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

My name is Mark Delaney. I cover Innoviz for Goldman Sachs. And I am very pleased to have with us Eldar Cegla, the CFO of Innoviz. Thanks for taking the time out of your busy schedule, Eldar.

Hi. Thank you. A pleasure joining you. Sorry, we couldn't do it in person, but I'm sure we will communicate well even through Zoom.

No, absolutely. Maybe to kick things off, just talking about the technology that Innoviz can provide for the LiDAR space, there's a lot of competition in the LiDAR industry, other merchant providers or some companies do LiDAR in-house. Maybe talk a little bit more around what Innoviz offers and how you think you're differentiated from some of the competitive options that are out there.

Sure. So Innoviz is doing basically 2 main products. One is on the hardware side, the LiDAR, the 3D sensor. We are targeting this sensor in terms of spec and performance, power consumption, form factor and so on for Level 2 plus and beyond, Level 3, Level 4. And on top of it, we are providing the software, which is the software stack. It does many things. And -- but the main task there is the computer vision, perception, understanding what the LiDAR sees, and providing this data to the sensor fusion and then the driving decision platform that operates the car and the driving. And I think that the differentiators are in many aspects starting from technology. At the end of the day, when you try to solve the autonomous driving problems that carmakers have or want to solve in order to have better, more safe cars, we are actually in the second phase of this trend. The first trend was very -- a lot of hype, a lot of tests that were being done, but also a lot of disappointments because, at the end of the day, it's a complex issue. At the end of the day, you need to drive the car safely without it running over people and not hurting everybody. And I think the industry today matured and understood what kind of specs do you need out of each of the components. And I think Innoviz today on the technical level is providing one of the best LiDARs in the industry that definitely answers the specs and can bring cars into Level 3 to drive not only safety -- safely, but also very comfortable that you feel that the driving is like a human would drive. More than that, when you go to Level 4, you not only need a safe solution, you also need an available solution, meaning that the solution functions in any condition. And we have proven, this is something we showed during our last quarter. We had some clips that the LiDAR can perform in very adverse conditions like you have some mud on the sensors and it still drives and, obviously, at night and when it gets -- when the camera is blinded, when there is rains, and so on. So this is the first level. The second level, I would say, is the fact that we are already deployed on the Level 3 platform together with BMW. So there is a lot of experience both on the LiDAR side, also on the software side. It's a qualified solution. It's safe. It doesn't run over people. And the industry is usually, when you are around functional safe, mission-critical components, the industry usually takes what is proven. So this is another element. Also the fact that we provide both the LiDAR and the software, so we provide more of the solution, it's very relevant. And recently, we also announced that we have taken our InnovizTwo platform, the LiDAR that we today offer everybody, and have adjusted it not only for long range, but also for short range, which means it can give clients -- we can give more to our clients one-stop shop for LiDAR, long range, short range. It's very important for Level 4. There are some other benefits like we are a Tier 1 and so on, but I think I said the main points around our benefit.

No, that's a great overview and a lot for us to dig into throughout the discussion. Maybe just you're talking about how the industry rollout may progress in your view. You mentioned you're already deployed in L3, very small scale, right? And that's sort of an industry broader phenomenon. How do you -- how and when do you see L3 becoming more material in volumes? And also what about L4? Again, there are some robotaxis that are out in various cities in China and in the U.S. How do you see L4 progressing? And when does that become more meaningful?

