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

Great. And I think we are live. Thank you, everyone, for joining. I'm Dan Levy. I lead research coverage of the U.S. Autos and Mobility sector at Barclays. And very glad as we kick off the Annual Barclays Global Auto and Mobility Tech Conference. We have 2 great days, 2 really packed days covering a lot of companies across the ecosystem. We're going to kick off here with Innoviz. Innoviz is a provider of LiDAR, so critical technology within the ADAS, autonomous driving space and across other non-mobility use cases as well. We have here with us Omer Keilaf, the company's Founder and CEO; Eldar Cegla, who is the CFO; and Rob Moffatt, who leads IR. So I think they're going to start with -- the team is going to start with a video, and then we'll go from there. So Omer, handing it over to you.

Sure. And thank you for inviting us. So I'll share my screen. Let me know if it's up, I think it's up. Okay. So I'll start with showing you my new car, actually, not yet, but maybe in the future. You can see the BMW i7, which we are excited to show here because it's coming on the road soon, and it uses Innoviz LiDAR. This is InnovizOne, our first-generation LiDAR, very similar to the one I'm holding here in my hand. And it's obviously a very exciting moment for us to see our solution coming to the roads and starting to be in the hands of people enjoying their Level 3 application. First, to be introduced in Germany, we expect to see more models to be introduced in other locations later. Okay. So as a brief overview of the company's success so far, we talked about the BMW Level 3. We acted as a Tier 2 here with Magna as a Tier 1, as a young company. We won this deal. We're providing not only the LiDAR. We're also providing the perception software. We just recently provided BMW our official SOP version. Of course, there will always be over-the-air updates, but it's another part of our product that is SOP, not only the LiDAR, but also our perception software. We are expecting another launch of the shuttle program. It's using multiple InnovizOne, LiDARs for Level 4. Our biggest design win so far for the VW Group, second largest OEM. Here, we actually -- we are acting as a Tier 1. InnovizTwo, our second-generation major improvements. I'll show it later, perception software, an Asian EV company using our InnovizTwo. At the beginning of the year, we announced extension with an existing customer for a light commercial vehicle. This is a Level 4 application using multiple of our LiDARs, InnovizTwo. I hope soon you'll be able to see it. If you come to CES, you might see it. And then we just announced stepping into a second-generation platform. It's still a development stage, but soon to be official with BMW for InnovizTwo. There, we are not only providing the LiDAR, we are also providing a compute platform, a compute box, which runs our perception software and MRM system, which is a secondary driving decision platform. This is a core development between Innoviz and BMW. So Innoviz is running for several years, and you can see here the first prototype of LiDAR. This is me when I was slightly younger. You can see the sensor operates. You can see the car here behind. But you can see that every year, we were able to introduce a newer version with better optics, resolution, et cetera. You can see InnovizOne here, and this is InnovizTwo and you can see it runs in a higher resolution. It also runs in higher frame rate, you can see it compared to others, but very nice performance. I think the top of, I would say, technology. We just recently introduced a new ASIC into the product. You can see here the nice resolution we can generate from the InnovizTwo. I would say it's almost like a camera, but it's actually even higher. I mean, high definition is 1280 over 780. There are more lines than that here. The resolution is actually slightly above high definition. So this is obviously a very important milestone. This is another video of the product. You can see the nice resolution, et cetera. Okay. I'll pause here for questions. Thank you.

Okay. Great. Thank you, Omer. This is a great introduction. So why don't we just start with a broad overview? And I think what you've noted in the past is that really in the next 12, 18, 24 months that there is a very big portion of market share of industry share that's going to be determined. So maybe you can just talk about what are we seeing that's up for bid right now, broadly within LiDAR? How have the number of RFQs, how has that increased? Let's start there. Is it in better environment, LiDAR?

