Innoviz Technologies Ltd.
Q3 2021 Earnings Call Transcript

Published: 10 Nov 2021

[Operator:]

Good morning, and welcome to Innoviz Third Quarter 2021 Earnings Conference Call. Joining us today are Omer Keilaf, Innoviz Chief Executive Officer, and Eldar Cegla, Innoviz 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 Factors section of our Form 20-F filed with the SEC on April 21, 2021. I will now turn the call over to Omer. Please go ahead.

[Omer Keilaf:]

Hey, good morning, everyone. Good to see you. Let's get to the start of the show. Hi, everyone and good morning. I'm Omer Keilaf, CEO and co-founder of Innoviz Technologies, and with me Eldar Cegla, our CFO. I'm very happy to be in New York and meeting with investors and talking with analysts, and being able to bring our card aggressively, which we call -- with our InnovizOne LiDAR to show and demonstrate the great performance. Happy to be here today. Before I move on to our quarterly update. Today, we have a very special guest with us. I'm very happy and honored to have Mr. Richard Rau, who is the VP of Automated Driving of BMW is joining us now today from Germany, Munich. He is here to talk about the program, the process. We are very fortunate for BMW been selected Innoviz technologies through Magna, our Tier 1 partner. And I'm very excited to see you here, Richard, we've been working together for the last 3 or maybe 4 years right now. Thank you very much for accepting my invite to be here today.

[Richard Rau:]

Thank you, Omer. Thank you for inviting me. I'm glad to support you in this important call for Innoviz. I would like to give you all, in a few minutes, a little perspective on our joint project we have with Innoviz and Magna. Before I dive into this, however, I need to give a little disclaimer because we do have very restrict policies at BMW that restrict me in terms of what I can say about ongoing projects within BMW. So please understand that I will not talk about specific launch dates or specific features or functionalities, nor will I be commenting on the programs of other OEMs or on other laser scanner programs. With having this said, maybe I give you a little background on where we stand at BMW with autonomous driving. And many things which I'm going to say are public knowledge but maybe in this summary not fully present to you. First of all, we have announced this quite a few times that we do work on a full Level 3 customer system. So true autonomous driving will launch soon as the necessary regulations are in place. And as soon as it meets all the high safety standards at BMWs for the safety of our customers. We have also, I think talked quite a bit in public about -- on conference and the like, that for us a LiDAR or laser scanner is an absolute necessary component in the overall sensor setup for a true Level 3 system. On that, we are pretty firm about how it has been for the last few years and that has not changed. You cannot build from a BMW perspective a true Level 3 system without LiDAR systems or without at least 1 LiDAR in the system. For this end, we have nominated Magna and Innoviz already sometime back to develop for us, for our autonomous stack, A LiDAR for really an end user customer application so that it meets all autonomous requirements and all the performance requirements we have for the system. That one was announced I think within the Internet early 2018. And this project is ongoing and if I move on know a little bit to technological aspects of this project. Designing LiDAR is an integral part of an autonomous system. It's a very challenging task because you have to take many design decisions and optimizations. This whole process cannot really be reduced to single parameters. As the question, what is the right wavelength of the laser I use. What is the right type of mirror and the like? There are many, many things you have to take into consideration. For this end, we do have quite a sizable team at BMW that is doing nothing else than working on a daily basis with a highly competent team at Innoviz and in Magna to exactly designing the system, to finding the best trade-offs, the best design decision, that we have an overall system that do meet or that does meet all the Level 3 requirements we do have. Especially on the technical side. Things like, is it 1550 nanometer laser or 905 nanometer laser is the better option. The decisions you need to take, and specifically the specific IP Innoviz brings to the table clearly tells from my perspective the overall optimization towards the 905 with specifics that Innoviz can provide. Overall, I can say that this project that we have is right on track with respect to all important parameters, with respect to the design of the system, with respect to validation. And also, with respect to the industrialization, which is also in overall very challenging task because lidars are highly complex systems. And overall, the project is on track that BMW will be able to deliver with my introduction statements I have just made. And it is a real pleasure to work with the team at Innoviz, because they are great in terms of their competence. They have -- they're extremely skilled. They have IP that makes a significant different for us, and that overall, we are there on a very good track. So, I hope this helps to give you a little bit of perspective on our work together with Innoviz. And with this, I would pass it back to Omer.

