Innoviz Technologies Ltd. (INVZ) Earnings Call Transcript & Summary

Good morning, and welcome to Innoviz Second Quarter 2021 Earnings Conference Call. Joining us today are Omer Keilaf, Innoviz Chief Executive Officer; and Eldar Cegla, Innoviz Chief Financial Officer. [Operator Instructions] 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 a 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 20-F filed with the SEC on April 21, 2020. I will now turn the call over to Omer. Please go ahead.

Okay. Hi, thank you, Maya. Thank you very much. So today, we want to make another exciting demo for you. Last time we did it from our garage. And this time, we are going to do this on the highway. As you can see here, you can see this is Road #6. It's the longest highway in Israel. You can see our car here, and you can see our LiDAR. Come check it out. You can see here, we positioned our LiDAR on the front of the car, and we have a camera as a reference, so you can see what it's looking at. Okay. So let's go. Let's go back. Can you open it? Okay. Okay. So basically, the demo that I'm going to show you now is for our LiDAR on highway and our computer vision, which is running on this platform, which you can see here. Everything that we run is under a very small chip. It's actually a very low-cost chip, which is automotive-grade. And now let's go into the car and drive. Okay. So let's go in the car. Sorry about this. It takes a minute to go inside. Okay, Mike, let's go.

All right.

Drive safely. Okay. So we will go out to the highway safely. Okay. So what you're looking at is InnovizOne. This is our first-generation automotive-grade product that I showed you -- I showed you a second ago. And now we're going to turn on, okay, the computer vision, it's on. And okay, so what's your seeing is not -- it's not a prototype. It's not -- it's actually embedded in our platform, which is going to production. And this is a very unique, I would say, advantage that we have because we've been developing this for many, many years. Innoviz is collecting lot of data. We have over 1 million annotation, object detection, objects that were collected. And you can see here that the LiDAR has a very high resolution in very high frame rate. Now this is important because whenever you're you want to get an impression of the LiDAR, it is very important that you will check the LiDAR performance in a moving platform, in a moving vehicle, because I've seen many demos of LiDARs that are made in a stationary setup, and you're unable to really know the real frame rate and the actual resolution of the product. So you can see here, this is from driving in -- what's your speed, Mike?

100.

100.

105.

You can go better than that.

All right.

