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

Good morning, and welcome to Innoviz First Quarter 2022 Earnings Conference Call. Joining us today are Omer Keilaf, Chief Executive Officer; and Eldar Cegla, Chief Financial Officer. Following the 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 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 Factor section of our Form 20-F filed with the SEC on March 30, 2022. I will now turn the call over to Omer. Please go ahead.

Our recent announcement. I want to -- okay. Can you hear me? Okay. I want to use the opportunity to thank people that reached out during the last week to congratulate us. Definitely, we went through a very long process to make this happen, and we are very, very excited. Obviously, adding another $4 billion to our order book is a major achievement, and will allow the company to do many more things. But one of the most meaningful impacts of this recent announcement of our design win and award by one of the largest carmakers is not only through the fact that we won additional business, it's actually a big part of it that makes us very happy is our ability to secure this business as the direct supplier Tier 1. Becoming a Tier 1 in the automotive market is a huge, huge step for us that will help us to run faster and secure many more deals. This is one of the things that we've been working for a very long time. It's very difficult to become a Tier 1 in this space, but we are sure that this will allow us to run faster and succeed in many more deals. With that, I will please go to the presentation and elaborate more. Thank you. Can you go to the next page please? Thank you. So following 2 years of working closely with one of the world's 3 largest vehicle groups as part of their extensive RFQ process, we were happy to finally announce last week that we were selected to be their direct and only LiDAR supplier for the L2 to L3 multiyear series production program. Selection of InnovizTwo out of any other LiDAR solution is a big vote of confidence to our technology leadership and product superiority. Both companies have agreed to have a joint announcement following the first delivery expected in the coming months. This design win is our first automotive production deal for InnovizTwo, which follows our 2 design wins for InnovizOne. Back in Q3 2021, we updated you about Innoviz being qualified as a direct Tier 1 supplier by one of the largest car makers in the world. Being recognized as a direct supplier was a critical step to allow this group to select us for series production, yet we were waiting for the formal nomination. Last week, we were finally able to celebrate being awarded for the first time as a direct supplier by one of the most technical, prestigious and largest carmakers in the world. This win has a significant impact on our ability to generate future revenues. We are no longer only selling components as a Tier 2, but rather the entire product along with our perception software. This also means that we can leverage our success more easily to win other programs without being dependent on any third party. This win is a testament to the quality and uniqueness of our technology, industrialization capabilities and automotive experience. During this process, we demonstrated a variety of Tier 1 capabilities, including our ability to manage mass production manufacturability, automotive rate quality, hardware validation and computer vision validation. Being selected by a technology leader in the industry is an important vote of confidence in Innoviz, which we believe will influence the rest of the industry and create a domino effect bringing us other business opportunities. I would now like to take a minute to explain the recent announcement we made regarding our partnership with LiangDao, a full-stack Tier 1 service provider based in China and Germany. This partnership will help ensure we are poised to deliver on our commitment to our customers who target the Chinese market. We needed a partner to validate our perception software in China, and LiangDao positions us to do that exactly. As a result of winning our third design win, our order book was increased by $4 billion, resulting in a forward-looking order book of $6.6 billion, 2.5x larger than last quarter. Allow me to briefly explain how our forward-looking order book was calculated. In terms of volume production, the OEM we were selected by is one of the 3 largest vehicle groups in the world, with about 10% market share. The program plan is based on 3 years of development and validation followed by 8 to 10 years of sales with the expectation to see a growing take rate of 1% to 14% over the course of the program. We expect to supply our LiDAR sensors for at least 8 million cars, and there is a potential to significantly increase this number given the fact that we are in discussions with the group on additional brands and models, expecting gross margins of between 30% to 40%. These amounts will not include the B sample or C samples NRE production tools that are also part of the nomination. These are exciting times for Innoviz, and are thrilled by what we have already achieved and what is still to come. Turning to our sales funnel and targets for the year. We increased the number of series production deals to 3, emphasizing that the last is based on multiple brands, not just one. We have currently 9 pre-production activities with customers that are using our LiDARs for development stage. Several of them are expected to turn into series production at a later time. We continue to bring new potential customers into our sales funnel. Currently, we have 12 different customers in different stages of RFI and RFQ. 3 are at the late stage of their decision process. We expect our conversion rate to increase as we win the confidence of more OEMs. We see that our new nomination as a direct supplier to such a high volume and prestigious program is already removing any friction perceived by other carmakers in allowing Innoviz to become the direct supplier for series production programs. This new design win enables us not only to meet our 2022 targets, but even exceed with another. Before the first half of the year, namely signing at least one automotive commercial agreement and increasing our order book which is now 153% higher. I would like to explain the difference between a pre-production commercial agreement versus a series production design win. Pre-production deals mostly serve the customers' need in testing, validating and understanding the LiDAR requirements and needs to draft their RFIs and RFQ for a later stage. When it comes to making a sourcing decision for automotive series production, it's a much more rigorous and long process. Many other considerations come into play such as reliability, industrialization, cost sensitivity, automotive grade, cyber security and endless other aspects that are covered in order to ensure the safe launch of a high-volume production line, all elements in which Innoviz is well-positioned. Pre-production programs are far more common, which is why we are able to secure more of them compared to series production nominations. But as expected, the committed volume and order book size are significantly different. Our strategic priorities are what we have grounded our focus on so far and what we will continue to propel our success going forward. So I'd like to take a moment to remind everyone of our 3 strategic priorities: solidifying our position as a leading LiDAR supplier for automotive, expanding our market share beyond the automotive industry and investing in our technology and perception software. We have a sustainable strategy to deliver against these priorities and position Innoviz for success. Automotive dealers have long sales cycles, high switching costs, enterprise-level deals and long-term commitment for high volume, but they come only following several years of development and testing period. We believe our automotive applications for LiDARs in passenger vehicles, the Level 2+ and Level 3 applications will be the main driver for our revenue growth, which are expected to show significant growth in 2024 through 2030, model years. These opportunities are at a critical decision time, decisions that will set the winners for the next 10 years. Nonautomotive deals have shorter sale cycles, lower switching costs, and they take place in quite a fragmented market. Nonautomotive deals will deliver revenues over the near term and are much easier to penetrate. Given these dynamics, we see the importance of keeping 2022 focus on our first strategic priority, which is solidifying our position as a leading supplier for LiDAR automotive and leveraging on our momentum during the industry critical decision window. We will keep pursuing many automotive opportunities that are still in play, and we believe we can secure more. These automotive wins could guarantee long-term and sustainable growth for the company. And as we enter 2023, with several series production deals in our pocket with 2 programs expected to launch, we take the next step of our plan, which is expanding our market share beyond the automotive industry to boost our revenue generation. To that end, we are building today our production capacity for both InnovizTwo and Innoviz360 products, and have confidence in our ability to penetrate this market quickly. With InnovizOne, InnovizTwo and Innoviz360, we expect an uptake in revenues during ‘23 through the nonautomotive market while we begin to recognize revenues from the automotive deals we closed earlier. With that, I'll turn it over to Eldar to go over the financials.

