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

Throughou the half hour. So if everyone, now, we have Innoviz today. For those of you that aren't aware, they are and NRE automotive supplier of LiDAR sensors and perception software. They offer 905-nanometer wavelength LiDAR that has developed from the chip level up and coupled with the software can deliver the performance needed for solutions from Level 2+ to Level 4 to Level 5 autonomy. We're lucky enough to have Eldar, the CFO, here with us. And I certainly have a lot of questions. If there are any questions you guys want to go through, feel free to jump in because it's really for you guys, not necessarily us. So I guess just starting out, if you want to maybe go through the company a little bit and provide a brief overview of what's happened recently that would great, and we'll kind of go from there.

Yes, sure. So first of all, we came out of our earning update recently. We announced our Q4 earnings, met our revenue target and exceeded them. It was very important to show to the market how important our NRE revenues, the service we are providing, which balance off very nicely our cash burn. So this is something we expect to continue to win additional programs to draw in the NRE in order to have the company funded in order to accomplish what it needs to do. We also came out of [ DS ] in January. We showed the ID. Buzz. It's Volkswagen high commercial vehicle. It's actually the second program with Volkswagen. We developed together with Mobileye, the first platform that we won with Volkswagen bus on the Qualcomm platform. Now it's with Mobileye which we are collaborating on this platform. Mobileye recently announced another win with both plug-in and obviously important for us. We are working already with Mobileye. We are already integrated into their platform. So we see a lot of momentum both from existing clients and hopefully realizing the pipeline that we have now at our hand. And this is the focus of the company, basically, we want or need to capture the market. And this is the window of opportunity that is happening right now. This is very short view.

So this summer, you announced the contract, the work on, like, the ID. Buzz in January at CES. Are you working on another program with Mobileye? Is that what you were referencing there or just service?

Basically, we started working with Volkswagen already in 2022. This is the first program we got. As of then, I would say that Volkswagen is very well acquainted with our technology and with the LiDAR that we are providing in the software. And I cannot announce any new program with Volkswagen, but obviously, we are in discussions with Volkswagen on any program that is on the table today and needs to get to the market on the shorter term. The project with Mobileye, the reason Volkswagen really took Mobileye as their partner is because they wanted to get to the market as soon as possible. Mobileye's platform is the most advanced or most mature platform in the market. And obviously, the fact that we are working with Mobileye already and are integrated to our benefit. Once we will have some additional news in Volkswagen, obviously, we will communicate it to the market. But I think naturally, we have a very strong position at Volkswagen as the LiDAR choice for any program. But once we have something to announce, we will announce.

I guess, next question. I mean one of the biggest drivers for the LiDAR market is ultimately how the ADAS and autonomous vehicle trend is progressing. What's your expectation over the next 3, 5, 10 years on how Level 2, Level 3 will progress? And then ultimately, how long do you think it might take for us to really see a meaningful step-up in Level 4 adoption even?

Yes. I think the focus of the market today is Level 2+ and Level 3. This represents the biggest opportunity. If we are looking at the IHS numbers, their prediction for 2030 is something around 7 million to 8 million LiDARs being sold that year alone. If I'm looking at my pipeline, assuming full realization for 2030, it shows something that in the order of magnitude to 10 million. So we are talking about the same order of magnitude, many millions. The potential is many millions of LiDARs being sold. So what do we need to do? When are the decisions being made? And as I said before, they are actually made now. The OEMs take decisions for 10 years ahead. It takes time to develop the platform, the automate platform. And then you have a car, it's implemented into a few car models, few brands and is sold to the market over a period of 6, 7, 8, sometimes more years. So they are making a very big decision now. And the window of opportunities now in order to win this market or at least have a significant market share, towards 2030, you need to win the program now. And this is where our focus is, is to provide our mature product. And let's do this, this the platform or this is the product together with the software. We are offering the market a product that has already won few programs already. So it's a mature product, the market recognizes its ability. Obviously, we are at sample stage so we can show or demonstrate the full capabilities of this product. And we are at a point of time where we are able to win these programs. So I guess, over the next 6 to 12 months, we will try to win growing more and more programs, securing the volumes, securing NREs, the services on the shorter term. And this is our main focus.

Okay. And then generally, it seems like in 2017, I think, is when the Rolls Royce, like, peak excitement about the ADAS and autonomous vehicle market. It seems like it's generally getting pushed off even this last year, it kind of seems like if you look at a lot of volumes and you look at what some publicly trade LiDAR companies are saying and just also generally what OEMs are saying and even suppliers, it seems like the technology has been pushed back a little bit. What do you think is really the biggest thing that's holding back adoption of ADAS and autonomous vehicle technology at this point?