But drive safety. Okay. So this is obviously for a highway driving application, and this is a nice demo, you can get an impression of what we're capable of. So this is what we do on a day-to-day basis. There's no other LiDAR that can actually meet this performance in terms of resolution, frame rate and range. We're very proud of what we have today. And in a few months now that we will have InnovizTwo, which will be raising, okay? So thank you again, and let's move to the earnings call presentation so we can move to this camera. So let's shut down this camera. Okay. So okay, now we can go to the more formal way to do an earnings call. As you can see, we tend to try to do things a bit differently because I think it's part of our nature to be slightly more innovative. Okay. I want to start before going into the quarterly details, I want to give -- to reinstate our mission. As you know, transportation is a big part of our life. And yet, it is still the biggest threat -- one of the biggest threats that we have on our day-to-day due to our need to commute whether we drive or not. And this definitely doesn't need to remain. There should be no reason in the world why the right technology would not solve this problem. And this is why Innoviz is committed to develop the technology that will bring safety to us all. Every year, there are 1.3 million people dying on the road and up to 50 million people that are injured. I will share with you my personal story. When I was 10 years old, one night, my family got a phone call from the hospital, telling that my older sister is seriously injured in a car accident. It changed the life of my family. It changed my life, and it took my sister a few years to go back on track. She's fine now. And as you can imagine, it makes me understand very clearly why this problem has to be solved, and it could be solved. 80% to 90% of all accidents are due to human error. 94% of all fatal accidents are related to human error. So we need to remove the human error, and it's possible. We just need to develop the right technologies. My background is Unit 81. Some of you might not know Unit 81. It's a very prestigious technology unit from the Israeli Defense Force, developing very unique technologies. Our slogan and our spirit is about "Talent, passion and commitment can make the impossible possible." And that's why I believe many of our engineers that come from there decided to join Innoviz because they feel passion to bring an impact to this industry. Five years ago when I started Innoviz, I was told many times that what I'm trying to pursue is impossible, which was exactly what I was looking for. I was looking to bring the right solutions that can actually make an impact. And my belief that if a certain problem is important enough, there should be no reason to assume that it's impossible to solve it. Now Innoviz for that is developing a very unique technology. Our high-end solid-state LiDAR, which is targeted for low cost is developed in order to allow carmakers to accelerate the adoption of life-saving technologies. And that's why -- that's what we're doing. Developing impossible and solving the impossible problems is not easy. It's not only about the excitement of autonomous driving. It's really about the very hard work that my team is doing day and night to make it happen. And I'm very proud for my team that is commitment -- committed to make it happen. Now I want to go into the quarterly update, and I will start with the technology development. We have InnovizOne, which -- that have gone through several design cycles, and it's on the verge to reach its hardware freeze. And that will allow us to reach high volume production. There are currently 2 production lines that are active. One is in Germany and one in the U.S. that will support InnovizOne manufacturing. InnovizOne+ is evolution of InnovizOne. It's a new version that allows us to improve the performance of the product by extending its range and doubling its resolution. And that serves more and more customers that we leverage on a very mature platform. It will also leverage on the existing production lines that can benefit that can reach to production faster. InnovizTwo is making great progress. We are meeting our plans. There are already samples that are in production. We are waiting for the last component to arrive. It should arrive in October, and that will allow us to do the integration and have first samples. It's a revolutionary product that will have a substantial improvement in performance above 30x and 70% cost reduction. That will definitely accelerate adoption of the technology to many spaces. I'm happy to share with you some of the feedbacks and these are just a few of some of the comments that we get from customers that are using our product. It is very encouraging. And I would say, reaffirming our mission. We've been working for many years to make this available. And it's great to see that our product is creating a good and strong value to our customers. And we will continue to develop new technologies to support our partners. We have a few cars. We have several cars around the world and it's growing in order to collect more data. And we collect data in 3 continents. This data is helping us to strengthen our computer vision. I'm showing you here 2 videos that can help in understanding how it works. So when we go out and collect the road data, the data is stored and we use it in order to build a catalog of objects, whether it's trucks, cars and pedestrians. We do -- we write everything through our computer vision in order to get classification, and we use manual annotation in order to make it more accurate. And we have over 1 million verified objects that are used in order to give us a ground truth for our perception. In parallel to this, we have simulation tools that help us to, again, strengthen our computer vision by having endless of objects and testing edge cases and specific sim. What you're looking at is a simulation of InnovizTwo, which is now in production, and it allows us already to make progress. Now going to the commercials. So we announced a few partnerships and distribute -- new distributors throughout the last few months, and I'm happy to share more color on that. We have new partners in different countries. All of them are going to help us to generate more sales and get our product more mature. And of course, those in different countries that will -- are new to us. We have a new partner in China. It's a good start-up called Whale Dynamic. Whale Dynamic is developing a full stack Level 4 platform and have decided to use InnovizOne as their primary sensor in China. Cron AI located in the U.K., developing computer vision solutions and applications for autonomous driving and smart cities. On the distribution, we have a new partner in Singapore, which we just recently announced. Curium is a very interesting company that is developing softer, robust autonomous driving that is doing sensor fusion, again, decided to use InnovizOne for their platform and will help us to distribute our solution in Singapore. Edom is one of the largest electronic and semiconductor distributor in China. And they will serve as a path -- as a channel for us to increase our sales in China but also to provide support to customers. SpringCloud is a very known B2B company in Korea, mobility -- that provides mobility-as-a-service. In their intention to provide -- to have a strong ecosystem of autonomous driving in Korea, they've decided to use Innoviz. I want to use this opportunity to thank all of our partners in this space and for more than that for working with us, it's an important journey. Now this slide which -- it talks about probably 90% of Innoviz' attention in the last quarter and basically throughout every day, it's our engagement with new customers. When we are working with customers that are looking to use LiDAR, the discussions are far more complex, more complex than just talking about the KPIs of the LiDAR, which is resolution, range and frame rates, which I would love to talk and explain why we believe InnovizOne and for sure InnovizTwo is the most superior LiDAR in the space, but the discussions are far more complex and goes into any angle, which is related to going to high-volume manufacturing. Those are the discussions that are related to mechanical integration within the car, quality of this manufacturing plant, yield reliability, ASPICE and cybersecurity. I'm very proud of my team that is able to keep a very strong relationship with multiple customers and serving as a university for knowledge of how to develop an automotive LiDAR. We've been told by a very strong OEM in the space that Innoviz is really the company with the highest level of expertise and knowledge in how to bring a LiDAR to automotive, and I'm very proud to hear that. So far, we revealed about 2 design wins for series production in the automotive space. We told you about our award with the shuttle program with the European Tier 1 that is going to -- that the plans are to have the shuttles already end of next year. This program is going well. We had several integration sessions on both sides. Also on the BMW program, things go on track. We are on the verge for design freeze, that will allow us to go to the B sample having our product going into SOP of our line in middle of '22. Here, I want to mention another category, which we haven't discussed previously, but it's important for us to give this guidance. We have 2 programs that already are in what we call advanced development projects. Those are customers that have evaluated different types of sensors and decided to use Innoviz as the primary sensor to equip all of their fleet. Now I'm happy to announce that we have signed another contract with a European truck company that decided to use Innoviz LiDARs, InnovizOne, to equip all of its trucks beginning of next year for their testing and development of their platform. This is, of course, going along with a lot of activities we do in a lot of -- on many fronts. As a summary of our funnel, we've got nice propagation between the different stages, increase of the number of partners and customers going into the commercial requirements and negotiation. We are showing here the new category of the ADP, which has grown by 1 and increase of our potential order book by $200 million. I will be happy to explain more about our order book. These are questions that we are getting from time to time. I'm referring to the $2.4 billion that comes from the BMW program and the shuttle program. The way we calculated these numbers, the order book, is a very straightforward way. We took the number of cars that BMW is selling in average on every year through the models that are expected to use our LiDAR, which are the 7 Series and the 5 Series and more -- and others. And we multiplied it by the penetration rates that we expect. And we took as a benchmark the radar technology, which was in a similar position, and we multiply it by the ASP that was agreed between the companies. And this is how we reached the $2 billion. It's a very familiar standard process that companies are doing in this space. On the shuttle program, there was no benchmark. So what we've done here is slightly different. We received from our customer 3 scenarios in which they believe the program will grow. And we took also the minimum committed volume that was granted in our contracts when we signed the deal. We did a weighted average while giving the minimum -- the highest probability has been a conservative approach, which led to the total sum of $400 million. And I would add to it that things are going very well. And we actually are more optimistic about us being in a much more bigger position and growing this order book. Now going into the corporate update. We've increased our staff to support multiple programs. We had 29 hires, most of it comes in the R&D. Here, I want to share with you something that is important for me as the CEO of this company. In the last 2 quarters, we had about 8 people that used to work at Innoviz in the early days and decided to leave because they were exhausted. And they decided to come back. For me, it's a very strong recognition. You asked them for the reason of them coming back was mostly because they miss working in Innoviz and they feel passionate about going back and complete our mission. For me, as a CEO of the company, it's the most important thing. And hopefully, it will continue. I will hand over it now to Eldar to go over the financials.