Thank you, Omer, and good morning, everyone. Our confidence in our future growth opportunity is supported by our robust cash position which gives us both the flexibility to execute our 2022 strategy and additional runway to invest in new and innovative technology. These are exciting times for Innoviz as we are at the starting point of another major project, we maintain a high liquidity level of $275 million in cash, short-term deposits and marketable securities. Our operating cash flow during the first quarter of 2022 was well within planned budget and Innoviz debt-free cash assets enabled us to continue to execute our 2022 plans. Revenues for Q1 2022 were $1.8 million compared to Q1 2021 revenues of $0.7 million. All of our revenues in Q1 this year were InnovizOne related. The company expects InnovizOne sales to continue to increase, and we are also targeting to sell the first samples of InnovizTwo later this year. Operating expenses for the first quarter of 2022 were $31.1 million, an increase from $19.7 million in the first quarter of 2021. Operating expenses in Q1 2022 included $4.7 million of share-based compensation compared to $1.8 million of share-based compensation in Q1 2021. The increase in operating expenses in Q1 2022 compared to Q1 2021 was primarily due to the increase in the number of employees and the share price compensation. Research and development expenses for Q1 2022 were $22.8 million, an increase from $16.7 million in Q1 2021. Research and development expenses in Q1 2022 included $2.7 million attributable to share-based compensation compared to $1.3 million attributable to share-based compensation in Q1 2021. To conclude, we gained a strong position in the marketplace with a recent win, and we believe that this win strengthens our position to gain additional market share during this year and the years to come. As a direct supplier for the industry, we will continue to leverage our strong cash position to develop groundbreaking technology and products for the automotive market and beyond. And with that, I will turn the call back to Omer.