Yes. So maybe I'll start with quoting some market research and then say something about our pipeline that we see. We usually refer to the IHS number. This is, I would say, the golden standard of the market research around the automotive and definitely LiDAR. So they predict that during 2030, there will be 6 million to 7 million LiDARs sold per year for light vehicles and consumer vehicles, and this number will double 5 years afterwards. So we, in our pipeline, see a similar market size of our pipeline if we aggregate everything together and we look at 2030, look at similar number, maybe 8 million to 10 million, slightly higher, and similarly growing or doubling these numbers towards 2035. So the opportunity is very big. When does it start to ramp up? So there are some Level 3 solutions already in the market today. We have already -- we are working with BMW. You can buy a Level 3 car today, but this is the first launch of Innoviz, which we expect maybe next year to go into China as well. But the big ramp in volumes we expect as of 2026. We have together with clients such as Volkswagen, which is our second client. Together with that, we see some pickup of Level 4 solution, mainly around public transportation or commercial applications, such as robotaxis, shuttles, some trucking as well. And this we see starting to pick up as well as of 2026 and onwards.

Very helpful. And I believe the revenue per vehicle opportunity for Innoviz varies a little bit level to level, and especially for robotaxi, you have a lot more LiDARs per vehicle. Maybe talk around what your content opportunity may look like for L2 plus or L3 and then how that could trend as you go to higher levels of autonomy?

Yes. So usually, the consumer vehicles, most of the volume that we see in front of us in our pipeline is mainly Level 2 plus and Level 3. And usually in these applications, there is 1 or maximum 2 LiDARs, either located in the grill or in the rooftop. And these applications -- consumer applications are more price sensitive. So at this point of time, still these kind of features are, to some extent, costly. So you see them on high end or to mid-range consumer cars. When you go to Level 4, it's a different business model and the price sensitivity is different because you don't need to have a driver. You basically replace the driver by the Level 4 platform. And so we have announced that on these Level 4, we are working together with a Level 4 platform. We are offering 9 LiDARs in each vehicle, which basically means, even though that the Level 4 -- most of the Level 4 applications, the commercial application utilize or deploy less number of vehicles, but since it's 9 LiDARs per vehicle, the multiples are bringing you practically to the same volume that you will have from Level 3. So I think that the most mature is Level 3 on the consumer side. Level 4, 9 LiDARs, is maturing now, and it actually is equivalent to the Level 3. It's practically doubled our TAM, I would say, if you can call it or the opportunity that Innoviz has. In terms of content per vehicle, so when you sell 9 LiDARs per vehicle, and we said in the past that the cost per LiDAR is between $500 to $850 per LiDAR. So it's in the thousands for Level 4, while a few hundreds of dollars in Level 3. So it is significant.

No, that's very helpful. You spoke about your partnership with a platform provider for autonomous vehicles. You announced that partnership this year where you'll provide the LiDAR and be associated with the chipsets and software of this platform provider. Maybe talk about what led to that partnership. I mean why would they want to have a preferred LiDAR partner rather than being able to leave more flexibility there or leave that position up to some of the customers? What do you think led to your win?

So I think that the initial step was that Innoviz decided to take the Level 2 LiDAR platform, long-range LiDAR basically, and because of its agility, I would say, and the modality, that we could turn it also very quickly into -- offer it as a Level 2, as a short-range LiDAR is that once we had a more broad solution level, long range, short range, it was easier for the platform for Level 4, which you need both long-range and short-range side LiDAR to adopt us. And we have mentioned in the past that we are working basically with the 3 main, or in good connection with the main 3 platform providers. It's Mobileye and NVIDIA, Qualcomm. With Mobileye, we have announced that we are working on the ID. Buzz, the Volkswagen ID. Buzz, we showcased in last CES. So I think our experience and that really in our offering helped us to integrate into the platform. And then at the end of the day, once you are integrated and are starting to win programs together, usually the switching cost is very high. It means that an OEM can decide "I don't want to work. I would like to adopt the platform but I want a different LiDAR" can be made, but then you will pay for it in NREs and services tens of millions of dollars just to switch. The time until this platform will mature will take longer, and the risk, obviously, is higher. So usually, the industry consolidates, once you win one program or are integrated into one platform, it gives you a benefit for future wins.

No, that's helpful. I think even on the last earnings call, if I remember correctly, you had a couple of additional deployments that you were able to secure wins for based on this partnership in the L4 space, if I'm not mistaken.