[Omer Keilaf:]

Thank you very much, Richard. I really appreciate it and I'm very, very excited to hear you talk about our team. It's been such a long journey so far, and as you know; we are super committed to continue to work with you and help you be very successful in your journey to be the first Level 3 car maker in the market. It's a real honor and I know it's very uncommon that BMW will participate in such a form. And I believe it's really thanks to a very special relationship that we've managed to generate in the last few years, and hopefully we'll continue. Thank you very much. I think it should be enough for today, but let's continue. Let me move to our presentation. Talking about what Innoviz has been up to in the last quarter. So before, I'll talk about the exact activities. Are you seeing my slide? Okay, good. Of course, for the LiDAR market, there are different applications of automation, whether it's logistics and agriculture and smart cities and trucks. There are many ways you can leverage on a good LiDAR. Innoviz has always been very focused on one category which we thought is going to be the most important and most relevant for us, which is the passenger vehicles. When you talk about the passenger vehicle, it's important to understand that this Okay, sorry. Okay, so in order to understand this market, it's also important to understand that it's also setting the highest bulk. It is the most cost sensitive because it's for a privately owned vehicle. It requires the highest performance because it's for highway driving, for very fast cars. It has the highest standards on reliability that's for a passenger vehicle that needs to last for 15 years. It requires perception software that comes along with the sensor. It requires a very strong industrialization process for a product that needs to be built in millions, as Richard just said. It has very high sensitivity to size and power consumption. And, of course, eventually when it comes to very high volume, you need to work with steel ones that allow us to exit the market. I think that if you combine all of those unique requirements and maybe the harshest one, this is where Innoviz stands out with our solution, which is the most cost effective and highest performing. Of course, the opportunity in this market comes because it is the largest growing market until 2030. It is the shortest validation process in order to reach the market, and opposed to level 4 or level 5, level 3 is much more simplified. Customer value was already proven. OEM financial motivation is already proven as well. The car makers would be able to charge folks chauffeur driving from drivers and generate recurrent revenues monthly. Of course, when working automotive, you generate also very good relation for very long term, having very strong customer loyalty for many years. And since this market is about to converge, and we see many opportunities now in -- on decision-making for programs that are going to be launched for the following years. And of course, those programs will last for many, many years beyond that. This is the -- our opportunity to take a very significant market share. Now at Innoviz, we have a certain methodology on how we develop things. Over the last 5, 6 years. Every year, we stop and look at what we're doing and trying to find what's the next 10x improvement. What is the game changer that we can bring into our offering that can allow us to be much more attractive? What we identified right now is that if our focus is the Level 3 -- Level 2, Level 3 to level three passenger vehicles and platform, we believe that Innoviz 's two new product is already meeting the highest performance targets, and we see it as the most cost-effective solution in meeting our targets. Right now, having our all-automotive experience makes us to understand that with our ability and our financial stability, raising money through the SPAC gave us 12 months ago an understanding that strategically point-of-view, we want to go and style to address this market as a direct Tier 1 supplier. That would be a very meaningful ability for us to access the market and get many benefits from it. A standout Tier 2 -- Tier 1 is when a Company -- a technology Company provides a certain technology, a reference design, a prototype, and eventually sells the components. The Tier 1 takes full ownership of the process

[Eldar Cegla:]