Thank you, Eldar. I hope you can tell from our call today how excited we are about Innoviz’ future. Years of blood, sweat and tears have gone into achieving the agreement we just announced. I'm incredibly proud of what our team has accomplished and know that the best is yet to come. We are eager to exceed our customers' expectations as we deliver value to our shareholders. I will now open the call for your questions. Thank you.

[Operator Instructions] Our first question today comes from the line of Michael Filatov from Berenberg.

Guys, can you hear me?

We can hear you.

Great. Well, first of all, congrats on the big win. I'm sure a lot of hard work went into that. So well done. So I just wanted to ask for maybe a bit more detail on that win, right? You talked about multiple brands being in the win or being part of the win. So I was wondering if you could talk at maybe how many brands are included, and maybe how many models within each of those respective brands? You might have said it earlier and I might have missed it, but if you could just provide any more color on that, that would be helpful.

Yes. So Michael, I'll start. We start with 3 brands, which are the more premium brands of this program. And later on, we expect that this program will be trickled down to other brands and other car models. So we are starting with certain brands and models and slowly exceeding over the time of this project.

Part of the reason that this program was delayed, I mean we were expecting a decision already last September. It was part of the problem, but this is a big group, and there are multiple brands. And being a company with so many car designs and each one has its own constraint required a lot of iterations of design, working with the team, trying to help them in finding the right fit. Eventually in order to kick off the program, because they didn't want to delay the launch of those cars that are targeting to be launched earlier, the nomination was made today. But there are discussions yet with the other brands to be included. We didn't count them in into our order book. But once their decision will be done later, we will update the market. We expect to have more brands included in this platform.

Okay. Understood. That's really helpful. So just to clarify that the order book number then, it's just for those 3 brands that you mentioned, those assumptions.

Correct.

Yes.

Okay. Got it. Perfect. So just another follow-up question here. I see in the press release that InnovizOne start of production is targeted for next year when you plan on launching with your first customer, BMW, I assume. I thought the start of production was supposed to be ready for production by the end of this year. Is that still the case? Or is there any change to the production strategy for InnovizOne?

No. I mean our readiness is by end of this year. Customers launch is next year. There are 2 customers that we expect to launch next year. Both of them are relying on InnovizOne.

Okay. Yes. Understood. And one last one for me and then I'll hop back into queue. In regards to the programs you're currently competing on in the RFI RFQ stage, those that are maybe higher volume series production customers, what's your expected sort of timing on the decisions for those programs? Are there any that you think could be decided this year? I know you don't want to get ahead of yourself, but just curious if you have any thoughts on timing.

I would say, yes. There are 3 customers that, based on the discussions, could make a decision this year. Having that we've gone through this process, seeing that sometimes these decisions take longer than we would have wished, I can't really predict that it will really happen. But yes, there are 3 programs that we expect to be decided this year, but again, we can say how it will develop. I think that we are in a very good position, having -- I can say that since this nomination award and having the fact that we became a Tier 1 has really surged the discussions around several customers and even new ones that before we try to approach many carmakers as a direct supplier, not all of them initially thought that it's possible. Now we are kicking off those discussions. I'm feeling very comfortable saying that we are in a very good position on those programs that we're completing in the short term.

Our next question today comes from the line of Mark Delaney from Goldman Sachs.

Let me add my congratulations on the series production win. I was hoping to also ask more on that. And for this newest production win, when do you expect to begin shipments for series production? And maybe you could talk about what needs to happen between now and then in order to get ready in terms of sampling, testing, getting the manufacturing ready and things like that.