Yes, exactly. So through this integration with the Level 4 platform, we have won and started working on 2 new OEMs together with the platform. And basically, it means that every win of that platform, of a new OEM provides us another win. So the winning cycle is much faster. So I would expect looking forward that this gives us a better chance of winning additional business. And hopefully, we will be able to communicate that we are winning more business, not too far away.

Yes. And just to work, I think we're all conceptualized this properly, I mean, the volumes for a commercial shuttle or a robotaxi, more commercial-use cases, so the number of vehicles is probably much lower than if you were on a high-volume consumer car, but then you've got 9 LiDARs instead of 1 or 2. And so the revenue opportunity is still very attractive in totality.

Yes. So I think we mentioned it also on our last earnings call that, usually, these commercial vehicles' platforms are -- the volume -- the number of vehicles is between a few tens of thousands of vehicles to few hundreds of thousands. So -- and if you sell a few thousands of dollars into per vehicle, it means a very sizable business for Innoviz and the ability to win more is much greater here. Again, you have a platform, you are integrated and relatively a shorter cycle in order to win new business.

Well, it's been a very exciting last several months and year for the broader autonomous industry. Consumers can now take ride in robotaxis. There's a lot of work being done at the OEMs. And that has led to a lot of engagement in terms of RFIs and RFQs for Innoviz, and you already spoke about some wins you have with VW and BMW. But I think there's something like 15 programs in the RFI or RFQ stage that you guys mentioned on the last earnings call. And you said you were hopefully close with OEMs making some final decision. So maybe give us a little bit of an update, if you could, around how some of those engagements are progressing.

Yes. So a few things I would like to say about it. First of all, the fact that you see that we have this pipeline, basically, many of the names, these are well-known names that you see on the Street, well-known brands, which means that, as I mentioned before, the industry is maturing, the industry understands better what is the problem and how to solve it. And the industry is going -- is very motivated to go towards autonomous driving because safety, I mentioned it before, but also because it is a differentiator, and because it provides additional margins, especially when you have EVs around and the market starts to commoditize around EVs. So these factors of margins, additional margins, additional safety and additional differentiator is very important. And we see that the market is going towards these features because these features provide exactly that. And we expect -- or I would say the more mature programs that we are seeing today is, a, around European. The Europeans are usually the first ones that will adopt the technology, and we see additional traction, movement in the U.S. The reason that we see that the U.S. is now moving faster, I believe, is related also to the DoD, I would say, banning of Chinese LiDARs. So it blocked to some extent much of the competition that is coming out of China. And today there are very few players in the LiDAR space that can offer to the U.S. market and also to European market LiDAR solution, and hopefully, Innoviz will be one of the leading solutions in this sense. And again, also we see this acceleration of the processes moving from RFI to RFQ also in the U.S. Maybe one additional interesting factor, that many -- there is a considerable amount of emerging OEMs that also are stepping into adding autonomous features into their vehicles. This is also a trend of more agile, fast-moving OEMs, emerging OEMs that wanted to adopt new technologies and new features into their vehicles.

That's great. I know when decisions are made is out of your control, right? You guys can do the technology and put yourself in a position to hopefully get bookings. But ultimately, that rests with the customer or potential customer. But anything you can share around when to expect potential awards and indications that they may be providing to you?

Yes, this is one of the trickiest questions because, basically, we are communicating what is communicated to us. So the usual internal, I don't want to say a job, but the usual saying is the decision next is next month and -- or the Board meeting is next month and the decision is in the following week. And you see usually that it takes some time. We don't really control it. But I do see some traction. So with Volkswagen, we see constant progression, and we have already working on 2 programs and the third one we are supporting with -- and with the Level 4 platform, we announced 2 wins. So I think things are happening and there is some progress. We do expect that the next decision won't take years, but rather a few months, and not too long. So I would expect that -- I don't know if I would win, but I do expect that there will be the design win decisions being made soon enough.