Thank you very much, Omer. And thank you, everybody to -- for joining us today. Revenues for Q3 2021 were $2.1 million, an increase of 106% compared to Q2 2021. And then increase of 13% compared to Q3 2020. InnovizOne related revenues in Q3 2021 were $1.6 million or 79% of the total quarterly revenues, an increase of 36% compared to $1.2 million or 66% of the total quarterly revenues in Q3 2020. The Company continued to see strong interest for its products and expect the positive momentum to continue. Operating expenses for Q3 2021 were $30 million, an increase from $16.8 million in Q3 2020. Q3 2021 operating expenses included $18.2 million of stock-based compensation. The increase in operating expenses compared to Q3 2020 was primarily due to increase of $7.4 million of stock-based compensation and people-related expenses. Additionally, the Company continued to invest in R&D with R&D expenses totaling $20.6 million, of which $3.7 million was attributable to stock-based compensation. Compared to $14.7 million of R&D expenses incurred in Q3 2020, of which $0.6 million was attributable to stock-based compensation. As of September 30, 2021, the Company had $139.6 million in cash and $185 million in short-term deposits compared to $58 million in cash as of September 30th, 2020. The increase in cash was related to closing of the Company's business combination transaction earlier this year. Thank you very much for joining, and I'm returning the call to Omer. Thank you.

[Omer Keilaf:]

Thank you, Eldar. So again, thank you all for joining us today. Let's use this opportunity to get some questions from the people on the line. Thank you.

[Operator:]

Thank you. . Our first question today comes from the line of Michael Pilato. Michael, you will be prompted to unmute, please go ahead.

[Michael Pilato:]

Hi guys, can you hear me?

[Operator:]

Loud and clear.

[Michael Pilato:]

Okay. Great. So, thanks for taking the question and thanks for the presentation. So, the first one I want to ask here is around an article that came out with an interview with director of development at BMW. And he had mentioned that BMW would, put out a level three platform on the 7 series maybe next year. I know you can't comment on your customers timeline, I totally understand that. But I want to ask the question when we'd be able to buy a car with Innoviz Viner on it, whether it's a BMW or something else?

[Omer Keilaf:]

So, as you said, BMW article which gave indication of having a Level 3 following next year. I wouldn't be able to provide any other indication than what BMW is offering. But as Mr. Richard Rau said, Level 3 of BMW would always consist of a LiDAR. Other than that, I would say that the dots could be connected in somewhere else.

[Michael Pilato:]

Okay. Fair enough. I had to ask. So next question would be, I think you made it very clear what you feel the advantages are of being a direct Tier 1 supplier to OEMs. But it seems like that strategy has maybe changed since earlier in the year when you're going to the SPAC merger process, when you talked a lot about the necessity of working through a Tier 1 supplier in order to supply high-volume series production. Maybe you could just explain what's driving that shift and your strategy. And then also, there's got to be some Balance Sheet requirements in order to supply directly a high-volume program. So maybe you could talk about some of the exposure to warranty recall risks and how you plan on, I guess, dealing with that.

[Omer Keilaf:]

Sure. So, the opportunity of becoming a direct supplier Tier 1 came along through different discussions with carmakers. We always let the carmakers decide what's the best way to engage with us. Because we have several Tier 1s and eventually they will let the carmaker to have their preference on how they want to engage. Showing -- talking with them about the potential advantages of us becoming a direct Tier 1, highlighted the opportunity in terms of being able to be much more flexible and providing a much cost-effective solution. And working with a Tier 1 has a lot of overlap in terms of duplication of teams that are working basically cold-side, and making the overall project a bit more complex and a bit more expensive. And some car makers are willing to go through that -- preferring that combination, but some car makers understand that for very high-volume production of -- when it comes to hundreds of thousands and millions and the price point is very, very sensitive, they became more attentive or interested to understand what might be the situation with Innoviz becoming the supplier. It was our strategy that when we started at Innoviz without the relevant -- I would say experience in automotive and knowing how to interface with Tier 1s, and with the , it was basically a mandatory thing to do. following four or five years of work in this space, I can tell you that I've been in discussions that the car makers we're giving us all the on so many areas that I personally never knew before. And I was quite amazed about how knowledgeable became in automotive. I would say that the Innoviz is probably one of the most experienced automotive players today in Israel. And eventually the feedback that we're getting from those auditors were quite impressive in there. I would say they are not used to companies to have such capacity and expertise in automotive and eventually felt very comfortable with giving us the opportunity to complete directly. I believe that it will give us additional capabilities in the future. The overall financial stability that we have due to our ability to raise substantial money in the last process in the SPAC was -- gave them sufficient confidence that we will be able to fulfill their needs and meet their targets.