Sure. So as any automotive program, I mean, the nomination was just made a week ago, and basically, as any program, there is a very standard process of providing A sample, B sample, C sample, D sample, in which we are committed to the time line. It will be in the next 3 years and 3.5 years, and beyond that expecting the SOP. Next step is delivering the A sample which is basically integration. That's also basically pending for the joint announcement integration into the car of our first samples. As possibly discussed earlier, we're not only providing LiDARs for this program, we are also providing the perception software. In this opportunity, the perception software is embedded in a new platform. It's different than the platform that we use for the first program we have with BMW. But it's a very strong platform that will allow us to leverage on other programs.

That's helpful. And then maybe talk about what some of the financial implications are in that intermediate-term period between now and that start of series production. Can you talk to some of the puts and takes in terms of maybe there's some revenue from these samples that you could have, but also I imagine there's some OPEX. And how should we think about some of those puts and takes netting out in terms of their profitability impact?

Sure. So there is an agreed pricing for the different samples. And actually those are with very good, I would say, pricing point for us. We are expecting InnovizTwo. I mean, we are working right now to ramp up the capacity of InnovizTwo. We are very eager also to penetrate the nonautomotive market and get ready with our production line of InnovizTwo. Part of that capacity will serve this new customer, which is now a lead customer. And so for the following years, Innoviz is going to be producing these units. We're going to have our own production line in our new facility. It's a production line that will have quite a large capacity, and there's not going to be a problem to serve them and many others. Beyond that, there is an NRE portion that is related to development of the platform and development also related to our activity right now with the other brands in order to bring them to the desired, I would say, configuration. That's part of our work right now. Beyond that, there is the C sample and D sample. Again, there is a great pricing on the different stages of the product stage, and we made sure that in those stages that we will have also good margins. I hope this answers your question.

Yes. Sorry, maybe one just quick clarification in terms of manufacturing. As you get to high-volume manufacturing, even as the Tier 1 supplier, would you still envision using a contract manufacturing partner to help you with that, or do you plan to do all of that on your own? And then I'll leave it there and then turn it over.

We're in discussions with different contract manufacturers and also Tier 1s in regards to being -- taking the ownership on the manufacturing and us managing the supplier of the contract manufacturer. There is no plan right now to build our own manufacturing site. And so -- it's -- our production line is only for the B sample. That's a production line -- I mean Innoviz not only designing the LiDAR. We're also designing the manufacturing tools. All of the automation of the production is automated. In order to get to high-volume production in such a product, you need to design, eventually, a machine that builds LiDARs. That's part of what we do. Part of the reason that the new customers feel comfortable with Innoviz becoming their direct suppliers because we showed them how much experience we have in developing production tools and being responsible for such a design for manufacturing. And we are exercising right now, and we are developing the production tools as we speak. And that production tools will later serve anyone who will produce our LiDARs, it will use the production tools that we are developing and they will need only to operate them.

Our next question today comes from the line of Andres Sheppard from Cantor.

Can you hear me okay?

Yes.

Congrats on the quarter and congrats on the hard win after 2 years of a lot of work; very well deserved. Just to maybe build on some of the questions that have been asked. Help me understand, so when can we see revenue recognition from the increase in the order book? I understand it takes a few years, but maybe can you give us a sense of when we can kind of start seeing those hit on the income statement?

Sure. So as I tried to explain earlier on how we see our path through profitability, basically, we're expecting next year to have a growth in our revenues coming from the nonautomotive and of course, start of the automotive programs that we were already awarded. And those will grow over the course of the years, both of them. And 3.5 years from today, we expect to start generating revenues from the first order book. And the growth rate would be, as we said, 1% to 14% over the course of 8 to 10 years.

Got it.

And of course, our assumption right now that in a similar timeline to that launch, there are other carmakers that are due to make a decision. My expectation eventually is that the order book would not come only from a single customer even if it's multiple brands. We do expect that other carmakers that are planning to launch at a similar timetable is something that we can leverage on and add to our revenues.

Got it. And then I think we can all kind of deduce who the partner is. But when do you anticipate, I guess, to disclose the name formally?

