improvement in quality of life in terms of people's experience and health. And clearly we're designing our products and our company to achieve that. That will take some time. So you're gonna walk before you run. Clearly our markets today are focused on North America, mainly US and Canada. And we've done some pilot projects elsewhere in the world. To your point, I think particularly Europe can and will likely be the largest market in the medium term because it has more severe, I guess, issues relative to energy and energy security. But also I think there's a little stronger will out there has been, around climate change in terms of regulation and people's attitude. By the way, that's growing significantly and getting very strong here in the US as well. I think with respect to international and specifically Europe, our ability to ship from North America in a container and then support our customers today isn't as strong as it is here. I mean, we're now in the 20 major, you know, urban geographies within the US and Canada. where we have not only salespeople, but also project managers, customer service engineers, customer success folks that kind of work with the occupants and the building after it's installed. We do need to build out that kind of infrastructure elsewhere in the world, and frankly, also be in a position to build manufacturing locally fairly quickly thereafter. So you will hear from us more as we progress further. At this point, we absolutely see a path to profitability right here in North America. That doesn't mean opportunistically we won't be entering other markets. Also with COVID, over the last couple of years, travel's been harder. Going into overseas markets, it would have raised our burn rate. So we stayed disciplined here and focused on the customers that have already committed to us, especially with repeat business with them. So your points are well taken. We will be in the international markets in the future. We'll come back to you once we have more concrete plans.
spk15: Very good. Thank you again. Thank you again.
spk05: Thank you. And just a reminder to ask a question, press star 1. Our next question comes from Ryan Hebe with Goldman Sachs. Please state your question.
spk03: Hi, this is Ryan Hebe on for Mark Delaney and thank you very much for taking the question. The first is going to be on free cash flow. Could you discuss at all the level of revenue needed to reach free cash flow break even?
spk13: Yeah, thanks, Ryan. As I mentioned, you know, we will be free cash flow positive with the plant we already have. We don't need to build another plant to get there. And as you know, given all the fixed costs that are already in place, the key to free cash flow positive for us and profitability is scale. And so we think it's a couple more turns of the crank with respect to, you know, driving market adoption and growth, especially with our existing customers and potentially new ones, but also driving economies of scale on the back end. So we're a couple of years out. We can achieve this within the plant. You know, as I mentioned earlier to Pavel's question, we're going to get to gross margin positive in the second half of next year. That gets us halfway there to the cash burn. because that allows us to say, okay, our factory is now writing its own checks. We still have R&D and SG&A to cover, and as we keep turning the crank, we're going to get to keep free cash flow positives.
spk03: Okay, thank you, and that's very helpful. And then secondly, maybe just on demand, could you talk a bit about any potential demand impact you guys have seen from the accounting review, or is that not something that you guys have really seen yet?
spk13: You know, I think to be fair, I'd say in our growth kind of trajectory, the threat of delisting and the restatement itself has cast a question on the company. Clearly, a lot of our key customers have stayed with us and have strong belief in us. But when it comes to new customers and new orders, there's been a big question mark. And everyone's been waiting for today to happen. A lot of people have been rooting for us and just making sure we get through this process. So there has been some, I would say, slowdown in people's thinking relative to this. And with this process behind us, we expect that to get back to normal levels that we had last year.
spk03: Thank you very much.
spk05: Thank you. There are no further questions at this time. I would like to turn the floor back over to Dr. Rao Mupudi for closing comments. Thank you.
spk13: Thank you. Thank you all again for joining us. I'm grateful for our amazing colleagues, customers, partners, and shareholders for the support that we've received throughout this period. We're excited to move forward to continue to drive industry transformation and growing VIEW into a world-class company. Thank you.
spk05: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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