[Michael Pilato:]

Excellent. Thanks. And just one more quick one. In these 3 programs that are in the final stages that you referenced, are you competing with the InnovizOne or the InnovizTwo on those programs.

[Omer Keilaf:]

Those are for InnovizTwo, we are continuing with InnovizTwo. Those are very high-volume programs and the sensitivity for the pricing is tremendously higher, and also the requirements that we see are growing over time. And there is a really good fit between those two products. It's a -- InnovizTwo, it's not only that is much better from a performance point of view on pricing. The industrialization of it has been simplified significantly. Without going to the very fine details, I would say InnovizOne, we are using full lasers and full detectors. In InnovizTwo we're only using one laser and one detector, which allows us a much simpler assembly process shorter and basically allowing us to have a much more robust design that allows us to reach volume very fast.

[Michael Pilato:]

Got it. Thank you very much.

[Operator:]

Thank you, Michael Pilato from Berenberg. Our next question today comes from the line of Mark Delaney from Goldman Sachs. Mark, please go ahead.

[Mark Delaney:]

Yes. Good morning, and thanks very much for taking the questions. I thought first maybe I could ask a follow-up on this approach as a Tier 1. Can you comment on how broad-based you think that approach will be going forward? Do you think a lot of your customers are going to want to use Innoviz as the Tier 1 or is it still more of a select situation, will you be the Tier 1? And then when you think about the financial implications of that, you commented on the potential to have more profit dollars available to Innoviz with that model. C old you also talk about the margin percentages of doing that. Tier 1 margins tend to be lower, so I'm curious if there's some trade-offs even in the entire EBIT or EBITDA. Do we need to be thinking about a little bit of a different margin percentage profile? Thanks.

[Omer Keilaf:]

Sure. And maybe before I answer your question, I forgot to answer Michael questions on warranty and liability. Obviously, when we are discussing this matter with carmakers, that's part of the negotiation. So, we're negotiating the level of warranty and liability, the capping off that we could have in order to be meeting their needs. And we bring it to a position that it makes sense. And we've done a good job so far, and so far, we were able to accomplish and basically meet all of their requirements in a very -- in a good way that meets both sides and needs. And then to your question about how we're going to continue to approach the market. Since we have the relationship with the few ones, we do let our customers to make their -- to have their preference and for some car makers we are still addressing as a Tier 2 -- I can say there are many programs in Asia, in Japan and China, that we are still acting as a Tier 2 and planning to continue to do so. In Europe and the U.S., I believe that our Tier 1 position would take a more significant portion, but still if our customers would prefer a different setting, that is something that we'll be happy to support. In regards to the margins, I can let Eldar to answer. Have a

[Eldar Cegla:]

Thank you. I hope you can hear me. So, thank you Mark for your question, so yes. The top line, as you mentioned, is higher as we are selling the whole system. It has some impact on our gross margins. Obviously, we're switching from selling component-based model to selling a whole system. So all-in-all, there is -- we're taking some lower margins, but still, we will see much more benefit from this model as it increases significantly our top line.

[Mark Delaney:]

That's really helpful. Thank you both. And a second question for me if I could. You mentioned in your press release being in final consideration with a large OEM for a L2/L3 program. Could you go into more depth on that if you're able to in terms of how many other LiDAR companies maybe being considered at this stage. And also, if you do in fact win that opportunity, is there any color you can provide in terms of the timing and magnitude of that business opportunity. Thank you.

[Omer Keilaf:]

As far as we know, and we were called by the sourcing team that currently we are only competing with additional supplier, which is another Tier 1, we are from the point of being able to announce the deal. That's part of the negotiation as well. We at first probably would be able -- if we win it, we'll be able to announce that we have gathered another nomination in the market for Level 2, Level 3. It's a very big opportunity, very substantial. It's one of the biggest carmakers in the market. And following a certain milestone, we will be able to also disclose the name of the customer, and that was already agreed by the 2 sides. That once we will meet a certain milestone, which is basically not a very long term, it's a delivery related to the B sample delivery. We will also be able to announce who is the customer. Anything that I forgot to address to you.