I actually don't think anything is pulling us back. I think that the industry is looking at autonomous features as the main next differentiator in the market. I think the EV market has, to some extent, matured in terms of penetration. It will continue to be a dominant factor, but it lost, let's say, sight and OEMs are looking to differentiate themselves, OEMs are looking to secure the margins, which they are not getting currently from EVs, the margins that they were expecting are not there, at least not there yet. And the next big thing is autonomous features. So we are seeing our pipeline maturing nicely. So hopefully, we will be able to convert this pipeline into actual deals and securing for us the market position. At the bottom line, we don't see any problem in the market. There might have been a certain setback, but currently, I think it's actually accelerating.

Okay. And one recent development, it does seem like China start giving up permits to OEMs in Level 3 testing in the country. Regulators in trying to do embrace Level 3 technology. Would this support adoption in Europe and North America?

So first of all, that's true. We are rolling out with our first product, InnovizOne, together with BMW that these cars are being rolled out as we speak in Germany. Then it's on the i7. And the next car model is i5, which is targeted to China, BMW got licenses to test the car for Level 3 in China. So we are in the process of testing these cars, these platforms with the first generation program. What it means for the market, at least, what we believe it means for the market is once China will approve Level 3, that it will accelerate the whole market. Maybe similar to what happened with EV and Tesla some breakthrough and the markets went into a certain trend, the EV trend is the same, we believe we'll go with Level 3, once the Chinese push Level 3, the whole market will need to follow. So we believe it will be a great accelerator for the market and for the decision-making of the OEMs.

Okay. And also, and perhaps investors already know about the technology. But can you talk a little bit about Innoviz technology and how you're able to achieve a lot of what some of the 1,550-nanometer LiDARs achieves but with the 905-nanometer base.

Yes, sure. So when we started working on the technology, we took a system approach based on what we learned from the market. We understood that the market, they need high performance. Why do you need high performance because you want to drive not only safely, but feel convenient and enjoy the ride. So in order to have that, you have to have the best specs possible. You have to have the best range, resolution, frame rate, field of vision and so on. So we have this in mind. But on the other hand, we understand that this across our consumer products, they're very price-sensitive. Cost is a leading factor in decision-making in the industry. You cannot bring a LiDAR even the best LiDAR in the world, if the price point is not relevant. So when looking at these 2 factors, having very high performance at a lower cost, we decided to go on an architecture which is utilizing a laser in a 905 wavelength rather than going to the 1,550 laser, which is more convenient to use because you can have a LiDAR or developed LiDAR relatively quickly and get results very quickly, but then it comes on the expense of cost. Usually, a 1,550 LiDAR laser is pumped with higher energy means higher energy consumption, heating, bulkier -- that the LiDAR itself is bulkier, and this is not the best fit. 905 on the other hand, starts with a lower cost as an architecture because the laser itself is more cost effective. But then you have to solve some technical issues because you cannot pump the 905 laser too high with power. So instead of solving the transmission side, we solve the receiving side, meaning the detector, the sensors that we are using. So our sensor suite is very, very sensitive to light, which means once you have sufficient sensitivity on the receiving side, it means you don't need to pump the laser too high and you get light reflection even from afar. All in all, we get the same and even better performing. But at a price point, the OEMs are willing to pay so this is the way we are approaching it. Another step that we made from end of this one, the first generation product or the second-generation product is cutting the cost by 70%. The InnovizOne is using 4 optical channels, InnovizTwo is using only 1. So meaning I have 4 laser, 1 laser, instead of 4 detector, 1 detector and so on. The [ optic trimmer ] is much easier to produce. The yields are much higher. So the whole system approach here and the whole architecture leads to cost reduction and simpler manufacturing.

And are there any disadvantages in going with the InnovizTwo technology as opposed to the one technology?

No actually, the InnovizTwo is better in performance. So you have a better field of view, better range, better resolution, everything was improved. So all in all, you have a factor of 30% in performance overall in the InnovizTwo as compared to the InnovizOne. And as far as we are concerned, the InnovizTwo, at least the feedback that we are getting is that the InnovizTwo is right in the 3 points where the industry is requiring it to be, so have sufficient performance in any aspect from range resolution and frame rate, and it's in the right price point. So a very good fit for the mid- to high range cars.

Okay. Interesting. And as you look ahead, are you getting a sense that there is still a lot more innovation that can happen with the 905-nanometer technology? Or do you think we're hitting the front where it's going to start to level off and maybe it is that you might not have as much step changes in this?