Thank you, Omer, and good morning, everyone. Revenues for the second quarter of 2021 were $1 million, an increase of 39% compared to the first quarter of this year. We see continuous growth from our InnovizOne product. InnovizOne-related revenues for the second quarter of 2021 were $990,000, an increase of 29% compared to the $770,000 in the second quarter of 2020. We expect the portion of the revenues from InnovizOne LiDARs to increase as we increase production to meet order volumes. Operating expense for Q2 2021 were $70.7 million, an increase from $13.5 million in Q2 2020. The $70.7 million of operating expenses included $49.9 million of stock-based compensation as well as $1.8 million of issuance costs. The primary reason for the increase -- the primary reason for the increase in operating cost was $47 million attributable to stock-based compensation granted as part of the SPAC business combination. In Q2 2021, we continue to invest heavily in R&D, with R&D expenses totaling $32 million, of which $17.6 million was attributable to stock-based compensation compared to $11.5 million of R&D expenses incurred in Q2 2020, of which $0.5 million was attributable to stock-based compensation. Our balance sheet as of June 30, 2021 reflects the closing of our SPAC business combination transaction with $156 million in cash and $195 million in stock in short-term deposits. Through this transaction, we are maintaining significant cash levels of over $350 million that will support the company's cash needs in the coming years. Our issuance costs were $26.3 million paid in cash and $77.3 million through equity. Innoviz primarily -- Innoviz private warrants are classified as liabilities and are measured at fair value through earnings. During the 3 months ended on June 30, 2021, the company recorded $850,000 loss related to the change in fair value of the private warrant. Before I turn the call back to Omer, I would like to briefly comment on the F-1 we filed on July 27. As part of the business combination with SPAC, Innoviz agreed to file a registration statement on Form F-1 to register the release of shares and warrants of pre-closing Innoviz security holders and PIPE investors. Innoviz filed a registration statement, and it was declared effective by the SEC on August 1, 2021. While the shares of certain pre-closing Innoviz shareholders registered for resale remains subject to 180 days of contractual lockup, the shares of PIPE investors are now freely tradable. This completes my financial overview. Back to you, Omer.