Sure. I mean, of course, we are eager to share it. It has -- I mean, this customer is a very prestigious customer. And of course stating the name would be building a lot of confidence to everyone. And I think the industry knows well about this deal. I can tell you that many carmakers and Tier 1s have reached out to congratulate us on this huge deal. We've been competing on this for a long time. And of course, meanwhile, we were nominated, there were other parts of the vehicle that were nominated. It's a very important program for the whole industry. Right now, there is an agreement between us and the customer to do a joint press release announcement following the first delivery. Right now, it's pending the first delivery of the A sample and integrating our product into the vehicles including our perception software, and following that, we will do this joint press release. I think that there is a lot of eagerness from our side, but also from their side. We are working closely with their team for really 2 years. It is a good relationship. Today I'm having dinner with the team. It really is a start of a new relationship which I believe will take us for now for many years.

Got it. No, that's very helpful. And maybe one last one, if I may. I know you didn't provide 2022 guidance in terms of revenue, but you did say that you kind of expect revenues to, I guess, increase or start ramping up throughout the year. So I'm just wondering, can you give us maybe a little bit more color on kind of what that means? And how do you see revenue shaping up for the rest of the year?

Sure. Maybe I'll just start by saying when we started -- when we went public, we had an assumption that this carmaker decision would be at a certain timeline and the decision window of the automotive market would be at a certain timeline. That has been pushed by about 9 months. And our focus was always to leverage on that decision critical time and basically making sure that we are not missing the opportunity to lock as many customers as possible, knowing that we are sacrificing the short-term opportunities of making more revenues from selling LiDARs to the nonautomotive. And for that reason, because we identify that the decision window has shifted, but it's actually, as we speak, and I think that now we expect it to accelerate. 2022 focus was really not about those sales for nonautomotive. I will [ them down ] to refer to the expected revenues towards the end of the year. But really our focus right now is the automotive. But next year, we know that we will have secure in our pockets several design wins, and then focus on the nonautomotive and start generating growing revenues to catch up with the revenue expectations that we had. And I believe that with the really promising products that we have, the InnovizTwo and 360, we will be able to capture a very nice portion of the market to generate revenues for the near term until, of course, the growth of the automotive one.

So in terms of revenues, so we do expect that we will see a continuous growth in revenues over the year and the coming years. Of course, as we stated, InnovizOne is the primarily product that we'll be selling this year. But even more importantly, there is a push to bring InnovizTwo to such a production state that we can start shipping it this year in order to see additional growth next year. So this year, there was a focus, as we said, there was a focus on winning the market, and that will continue to be the focus. For next year, we do expect to see some revenues not only from the automotive space but also from other applications and other market verticals.

The team are spending a lot of time now. I mean we are knocking on kind of, like, the opportunity right now since we have this award. I'm traveling this next week with my team to the U.S. to the East Coast and the West Coast. I'm meeting with different customers; we are coming with the InnovizTwo. And those, I would say, discussions obviously would provide us more and more business to allow us to generate our revenues.

Wonderful. Congrats again. I'll pass it on.

Thank you.

Thank you.

Our next question today comes from the line of Kevin Cassidy from Rosenblatt Securities.

Congratulations. I'll add that, too. I was just wondering about the competitive landscape or maybe the bake-off you went through over the last 2 years, the way you described. What is the key attributes that InnovizTwo had that no one else could do?

Good question. So let's say that through the last 2 years, it was a very long process. I think during the first year, we were probably turned down about 5x. And I told the team of the customer that through their negative results each time we improve the product each time, eventually reaching to the 30x improvement. So, much credit for them. Eventually, once we were able to reach their performance targets and gave indication for pricing, it was clear that in order for us to win the program, we need to be qualified as a Tier 1. This kind of carmaker would -- because it was really a high-volume program, it couldn't allow to be able to work to nominate just a LiDAR company. They need to have a Tier 1 which is meeting all of the group standards. We were going through a process of about 3 to 4 months, different workshops that eventually concluded with our recognition as a Tier 1, signature of becoming a Tier 1. And eventually, we were competing against another Tier 1. Towards the end of the year, it was us versus another Tier 1, which came with a technology that from our understanding was actually inferior in terms of performance. And through the different requirements that came from the group in order to support different configurations, mostly related to the use of LiDARs in different locations and different -- that actually pushed for even higher performance than initially asked. The other competitor couldn't lead to the expectations or to the performance requirements and eventually towards the end of the process, we were under the assumption that we are no longer competing with anyone. It felt like that, and of course, I possibly don't have the full visibility. The kind of the discussions that went between January to April was mostly related to internal discussions at the group level related to some changes of the configuration, and we worked with the customer, probably redesigned the LiDAR 10x again, which -- part of it was related to the change in the height of the LiDAR, which was supercritical. But eventually, it felt that the level of engagement, the level of discussions with all of the teams in the group made us feel that we are very likely to be nominated, and we were happy that it eventually happened. But I think that until the last kind of time that we felt that we were really negotiating versus another competitor, it was versus another Tier 1 -- a traditional Tier 1. And yes, that's what we know.