Not at all. Actually, we think there is a lot to do both in performance and in cost. And there are a lot of items that we can address from using more advanced electronics going from discrete electronic to integrated electronics. There is a lot to do around the detector side. There is a lot to do in the general optic passes we are using, the scanner. We improved the scanner from the InnovizOne to the InnovizTwo. We believe there is additional improvements to be made. So there is still a way to go. I think, generally speaking, although it's not a new technology as a whole, LiDARs are not new technologies as a whole. But in the automotive space, it's relatively new. And I believe there is a lot to be done there and improvement both in cost and performance and I believe the industry will benefit.

Are there any questions at this point that anybody wants to jump in with or should I keep going?

I just had a question around just the views. I know like Tesla has this whole view that you don't need LiDAR. Are they like the outlier in that industry? Or are there other people that agree with them?

Yes. Tesla is the outlier. Any OEM that we speak with is requiring a LiDAR. The reason is that they require in LiDAR because of regulation. In order to reach Level 3, you have to have redundancy. So using just a camera or camera and radar is not enough because a camera, you can take more than one camera, it's not enough because once the camera, something is wrong, it gets blinded or it gets blocked, you need another sensor that can perform as the camera can provide the sensor solution and frame rates and so on. And currently, the only other sensor that can provide this redundancy is the LiDAR. So Tesla, the redundancy that the Tesla is using is the driver. You watch the road, you are ready to intervene. Basically, the Tesla cars are Level 2. In order to get to Level 3 and disconnect the driver, you need another sensor. I hope that Tesla someday will decide that it wants to go to Level 3 add some additional sensors into their sensors.

Okay. Can you just clarify like what the cost is to an OEM for different sensors? So I thought I heard cameras would be what $25, $50 or so. Radar, I thought I heard $100-ish. LiDAR, I guess it depends which ones. But I mean, what are the numbers that you hear out there?

Yes. So LiDAR cost between $500 to $850 to the OEM, and it depends on the volume, and it depends on the year in which the buying the LiDAR. So as far as we can see, this is the right price point for the industry.

Okay. And what about radar and cameras, do you have any sense of what that is going forward on a relative basis there? So the prices you mentioned are...

Yes. I think cameras and radars are already commoditized so they reached a level where I don't think you can cut down the cost too much anymore. Probably LiDAR over time and over volume will go down. As I mentioned before, we expect that the market, the TAM will be between 8 million to 10 million in 2030. It's roughly 10% of the industry.

That's billion, right 8 billion to 10 billion?

No, million units. Multiplied by, let's say, 500, you get a many billion dollar market. And this represents only a fraction of the market, 10% of the market, 95 million or roughly speaking 95 million cars are being sold every year. So in 2030, we get to 10% of the market. It's mainly the high end to mid-range and the potential is basically 10x bigger once the penetration, the take rate in cars will be higher if the prices would as the prices of the LiDARs will come down, I think the presentation and take rates will get much higher.

Okay. And currently, it seems, at least with the cars that I have noticed like I think with Geo, it's mounted or there was the z curve double or 9, I think they brought out in CES in the past, the LiDAR was up on the top, in the front about the windshield. Where do you see those lateral points settling because it seems like OEMs maybe aren't as happy with the visual effect of that. So where do you see that to of the vehicle, you see that ending up in the very front or behind the windshield? What are the advantages of different locations on that?

So one thing we learned over time that the most important people at the OEMs are the designers. They dictate everything. And we have different configuration. We can run with the LiDAR wherever the OEM or the designer of the OEM requires us. There are some programs that we are located at the grill, some programs at the rooftops, we are starting to see requests behind the windshield, which is a bit more challenging. It means that the LiDAR sits within the cabin, and it needs to be a little bit clear and need to consume less power because we cannot heat the interior of the car has to be very, very quiet. So I think that the preference of the designers would be eventually behind the windshield. But currently, we see on the rooftop and on the grill.

Okay. It seems like the range probably is not going to be as good if you put it behind the grill. But are there other reasons not to put it there?

Yes. I think it's a preferable place to put it on the rooftop because you see better. There are less sensors up there, pure your sensor. BMW and our current program, you see the LiDAR on the grill, in the i7 and the i5. In the Volkswagen, you see either on the rooftop or in the grill, I think, again, for us, the LiDAR sits higher in the vehicle, it's better.

And I'm curious if there's an accident per se, does the LiDAR still say -- still end up being calibrated to the whole setting? Or is it going to get a little bit dislocated and maybe just member of the technology? Anything you want to add?