Thank you. Thank you, Eldar. Okay. So last statement. Thank you for joining us on today's call. We are pleased with our development in the past quarter and believe we are in the right path to grow and become the market leader. We've been and will continue to be focused on several big opportunities that are out there for us. In everything we do, in all solutions, safety comes first. For us at Innoviz, safety is not just a LiDAR feature, it's the reason we are in business. It's our mission, our driving force. The more our customer base and pipeline grow, the safer the roads of the world will be. Thank you very much, and I'll be happy to answer your questions.

[Operator Instructions]. Our first question today is coming from the line of Michael Filatov.

Guys, can you hear me?

Yes.

This has been a great presentation. I really appreciate it. I don't think I've seen an earnings call in a car before. So I'm a big fan. Anyway, so first things first, I just wanted to sort of get maybe more of an update on the BMW award. It sounds like we see start of production in Q2 of next year, which maybe implies we start to see it in cars in the back half of next year. But I mean, is that the right way to think about it? And maybe could you confirm which model you expect to see it launch on? You mentioned the 5 Series, the 7 Series, but I guess there was a quote from the SVP of Automated Driving at BMW that say maybe the iX would have this new technology toolkit. So any comments around that would be helpful.

Yes. Sure. Michael. So first, I can only repeat the quote from BMW, public quote. Recently, 2 months ago, there was a quote saying that they plan to use Level 3 technologies on the 7 series, the 5 Series and the iX, as you mentioned. Related to the time line, we cannot quote on behalf of BMW, we can give a quote on our readiness for production, which is middle of next year. And that is related to the production validation of the Magna wholly production line that is now in position to the B sample.

Okay. Understood. Understood. And then Eldar, maybe a question for you as well. You guys said in the press release, you're reiterating sort of confidence in the long-term guidance. Now I'm not sure if that includes the 2021 revenue outlook from the SPAC presentations. But if so, that would imply sort of a pretty big ramp-up in the back half of the year. Do you still feel comfortable about the target you've laid out for the full year? And if so, I mean, what should we expect for the back half?

So basically, we did not give guidance -- specific guidance for this year. Of course, there are the projections that we showed during the feedback. And what we are expecting is the ramp-up of our production following the freeze of the hardware and this should be impactful on our revenue stream.

Okay. Got it. And one more. Just last quarter, you referenced 6 prospects in the late-stage commercial negotiations worth about $3 billion of order book, including 4 engagements, I believe, with OEMs. Now that number of prospects has grown to 8. And I'm wondering -- which is great news. But I'm wondering if you could give an update on whether or not the same 6 prospects are in that included in those numbers? And then what's the mix, are any more of those OEMs or sort of other opportunities?

So out of those 6, one of them propagated into the ADP, which is the truck company. There are additional 3 that enter the stage. The bigger programs are still ongoing, and we have -- we are actually [indiscernible] about those. We are making very good progress. And we will give updates once those will converge in the next 6 to 12 months.

Our next question comes from the line of Mark Delaney.

A question on the intermediate term outlook. And I think in the destack presentation, the company had talked about $23 million of revenue and the plan for 2022. Wondering if you guys still feel comfortable with that general ZIP code of revenue as we're trying to think about next year.

So we are not yet changing our guidance on that. We are ramping up our production line. We are -- as I said earlier, we are on the verge of freezing our design, which will allow us to increase our volume, and that will allow us to reach a much higher revenue. Anything you want to add to this?