Great. Well, we'll stay tuned for hopefully some good news in the weeks and months ahead. And I know you guys will be at CES, so often a lot of industry announcements around that trade show. So hopefully we get some updates around that. So we'll all stay tuned. Could I double-click on the North America opportunity? I mean you spoke a little bit about it, you talked about the geopolitical overlay in terms of what customers are sorting through. But I do think, especially with Waymo deployed, with what Tesla is trying to do, obviously, without LiDAR, perhaps that's a catalyst for some of the other OEMs to try and move more quickly to L3 or L4 solutions. And maybe specifically in the North America market, you can talk about what sort of traction you're seeing with Innoviz. I think you've alluded a bit to this on your last earnings call.

Yes. So in the U.S. market, I think there is an acceleration of the processes. I think the U.S. market was involved already in programs. And again, the U.S. market, there were some, I would say, this is the second wave after the certain disappointment of some programs that didn't go through. And I think that today, the U.S. market comes to it much more mature. We see more than 2, but 2 leading OEMs in the U.S. with Level 3 and Level 4 program for consumer vehicles. And I guess that in the next year, we will probably get some -- we will understand there will be some nomination for SOPs that probably start as of 2027 and going onwards. So basically, by the way, if you want to have a car in 2027, it means you need to make a decision sometime early 2025. So we do expect some decisions out of this market. And again, I think the market has matured and is ready to make the decision.

That's all very helpful. I mean we've been speaking about these awards tied to higher levels of autonomy, L3, L4, but I think there's also some regulatory momentum for safer vehicles, things like emergency braking. Talk about what that might mean for Innoviz and any opportunities you may have tied to some of those sorts of government mandates.

Yes. So I think that the industry is always pushed internally, but also by regulators for having safer and better solutions once -- and also as the technology develops. So I think emergency braking was a good example for that, that basically the need -- the U.S. regulator required that emergency braking will be tested also during night. So it appears to be that most emergency braking situation happen actually at night when the visibility is not so well. But systems were not tested at night, meaning the systems -- the automatic systems might fail at night because they're simply not better, they're not qualified for emergency braking at night. And then the regulator required for an active sensor -- the regulator said, "Okay, you need to test it at night, which means you need an active sensor." So a camera is a passive sensor, it needs light in order to operate. LiDAR is an active sensor because it sprays laser beams all around and scans the environment, and it's an active sensor, which is capable of working at night. So basically, in order to meet the new regulations and have emergency braking tested at night, you basically need a LiDAR. So this supports our systems, our LiDARs and we see more and more support for that, in terms of regulation.

No, that's all great. I'll let you get a drink of water. Maybe shifting gears a little bit to some of the financial topics, and if we have time left at the end, I can go back to some of the industry questions. But on the financials, guidance for this year for revenue implies about $6 million of revenue in the fourth quarter. It's a bit of a sequential step-up. Maybe talk about what's driving that. Is that more NRE related or shipping for series production programs?

Yes. So we -- basically, we have 4 revenue sources: NREs, samples that we sell at high ASPs, thousands of dollars, software and production units. So production units and software we sell today mainly to BMW, but most of the revenues today and next year are expected from mainly NRE, the services that we are providing to the OEMs during the development phase. Usually, programs can -- new programs can bring additional NRE services in tens of millions of dollars per program. So it can be very meaningful and incremental. And as I said before, '26 is the year we expect the program to start launch, meaning we are selling production units and growing volumes. So as of '26, I expect to see more revenues coming from production units and software. So this is roughly the split between the 2. NREs, since we became a Tier 1, we were able to tap in into the services that we are providing integration, qualification, validation, services that we are providing to the OEMs. And these balance of -- first of all, they impact our top line. Each program brings additional NREs and incrementally. On one hand, we see better and better top line, but also it supports our gross margins, which you can see quarter-over-quarter, year-over-year getting better and better, hopefully, will go to the positive. They are almost at 0. So hopefully, they will go to the positive in the next year. And once we'll hit mass volume production in 2026, obviously, there will be another significant increment there.