Great. This is why, I guess, in the prepared remarks, you had said that you think the process would move quicker. You learned a lot on this and so the next bids you're on, you’ll have removed some of those obstacles already. Is that the way we should think of that?

Look, one of the challenges of becoming to be selected as a LiDAR for a carmaker is the fact that carmakers want to select a Tier 1 that meets all of their group standards. They can't work -- I mean they have thousands of components in the car, and they need to make sure that the Tier 1, that eventually all of the components are sourced through Tier 1s that can manage multiple components. And eventually, they have a small group of companies that meet up to their expectation. Several carmakers are more technical, and I would say, more advanced and are allowing to, I would say, absorb some risk and going into new technologies. Most of the carmakers don't. They need to rely on selection and due diligence made by other carmakers. And the fact that we approached them with very exciting technology was actually not enough. They wanted to work with Tier 1s, they asked us to come with the Tier 1s. Our preference was to be working directly. And once we were able to show them that we were certified by the Tier 1, and that was actually done several months ago, allowed them to feel comfortable to start the process with us. And having this nomination is another step forward, which means that this was a very – that we are credible to become a Tier 1. Becoming a Tier 1 also allows you to be more flexible. I think one of our advantages as a Tier 1 is that Innoviz is a very flexible company. We are very technical. One of the things that the customer that we were awarded for, I would say, had a preference for Innoviz was due to our agility. They've said multiple times that we were the most professional in the terms of actually going through the RFQ and answering it in a way that we actually added value. Our, I would say, experience through the programs that we are already working for offshore, working with BMW gained us a lot of knowledge. We worked with BMW although we were a Tier 2, we worked directly with BMW all along. I mean we were working with them day after day. There is a big group today from BMW spending a week here. We are working very closely with the market. We understand the requirements. We just show BMW also all of the benefits coming from InnovizTwo and all of the lessons learnt that we embedded into it. And those are very, I would say, very much appreciated by a customer that wants to make a decision, doesn't want to spend 2 years to do due diligence, want to pick a solution that is sourced by others, and they don't need to take the risk on themselves. And obviously, there aren't so many carmakers that that size, right? This is one of the third -- I mean 1 of 3 car companies in the world. So obviously the volumes are very big, and that allows us to get to the level of industrialization and cost at serving any other carmakers, even if they are not at that size, and we can leverage on our success. Now before when we were trying to win business and we had to engage also -- I mean, our desire to win business was obviously higher always, but not always, it was that easy to bring the Tier 1 partner to that level of motivation. And each company has its own set of motivation and I would say resources, and it was not always easy to bring that partner in to win a program. Now we don't have this issue anymore. We -- basically, nothing can stop us. We are very eager to win more business and leverage on our success. And that's really why I'm super excited about this design win, because it really allows us to win more deals faster. That's all.

All right. Great. Congratulations again.

Thank you.

Our next question comes from the line of Michael Filatov from Berenberg.

I'm still here. So just 2 clarification questions. First one, you mentioned that you wouldn't be producing the InnovizTwo for this program yourselves, at your own manufacturing line, right? Like you wouldn't -- the initial samples, but you said you might work either through a Tier 1 or a contract manufacturer. So I'm just trying to understand when you say you're a direct Tier 1 supplier, how that sort of ties with manufacturing through a Tier 1, right? I guess try and clarify that for me.