Yes. So the LiDAR is also calibrating every time it starts to operate. If there is an accident and everything really is going totally bent, I guess you need to replace the grill and recalibrate the whole system. But basically, to some extent, I think of a car is sometimes the car is still a little bit tilted because there is some weight in the back because we put on suitcase or heavy people are sitting in the back, the cars a little bit tilted. So the LiDAR can have this kind of flexibility of recalibrating itself, depending on the angle or the different positions that the car's driving up the hill, down the hill and so on. So there's certain things.

Okay. And then I guess next is really on manufacturing. It seems like right now, you're using third-party manufacturers. Is that the plan on how you how you operate on a go-forward basis? Do you ultimately expect to some of this manufacturing in-house? How are you thinking about that?

Yes. So, A, we are using contract manufacturing and that plan of record for the near future. The reason we are doing -- so actually, there are many reasons or more than one reason. One is the flexibility and location. The OEMs have different requirements where they want to get their LiDARs. The American OEM usually want Mexico or not China, let's say. Like that European depends on who and what they require. So this gives us flexibility. The second thing is lower investment in CapEx. We are not interested in building a facility, spending many tens of millions of dollars building a facility just to learn that the OEM wants to get its LiDAR in a different location. So there is a great price spending. So we are relatively light on CapEx when we are using these contract manufacturers. And also, once you are being nominated and audited, the OEMs want to see the manufacturing facility. So obviously, we don't have one, and it's very convenient to show them an already-operational possibility that they can audit and improve in advance.

And where do those contract manufacturers stand in terms of getting a LiDAR ready to ramp? And also, what capacity are you going to have, say, by the end of this year?

So for InnovizOne, we are using Magna. Basically, for InnovizOne, Tier 2 for BMW, we are only producing the component. And Magna eventually is free manufacturing of the system. For InnovizTwo, we are the Tier 1, meaning we are responsible of the manufacturing. And so Magna ready and not producing, not yet. We will be ready for the InnovizTwo in 2025, probably the second half of 2025 for mass production. This is currently the plan.

Okay. And any sense as to how much volume that you might provide or is it too early right now to...

Yes, we haven't disclosed it yes, that's high volumes, so much higher than at this point.

Okay. And then recognizing there's not necessarily a direct correlation with EVs. I mean if you think about it, EVs have tended to have more technology with them, that may get a little bit less the case as people are starting to reconsider EVs and whether it wants more hybrids or more eye vehicles to make up for the weakness in demand. But given that, with this one in EVs has that impacted any of your customers or some of the platforms maybe that you were looking to offer the product on?

So not at all because we are agnostic on that kind of car with a real combustion engine. We are participating in platforms that then are being implemented in different cars in different models. And since this is the strategic decision of the carmakers, so they take the decision now, the industry has made the decision it wants to go to offer autonomous features. So the strategic decision, which is longer looking forward many years ahead and it's totally uncorrelated as part of our experience from EVs slowing down or not slowing down, something that the industry is focusing on as a differentiator.

Do you guys have any questions you want to ask?

I was going to ask one about the overall landscape on the autonomous things similar to the question earlier. Do you see this evolving, all of the OEMs will potentially eventually get to Level 3? Now the company is looking at a very different speed than Waymo, their progress versus others? How do you see it all?

Yes. So Waymo is a level 4 basically. And yes, I would say the following all the major OEMs that think of have currently are in the process of sourcing or having a plan for on autonomous features. So I believe the industry is going there. And not too many years, you would see more and more cars. We already see in very premium like BMW, Mercedes. But yes.

Out of curiosity, I mean, when OEMs are talking to you about potentially using your LiDAR, cost is clearly a big consideration. But I mean, are they at all concerned about the capabilities of your technology relative to what say, like [ Lumara's ] been advertising? How do you juggle that? What are the main questions, I guess, that they're really asking you that really will be the difference maker in terms of whether they decide to use your product versus some of the other ones on the market?

Yes. So I think first, addressing competition. I would say that the main players that we see as competition are more the Chinese Hesai and Valeo which is the Tier 1. We don't see too much [ Lumara ] I must say, in the different processes that we are particularly fitting in. Recently, there was a very significant development in terms of the DoD blacklisting, Chinese components for LiDAR for that company. So as we see Hesai, I guess, having some issues in offering to U.S. and also to European country because of this blacklisting so we see less competition from that region on one hand. On the other hand, I would say, in China, if they will go to Level 3, I think Innoviz, we will be a very relevant product because we believe it's the best in class at least from what we are seeing currently. And we believe that the product is in the right price point even for the very competitive Chinese market. Valeo is a different story. They are a Tier 1. The industry is looking for a very stable with a lot of experience, manufacturing, qualification, all these processes that are very important for the automotive industry, and we see them as significant in most of the programs that we know who is competing against this feasibility.