Sure. I actually think that the critical time line is even shorter than those 18 months and maybe even 12 months because I think the next couple of decisions that are going to be made in the industry are going to kind of shift the paradigm. I mean it's going to become much more clear to what's the environment consolidating to. Because eventually, the auto space is going to be focused on 2 suppliers, maybe 3 at most. And so far, Innoviz was, I would say, very successful in capturing a good market share with 15%, but that's actually a bigger market share because when you think about what's the real addressable market for the automotive market, for LiDARs, it's far -- I would say that the early adopters of this industry are mostly car companies like BMW and Volkswagen. And I think the rest of the market for the early adopters are going to be captured relatively soon. And from there, the opportunity to win more design wins with the fast followers and higher volume is going to be much easier. There are several RFQs as we speak for Level 2+, Level 3. Some OEMs are targeting Level 2+ as the first step, but with a platform that enables them to support Level 3 as a second step, somehow targeting Level 3 directly. I would say that for areas -- and OEMs that are targeting that path, there is a clear need for the necessary, I would say, performance and quality that are needed. And I think that under that scope, taking also pricing limitation, I think that Innoviz is in really good position. So I think the next several months are going to be very important.

Dan, I'll add on to that real quick. Just to add some more color, right? We really saw a major inflection in the first quarter of 2023. We had a pipeline of 10 to 15 programs that includes RFIs and RFQs for a while now as we came into the first quarter of this year and as we progress through the year. Those programs have shifted from RFIs, which are nebulous in nature, not a specific time line and shifted into RFQs, which have a much more specific time line, more specific milestones. The OEMs made a decision that they're going to move forward with something in the space. So seeing that firm up, it's gone from ideas to a reality. And it's -- the entire pipeline is top 10, top 20 major OEMs, all names that you'd be familiar with.

Great. Maybe as a follow-up to that, maybe you can just give us a sense broadly around what the sentiment is from your customers around L2+ autopilot. I think sometimes we have a completion of trends that EV is slowing down and maybe some automakers are slowing down the pace of some of the more advanced spend. What are you seeing from your customers on development and timelines, specifically of these L2+, L3 autopilot-type programs? Is it at least still as in line as it was with what your expectations were, call it, 12, 18 months ago?

Yes. I think that the fact that BMW is launching on time and with the fact that Mercedes already issued, I would say, a first version of Level 3 already on the ground is definitely, I would say, taken seriously by other OEMs that understand that they can't be in the game too late. They have to introduce those kind of capabilities. And therefore, they are still very much focused on introducing their own version. I think that some of the OEMs that we are meeting now are much more educated than they were probably, last time they were sourcing for a LiDAR and now going for another version. And that actually works in our favor because we also come with our perspective and experience in trying to bring a LiDAR to the market in automotive grade. And now introducing all of those learning into a new product that incorporates those learnings, I think, plays well in our favor and probably not in the favor of those that haven't yet done that.

Great. Now let me just touch on that for a second here. There has been debate in the past on what the right sensor configuration is to enable this level of functionality between vision, radar and LiDAR. So you're saying that automakers are coming more educated on LiDAR. So where are we on what the interest is from automakers on the need to incorporate LiDAR? And where is LiDAR, frankly, stacking up in the sensor stack versus vision and radar. Can it be a primary sensor? Or is it more of a supporting sensor to a vision-based solution? Or both.

So I think that there is no argument that you need a LiDAR. But the question whether -- what would be its position in the sensor suite. I think a good example to -- a good transition comes from the second platform that we are working with BMW, where the LiDAR is now taking a more primary role by the fact that the MRM system, which used to be operated by the camera is now moving to the LiDAR. And per our understanding, that decision was mostly made due to the experience that the BMW team had with the availability and capabilities of the LiDAR, and with InnovizTwo now introducing even higher performance due to its resiliency to different light conditions, weather conditions, it makes much more sense that the LiDAR would become the primary sensor. And I would say the one that actually acts as a fallback when it comes to a secondary driving decision, a single-sensor platform.

Okay. Great. Within the LiDAR debates, are you seeing any sort of a consensus forming on the technical specs, any of the tech approaches in terms of wavelength, you're at 905. There's another notable competitor that's at 1550. What are you seeing in terms of -- is there more of a consensus forming on what the right type of LiDAR is?