[Mark Delaney:]

Yeah, just any color you are able to provide if you can in terms of when revenue may start for that program if you do win it, and size on the opportunity from a revenue perspective.

[Omer Keilaf:]

So, it's -- the time frame is about 24 ramp-up. But the volumes are quite significant again. And there was an NRE portion to it, but the growth stage is 24 and then 25 and onwards.

[Mark Delaney:]

Thank you.

[Omer Keilaf:]

Welcome.

[Operator:]

Thank you, Mark Delaney from Goldman Sachs. Our next question comes from the line of Andres Sheppard from Cantor Fitzgerald. Please go ahead.

[Andres Sheppard:]

Good morning. Can you hear me, okay?

[Omer Keilaf:]

A bit.

[Operator:]

A bit on the lower end. If you want me to amplify, that'll be great.

[Andres Sheppard:]

Is that any better?

[Operator:]

Much better, Andres. Thank you. Please go ahead.

[Andres Sheppard:]

Great. Thanks guys, and congrats on the quarter. Most of my questions have been answered, but maybe just to do a quick follow-up on InnovizTwo. You mentioned that the 1st engineering samples are expected to be delivered later this year. What is next and then what is the timeline look -- like going forward?

[Omer Keilaf:]

So, I have here one of the first samples of InnovizTwo. It's already -- we have all of the components inside integrated. One of the unique elements that we've done also with InnovizTwo, some of the vertical integration, you might say, that we're doing all of the design for manufacturing, but also the manufacturing in our offices. So, we have our own clean room with our active alignment process. We are building units as we speak, InnovizTwo samples, and the team is working on the integration

[Omer Keilaf:]

of the -- basically the software now. And we expect to be able to show the InnovizTwo to customers in the coming weeks, maybe less. And show it to the public at a later time. This is very -- we mentioned will actually pull in slightly the posters. We're also working on some several variants of the designs to meet different installation positions because they're different customers looking to either mount it on the roof, or in the tree, or in the windshield, etc. those require some tweaks in the design. And then we are -- that's part of the work that we do with customers in regards to this. So, there's going to be a first B-sample available and shown by -- and basically shared with customers by end of this year. And there is another step towards the middle of deal, which is going to be a version that is already designed for automotive. And then we will continue for the C-sample, B-sample. But in general, availability of the B-sample is going to be end of this year.

[Andres Sheppard:]

Excellent, that's very helpful. Thanks for that. And maybe one quick follow-up for me is, you recently announced your partnership there with JueFX and I was just wondering. I know that you keep emphasizing that the main priority is targeting passenger vehicles and OEMs. But are there more opportunities here, low-hanging fruit similar to this recent collaboration that you're entertaining and that you see kind of pursuing in addition to the OEMs.

[Omer Keilaf:]

Absolutely. I can share my vision on how -- where are the LiDAR market would go. I personally believe that 20 years from today, the LiDAR technology, the 3D sensing would be very similar to where the cameras are today. If you think about applications done today by camera, which used in order to try to understand the environment and operate on this. With the camera the data is very much, I would say the environment is very meaningful when it comes to the ability to extract and understand the scene because in -- for example, in the CarSpace, the cameras are framed in a very specific location in the road with specific kinds of people and cars. You'll see what happens when there is an ambulance or a very strange vehicle. And suddenly the camera fails because -- the problem of camera is that it's very much related to how much you are training your data in order to mitigate with new changing environment. Now, when you think about infrastructure, logistics, small cities, and you think about cranes that are used in very complex environments, whether for camera, in order to use it to have a seamless integration and extract value from it, you need to implement a lot of effort and training to work in that very diverse area. A LiDAR because of its ability to see the world in 3D and basically, stand out, like to be able to extract the objects and the people and the heights, and understand the 3D dimension environment, for the LiDAR to be integrated into so many applications will be much easier and seamless. And therefore, I believe that LiDARs would help to accelerate and scale many applications that today are very difficult to exercise because of the nature of the data of cameras today. So, I have no doubt that LiDARs would grow very dramatically. It's basically another sensor, only that it's 3D. We world in a world that is 3D, and therefore, it adds a lot of value around surveillance, about smart cities, infrastructure. And I believe that would grow very fast.