You guys have taken a lot of costs out in terms of your operating expenses. Maybe help us understand where that goes from here. I mean I know you're already trying to be very efficient and focused with your spending. Of course, you need to invest to grow, which is clearly the right long-term decision. But to the extent industry fundamentals remain soft next year, I mean, there's a lot of macro volatility and pressure on some of the auto OEMs. I mean if the business is softer than you expect, I mean, is there more levers you can pull on the OpEx front?

Yes. So first of all, we are a very focused company on the InnovizTwo platform. We did some realignment at the beginning of the year. We have 2 platforms, one, InnovizOne for BMW, InnovizTwo for the rest going forward. Once InnovizOne got to maturity into production, we could focus the company around InnovizTwo. We always were a very responsible company and always took our cost structure very seriously. So there is always -- we always look at this side as well, not only on increasing the top line, but managing very carefully the cost structure. So I think at any point of time, there is always opportunities and always analysis that we are doing in order to see if we need to adjust anything to continue. But I think we are today in a different position than we were last year, both because we gained additional wins. We represent a larger volume -- potential volume because we won additional programs, which means this opens for us more opportunities, strategic opportunities, both on our partner side, which would like to be our partners because we represent more volumes, so we have additional leverage that we can do, and this helps us also on the cost side. And also we are -- I would say, to some extent, we are more strategic or more important to our clients. We represent a lot of volume. The integration is in the middle, and there are some strategic opportunities around that as well, which, as a whole, if you look at the company as a whole and our balance sheet, our top line and so on, I feel very comfortable where I'm standing today.

Maybe I could follow up there on the balance sheet. I think you had $88 million cash on hand, if I remember correctly as of last quarter. You're still using cash. How are you guys thinking about managing the balance sheet? And what are maybe some of the sources of potential funding? I mean NREs is something, you've mentioned, you're gaining some bookings from. I don't know if that plays a role in how you think about getting better cash flow, but talk a bit more on liquidity and cash, if you could, please.

Yes, sure. So one, it's true, we have $87-point something million -- $88 million of liquidity. In addition to that, we show that the cash burn decreased significantly. Last year, it was over $28 million, now it's under $20 million, around $80 million a quarter. So we show a gradual but very consistent decrease in our cash burn. And as we win -- so first of all, you need to win more business. This is what we are doing. And Q3 was important to show we brought additional 2 OEMs. All this is very important because this support this year, next year NREs, which, again, once you win these programs, basically all the programs are for the same platform, InnovizTwo, which means I'm able to balance off my expenses better and better as I win more programs because financing basically the same platform. So this is one direction. The other, I talked about it just a minute ago very shortly. As you win more volumes, it means you are more significantly -- you have a more significant position in the market, which means you have a strategic or other opportunities to finance the company. And by financing the company, I don't mean necessarily dilutive opportunities. Just as an example, I can give you an example, you can offer your customers down payment for some benefits in the future. This is something that's an opportunity I didn't have a year ago because the business was not large enough. The number of wins was not enough. Today, it's a different situation. Same goes for my partners. I don't use contract manufacturers, for instance -- I'm sorry, I'm not doing the manufacturing myself, I'm doing -- I'm using contract manufacturers. So the relationship there can also support my cost structure and take some of my costs on the other side instead of me having these costs and so on. So again, I had more than one opportunity in order to support the company, in addition to the standard, okay, let's have more revenue, which is obviously something that I'm working.

Great. Well, I know a lot of exciting things the company is working on. We're all looking forward to updates going forward. And unfortunately, we're out of time today, but Eldar, I want to thank you so much for joining us.

Thank you very much, a pleasure.

Take care, everybody.

Thank you.