Now one of the things that's I think relatively unique about the auto industry is they like to have diversity of supply. But what's interesting also Valeo is that there are not a lot of suppliers, especially ones with good technology. Are you starting to see OEMs get to the point where they do want to diversify their LiDAR supplier such that there's going to be a video market that's going to be split across a lot of participants over time? Or is it still too early? And the technology is really the differentiator at this point?

Yes. So this is an interesting question because this was exactly my notion of how the industry is operating. But over time, what we understood is LiDAR is a function of a mission-critical component to the system. In order to qualify such a system, the OEM goes into intense qualification processes that take years, cost a lot of money, time. And they actually for such products, functional safety elements, they actually consolidate around very few suppliers rather than diversified because they cannot afford going through that process, A and they don't want to manage the risk of having a few suppliers. If it works, if it's qualified, if it went through all the testing, they will stick with it. So we are actually expecting a winner take most approach consolidation around very few suppliers and the same phenomenon you set also in other technology like airbags. Airbags, you have 6 to 9 in every car. It sounds like a commodity but most of the market is being supplied by 2 suppliers. The same goes to other technology. Mobileye has practically 90% or 80% of the market. Today, they have maybe 60%. So you see that the market is consolidated around very, very few players. We believe the same will happen. I think that the processes, the cost, the time takes and the risk management is a key factor here. We have already proven ourselves to BMW. We've proven ourselves with Volkswagen. The Germans are usually the ones that are qualifying such technology and driving them into the market. And naturally what each win brings me nearer to the next win because the next OEM, probably when he does the math and the risk management factors if we will probably go with the LiDAR is already proven and already worked with others rather than going into advance with a different technology.

Okay. Are there any questions? We have a couple of minute left? All good. I guess just next, I mean, have you provided guidance in terms of how you expect revenue and earnings ramp up and especially any color around what volumes it would take to get to cash flow breakeven around outlook?

Yes. So we learned our lesson from last year. Last year, we guided in terms of revenue, $12 million to $15 million. And then we ramped it during the year. We pushed the guidance of $15 to $20 million, and then we ended up with $21 million. We are still in earlier stage, the revenue profile is very lumpy because we are in the early this year, next year, we are expecting a larger part to be to be from NRE, from services. And the profile of this revenue is you have milestones. And the milestones are not spread evenly. And once you get to the milestones, you are getting paid and the revenue is recognized. So it could be the case that a certain quarter, less milestone or no milestone, the next quarter, there no milestone then it gets very spiky and lumpy. So our decision was to guide only quarter-by-quarter until we have more and more confidence and gain more business, then it will be more regular. So currently, we guided only for this quarter, revenue is $5 to $6 million over the quarter, and we do the same for the following quarter, providing quarter-over-quarter guidance in order to get a better understanding to the market, I would go about it.

Okay. And I think like one of the biggest questions especially within this industry is really capital needs. If you could just talk quickly talk about how well capitalized you are, what capital you might need down the road. I recognize you're limited in terms of what you can say there.

It's an important question. And the reason is I think it's important because I get it at the time I meet investors. And the company has finished the year with $150 million on our balance sheet. We have done a downsizing of the headcount and some trimming down and focusing our company on the InnovizTwo platform. This is on one hand. On the other hand, we are having a very rich pipeline, which we believe is maturing, which we believe we will be able to win additional programs. Each program that we are quoting, we are quoting with substantial NRE, which means that with the money that we have on hand and with the expected win, we will be able to expand our runway such that we are able to win the market when the window of opportunities open for, let's say, the next 12 to 18 months, maybe until the end of next year. And for that, I think we are feeling comfortable we have enough on our hand in order to execute our strategy.

Okay. Anything else investors maybe should know in terms of just what to invest in Innoviz?

I think there is an opportunity here in the company because I believe that there are decisions that the market is now making and which we demonstrate to is taking the market, where the market is consolidated. I believe that the position that we have already with the market with the German OEMs are giving us a very good perspective of the market and perspective of other clients on Innoviz. So at the end of the day, it's not important what I say, it's important the market valuation Innoviz is getting from the different OEMs. I believe we are in a very good position in additional programs will be very substantial as supplier for the company.

Okay. Well, thank you so much for coming. A pleasure to have you. And obviously, if any of you guys have any questions on the company or even the later industry, feel free to reach out to Eldar directly or given us [ John Burke ] and the team, we're here at all. So thank you.

Thank you very much.