Sure. Okay. Maybe just I'll clarify. The first B samples, we are going to manufacture. We are manufacturing today -- I mean now. I mean, actually, next to us there is production -- one part of the production line. We still production -- design is done by us. So we’re designing the product, but we're also designing the production line. And we are going to utilize the production line for the first time until we get it stable until it gets to the C sample. So the B sample of next year is going to be done by us, and it's going to be in our new facility, and that will get to quite a large capacity. Eventually, when it goes to high volume, and of course, when we were, I would say, qualified to become a Tier 1, we had to point to the customer the expected location of the production line. So we worked with the contract manufacturer. We worked with the customer which audited the automotive-grade. They wanted to make sure that this facility is meeting all of their automotive-grade group standards, the logistics, the shipping, everything has to be audited. Eventually, when we get to the C sample and then to the D sample, it has to be in automotive-grade facility. Not only that the design is automotive, and that's the B sample stage. At the C sample, it will be also what needs to be an automotive grade facility, which is not Innoviz. At that point, we will work with a contract manufacturer which will produce the LiDARs for us. But again, important for me to say, they are going to use the production tools that we develop. So they -- if I need to try to give you an impression of how a production line looks like, eventually, it's a machine that you -- that places the optics -- InnovizTwo it became significantly simpler because there is 1 laser and 1 detector. So the full active alignment process is a 2 step compared to 8 steps with InnovizOne. The cycle time is dramatically lower, the testing is dramatically lower, and everything is going to be designed by us; tested by us. And once we will see the production is up and running, we will ship the production tool to our contract manufacturer which will basically use it. They don't need to know anything about the LiDAR, the operators don't need to understand anything about the LiDAR. They just need to follow the operation of running a certified production line for automotive in terms of inventory and quality testing, but that's not going to be done by us.

Sorry, just one more clarification on that, right? Is that not what you're doing with Magna right now; shipping them to production tools as well as the components for the sensor?

Yes. I mean, it is. I mean, the production line that is now at Magna was designed by us, and that's why it was quite easy for us when we worked with the new customer. It was easy for us to show them that our experience as a Tier 2 is actually more than just a Tier 2. We were more like a Tier 1.5, already being able to show them that we have experience in producing tools for production and for automotive, and that's what basically started the engagement and their interest. So today, Magna wholly is the production line that Magna is managing, and we sold them the production line that we designed. We are supporting them. There are people from our side there to work with the team. And eventually, LiDARs at Magna wholly, tested in Magna wholly and shipped to BMW.

Michael, just to add to that, that the business model is different. When we are working today with Magna, they are selling the full system to BMW, we are selling to them. Only the components of the revenue lines is from the components while once you are a direct supplier and you have a contract manufacturer at the end of the day, we will be selling the whole system and the software. So it has some impact also on the revenues on the top line.

Understood. Understood. And just one more question. You mentioned NREs is not part of the order book for this program, but will you -- do you expect to see NREs this year from the program? Or when should you expect to see that?

Yes. There is an NRE also this year, we expect.

Okay. Great. And just one last one. I mean, given that you're now going to essentially being a Tier 1, is there any sort of change in your cash needs to support this program; or do you feel comfortable with the cash you have on the balance sheet right now?

The cash on our balance sheet enables us to execute this program. We raised a sufficient amount of cash during our going public process, and we have all our needs.

Even to add to it, part of the qualification to become a Tier 1 was to show the customer our financial robustness. So of course when we went public and we raised money for the company, we didn't have to buy companies, we didn't have to buy technologies. We are using this amount in order to show the robustness the company has in securing our effort in the coming years and basically reaching the SOP.

You have no further questions. Please proceed.

Okay. So really exciting times. I can tell you that the atmosphere in the office is very, very good. We all are getting a lot of our [ slipping ] pressure off. It was a very challenging time. I mean, we've been competing on this program for a long time, super important for us. We knew how meaningful it will be to us. I don't know if we managed to express how we impactful this is going to be for us. But I think that from the amount of engagements we had in the last 1.5 weeks from different customers and seeing how seriously they are seeing this event, and I have very high confidence in our ability to be very successful. And we are looking forward for a bright future. Yes. So next week, I'm traveling to New York and San Francisco meeting with the investors and customers, and I'm happy to be reached out for any interesting opportunity. Thank you very much.

Thank you.

Thanks.