Well, I can say, I just came back from a visit from a customer who had experience working with the 1550-nanometer LiDAR, and is now in an RFQ process. And we were told that they clearly understand that they would only source a 905-nanometer LiDAR due to learnings they have related to limitations of performance and power consumption. So I think from that perspective, it's pretty clear. I mean, the advantages of using 905 are very high. And actually, I'm not really sure what are the advantages of using 1550. Our 905-nanometer sensor benefits from much higher performance at a lower cost and lower power consumption, and smaller sizes, et cetera. So I don't think there is a real argument against that. From the perspective of the stack. So I think that we see quite a lot of similarities. There are some, I would say, tweaks between different car companies. I think they are all targeting a similar range and resolution requirements, which I think in a way, maybe were pushed by our spec. I mean, Innoviz were the first to introduce the 0.05-degree resolution in long range. We are very much confident that, that's the right, I would say, working point. I think maybe the differences are related to vertical field of view and frame rates. These are things that are somewhat traded between different locations and where you mount the LiDAR, whether it's on the roof or the grill, but our sensor is quite flexible on that.

Great. Okay. Why don't we pivot. This is, I think, a good industry overview. Let's talk a bit more about your operations. And before I go into unpacking some of the commercial progress you have and the tech progress, maybe I just want to start something that's a bit more near term and maybe a bit more personal. Like I mean, given everything that's happened in the last 2 months in Israel, obviously, I'm sure that it's been a very trying time. So maybe, a, you could just talk about operationally to what extent this has had an impact on you? What percentage of your manufacturing or R&D is impacted? Maybe just give us a flavor of how you've managed through this very trying situation. In fact, I think I've seen on LinkedIn pictures of you guys in the shelters, but still continuing development of your products.

Yes. It's always interesting times here. Yes. I mean, obviously, the first days were troubling. I think we were all kind of traumatized a little bit by the event, but we came back to the office a few days later and basically started working as normal. Now we have around 10% that were drafted. Now people are coming back. We don't have production. I mean, high volume production line for InnovizOne is run by Magna in the U.S. We have another line in Germany. Our high-volume production line for InnovizTwo is in Asia. We have a simple production line of InnovizTwo that is operating within the building, and it's working as needed. I think one of the good ways to show you the resiliency of the business here, I mean, the following Wednesday, the events would happen on the 7th of October in Saturday. On the following Wednesday, we had a very important milestone in which we had to deliver the SOP version for BMW for the perception software, and we delivered it on time. Of course, it was very challenging to work in those first days situation. But nevertheless, it was very important for us to be on time and keep working as needed, being a Tier 1 and show our customers that they can rely on us even in the most difficult days. I don't think there is any effect to our business. People are very focused and determined to continue as normal. And you can see behind me, the traffic is -- people are working.

Yes. No. That's great, amazing. Okay. Let's unpack your commercial relationships, and let's maybe start with BMW. Perhaps you could just talk about -- right now, you're going into production on the 7 Series. You said that you're shipping the production software. So what's remaining? Just give us the remaining -- the time line going forward now on the production, on the manufacturing and on the scaling ramping on this program.

Yes. So the production started. Magna is responsible for the production, and for the InnovizOne LiDARs and BMW are in production. I'm pretty sure that soon you'll start -- you'll be able to order the car from BMW. I think it's something that is relatively very soon. And you'll start to see the car on the road, I believe, beginning of next year. I think BMW is talking about shipping in March. But for us, Magna is responsible for the production, and that relatively requires not much effort from us. We do expect to see another -- there is another model that we're now working with BMW and Magna towards another launch next year. And we will continue to work on the -- probably an introduction of more. In parallel to that, we are working with BMW on the second generation. Of course, it's a very different configuration where we are acting as a Tier 1. This is for InnovizTwo. We are in a very early stage of that program. We started as a kind of a B-sample step, but I expect soon to be, I would say, turned into a serious production program. We have a very good relationship, I would say, with BMW. I think we've managed to build a very strong relationship. I think the fact that BMW following a program that was very, very challenging see Innoviz as a very strong partner. And you can see that through the level of responsibility that we grew for BMW in terms of becoming -- from being a Tier 2 that provides components to a Tier 1, we're building -- we're responsible for the industrialization of the entire product, adding to it another box, which is the compute box, adding to it, all of the software related to the integration with the car, the MRM, the perception software. I hope you understand that, that kind of integration between us and a car maker like BMW requires a lot of trust. And I think this is something that we earn probably in the last 6 years. And we're very fortunate, I would say, to work with BMW. They are an incredible customer. I see, Rob, you want to say something?