[Andres Sheppard:]

Great thank you very much, guys.

[Operator:]

Thank you, Andres Sheppard from Cantor Fitzgerald. Our next question today comes from the line of Kevin Cassidy from Rosenblatt Securities. Please go ahead.

[Kevin Cassidy:]

Hi. Thanks for taking my question and congratulations on your progress. I just want to understand a little more about the significance of NVIDIA drive platform. Is that opening up more Tier 1s for you? A broader market acceptance, or maybe even getting over some of those hurdles you said of what it is to be an automotive supplier?

[Omer Keilaf:]

Oh, I can share that we are very impressed by the way that NVIDIA has managed to secure. I would say in the U.S. and Europe, I would say that almost all of our customers are using NVIDIA, which is very impressive. As such, in order for us to gain points in the sourcing decision, we're very keen to do integration into this platform as much as possible to allow them a more seamless integration. Eventually, a carmaker or a shuttle developer, he will make its own decision on what is the right sensor set he wants to use. Whether it's one LiDAR, or four LiDARs, or six, it's really, he's own understanding of what's the application that he needs to do NVIDIA motivation is to try to predict which sensors are more likely to be used by their customers. And as such, to address those integration efforts ahead of time, and basically give their customers a better product in terms of an open sold stack that already includes these different sensors. Innoviz LiDAR was indicated from several customers to NVIDIA on the desire to use our product. And as such, we started to work with NVIDIA in order to bolt our algorithms for our edge processing units through the main centralized computer of NVIDIA. The automotive space is, I would say there are two camps. There's the distributed computing and you have the centralized computing. In the distributed computing platform, you have multiple sensors where each one is making its own processing power and providing on the network an already processed data object detection, which obviously reduces a lot of costs related to no a high -- need for high bandwidth data. And the main processing power doesn't need to be very strong because you don't need to process all of the different sensors. That has many advantages. There's another architecture which is centralized, which means that the main processor is very strong. It is connected directly to multiple sensors and can host the different processing power of its sense though when its own. Of course, it requires additional routing into the platform, but that's what our customers make their own decision. Innoviz is supporting -- wants to support all of those infrastructures. And it since NVIDIA seems to become a very strong platform, we started to put all of our edge processing algorithms that so far was implemented on our automotive grade platform, what we call the Innoviz App, and was used by different customers for edge computing is now ported to the NVIDIA platform to help our customer get a faster and more easy integration of our LiDARs and our perception software. I hope I answered your question.

[Kevin Cassidy:]

Yes. That's a very complete answer. Maybe if I just asked about that. As the one processor controlling all of the cameras, LiDARs, and radars. Is it NVIDIA that has the fusion software or are you providing some of that?

[Omer Keilaf:]

It's -- basically we're not doing sensor fusion. It's done by either NVIDIA or the customer or the carmaker.

[Kevin Cassidy:]

Okay. Great. Thanks.

[Omer Keilaf:]

That eventually, from perspective of function of the safety in the car, the different layers of the LiDARs, and the cameras needs to be completely separated. Because if the perception software is working based on using both camera and LiDAR, it means that if the camera fails, your perception software fails as well. And that is not acceptable when it comes to functional safety, and therefore our perception software needs to be completely disconnected from the camera.

[Kevin Cassidy:]

I see. Thank you.

[Operator:]

Thank you, Kevin Cassidy from Rosenblatt Securities. You have no further questions, please proceed.

[Omer Keilaf:]

Okay. Thank you very much. It's very exciting to be here in New York and we will be happy to see you again in Net loss and give you more updates on our progress. Thank you for the support, thank you for the questions. We are very excited about what we do. Again, I think that what we are able to bring to the market now with InnovizTwo gives us a huge, I would say, self-fulfillment in our ability to deliver a product that we believe is a game changer, and eventually will allow us to accomplish our mission in enabling autonomous driving to everyone. Thank you very much again. Thank you for my -- to my team at home. Thank you. Goodbye. Bye bye.

[Eldar Cegla:]

Bye-bye.