I just want to double-click on that point because it's so important, right? I mean it's not just BMW, it's VW. We have paths towards additional growth with both of our existing customers, and that's something you haven't really seen across the LiDAR industry. It seems fairly unique to Innoviz at this point. We think we're going to continue to grow with both of them as we add additional customers in the future. So it's a key part of our story that I think is probably underappreciated.

Great. Maybe you could just give us a flavor right now of what you're seeing with BMW on this first-generation 7 Series. A big question in LiDAR, though is what are the ASPs, what standard fit? So where do you stand on the ASPs and what the take rate is. Your work with them on the next-gen platform, how does that maybe change, especially now they're choosing InnovizTwo, which is a more powerful product?

Yes. So our ASP, I think we communicated that in the past, it's around $600 to $700, but that's actually only part of the ASP because eventually, that's our, I would say, part from the overall ASP. The rest is taken by -- from Magna, which is selling the entire LiDAR to BMW. But actually, as a Tier 1, we're taking a bigger chunk there because we're selling the entire product. But InnovizTwo is a lower-cost version. So we were able to introduce a very significant cost reduction between InnovizTwo and InnovizOne, even though it's a significantly higher performance one, we also managed to make it cheaper. But here, we are taking the full ASP of the product, and we do sell also the compute box, and we also sell the MRM and the perception software. So our content per vehicle, as you can see, has grown. So the ASP is actually higher than around $1,000. So even though it's a second generation, which is cheaper, our revenue from per vehicle is going to be higher. Did I answer your question?

No, that gives -- that I think gives a good flavor. And then just maybe you can -- one last one on BMW before we pivot to other customers. Maybe you can give us a sense of just the key milestones ahead, the timing on -- you're working with them on this next-gen, what's the timing on when we can start to see series production?

So we're waiting for a formal kickoff soon for the full extent series production. From there, probably -- I mean, I would expect that -- I mean the SOP for BMW, this is something that I will let BMW communicate, but that's middle of the decade as a minimum, I would say.

Great. Let's talk about VW. Another big customer win that you got, and I think it's impressive that you're getting, generally, the OEMs that people are perceiving to be a bit more tech-forward. So that's, I think, a positive indicator. Maybe you could just start -- give us a sense of the scope of the program, the timing, again, how -- what potential is for take rates, et cetera.

Yes. So first, VW is a much larger customer, which includes several brands like Volkswagen and Audi and Porsche and others. Initially, we were -- the sourcing was done through Audi. Audi was the technical lead in the sourcing process, which audited us for the nomination. Now our LiDAR, our original nomination was for a Level 3 program since then -- a platform. Since then, we are talking with Volkswagen about several other programs, one of them is Level 4. There are additional Level 3 platforms in the VW Group, there are -- there is Cariad who is responsible for the software development of one platform or maybe a few platforms for Level 3. There are also Mobileye involved in some of those. Some of those are Level 3, some of them are Level 4. So obviously, the benefit of working with a car company like Volkswagen is the potential is actually much higher than we saw on early days. Those additional platforms were not part of the first discussions now are becoming available to us. So I think that will probably continue. We talked -- we also said that we are expecting additional extensions through that collaboration, very important customer, also from the fact that, as you said, they are an early adopter. There aren't many car companies of that size that are considered early adopters and are important for other OEMs who are making sourcing decisions, knowing that Volkswagen and BMW are on our corner and helping us to industrialize the product for their needs.

Great. You talked about the ability to move to Tier 1, and this is actually unlocking some more content. Maybe you can unpack that a bit more. What does it entail to pivot from being in a Tier 2 role where you have another supplier in between you and the OEM and that's doing the hardware integration to you taking on all of that integration role? I mean you talked about there's more content to be had, but how are you working through maybe some of the different tasks and capabilities required to enable this role? And what's giving VW comfort with you as now expanding into this Tier 1 role versus taking on more of the Tier 2 role that you had in your early program with BMW?

Okay. So I'll start by saying it's a dramatic change. It's a dramatic change in terms of the opportunity for us. working as a Tier 2 and trying to win business with OEMs could be challenging when you have a Tier 1 that has its own set of motivation when it comes to try to win more business, stepping into another R&D project. And those are -- and obviously, taking the warranty and liability and generally something that eventually is translated to additional cost to the customer, which could become very, very difficult. And eventually, when you think about the activities that are needed for the program, those are mostly carried by us anyway. The opportunity when becoming a Tier 1 comes from our ability to take a bigger, I would say, chunk out of the ASP while also providing opportunities for the OEM to pay less, the bigger NRE that we can take to offload our expenses. And generally, to become a Tier 1 didn't really require additional tasks from us. It only requires us to meet the needed standards because eventually, when the OEM wants to work through a Tier 1 is because they want -- they need a partner that can prove that it will meet their standards. And if the Tier 2 doesn't, then at least they can rely on the fact that the Tier 1 would be on their next to make sure that everything works as expected. But if eventually you are able to prove that your standards and quality, practices are meeting their needs then eventually, you can become their Tier 1. The path to become a Tier 1 doesn't necessarily mean you need to do more tasks. I mean we already did those tasks even the first program, but we had to go through a very long path by adopting all of their group standards and showing that we are working through them. We were audited -- we are still audited. Even our existing customers, we are providing -- giving us audits on a yearly basis to see that we are keeping our standards. And I can tell you that we just gone through an additional audit just a couple of weeks ago, and we got claps through the end of the process. We are doing amazing steps. The team is becoming -- I mean, for me, it's exciting because, as I told the auditor at the end, to me, it means that the company is -- the higher quality will make my company better. I know that, those additional tasks of meeting those standards will eventually allow us to be a better company. And for me, it's exciting because some people might think about it as a burden to meet those standards. But for me, it means that the company is actually improving. And I think that we will be an excellent Tier 1. We will be the best Tier 1.

Great. I know we're running tight on time. I have a couple more questions. We'll try to squeeze in. You talked about InnovizTwo is driving a much lower cost. Maybe you could just give a quick sense. We've heard this idea that to really drive LiDAR proliferation, we need to have bonds in the low $100 range. So maybe you can give us a sense of what it is with InnovizTwo that is unlocking this lower cost? And what is your path to going to something in the low $100 bond?

Yes. So I think it's actually quite easy to explain. InnovizOne architecture was already based on a low-cost mindset in the sense that we're using 905 on that -- on this product, we used a single -- sorry, 4 lasers and 4 detectors. The overall field of view was based on using 4 lasers. Each laser would kind of capture 1/4 of the field of view. So we had to use 4 lasers and 4 detectors. In InnovizTwo, we were able to improve the scanning mechanism to capture the entire field of view and even bigger with a single laser and a single detector. So only through that, you can understand that we were able to reduce almost 70% of the bill of material between the two generations. Meanwhile, actually extending the performance by 30x, but this comes from the technology inside, improvements of the different components. So using a single laser, a single detector with 905 obviously gives -- I don't think we can get to less than 1 laser, but who knows. But it definitely lays the path to a very low-cost bill of material over volume and industrialization effort.

Great. Let's wrap off quickly because I know we're running out of time here. Maybe you could just give a quick comment on your balance sheet, the cash situation and just your comfort that you have enough cash to ramp to profitability.

This is where I bring our great CFO, Eldar.

Yes. So yes, so last quarter, we said we had $165 million. We were able to raise additional funding for the company, which was a great vote of confidence of the market that Innoviz is a good company and worthwhile financing. We are expecting additional NREs from customers, additional revenues. So we are in a good shape to fulfill our strategy, to meet our goals. So we are quite comfortable there. And that's it.

Okay. Great. Well, we're out of time. Thank you, Omer, Eldar and Rob. Appreciate it. Everyone come and visit Innoviz at CES. Always a...

Yes, definitely. Thank you very much. Bye-bye.

Okay. Great. Thank you.