View, Inc.
Q4 2021 Earnings Call Transcript

Published: 31 May 2022

[Samuel Meehan:]

Good afternoon, everyone, and welcome to View’s 2021 earnings call. I am Samuel Meehan, Head of Investor Relations at View. I’m here with Dr. Rao Mulpuri, our CEO; and Amy Reeves, our CFO. On the call this afternoon, Rao will discuss the current status of the Company, including the financial restatement and commentary on the market, our products and key customer announcements and verticals. Afterwards, Amy will provide a detailed review of our 2021 financial results. Finally, Rao will provide 2022 guidance and commentary on our path ahead. Before we begin, I’d like to remind you that shortly after the close of the market today, View issued a press release announcing its 2021 financial results. You may access this press release in the Investor Relations section of view.com. As today’s discussion includes forward-looking statements, please refer to our press release for a discussion of factors that could cause the Company’s actual performance to differ materially from those forward-looking statements. I would also like to remind you that during the call, we will discuss certain non-GAAP measures related to View’s performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the press release. Rao, over to you.

[Dr. Rao Mulpuri:]

Thank you, Samuel. And thank you all for joining us for View’s earnings call this afternoon. I’m very excited to come back and speak with you after more than a year since our last call. Today, you’ll hear some exciting updates about View. In particular, I’m very pleased to announce that we more than doubled our top-line in 2021 with record revenues of $74 million. This represents 125% growth over 2020 revenues. Our presentation this afternoon will be in three parts. First, I’ll provide some background and perspective on what transpired that led to the accounting restatement. Second, we will provide updates on the current status of the Company and progress we made to advance our mission. And third, we will discuss our path to profitability and success. So first, let’s talk about what happened last year, leading up to the financial restatement. From the very beginning View’s journey has been one of industry transformation. Over the last 13 years I’ve been building View, it’s been about developing our products, building our operations, and driving technological change in a risk averse industry. The real estate industry has experienced minimal productivity gains over the last 100 years. Buildings consume 40% of energy and are a major contributor to climate change. They’ve also severely underserved the experience and wellbeing of the people inside them. While many saw this as a problem, we saw an opportunity to innovate and drive positive change. The View Smart Window is a game-changing product. It takes a day to day object and massively improves the way we experience it. The window is programmable and automatically changes throughout the day based on user preference and the position of the sun. We eliminate blinds and shades, provide views to the outside and we optimize natural light, which has tremendous health and productivity benefits for the people inside buildings. In addition, we save HVAC and lighting energy, reduce electricity peak load, and provide a path to net zero energy buildings. By improving user experience and health, while simultaneously reducing energy, we also enable building owners to generate higher returns. People, planet and profit, you can have all three. With that backdrop, I’d like to take the time to set the record straight on the accounting restatement. We built View with the utmost care for the wellbeing of our customers and did everything we could to ensure that our products last a very long time. This included every product we designed, every process step in our manufacturing and every material we sourced. We literally made thousands of decisions with great care. In spite of this, in 2019, we discovered an elevated failure rate in certain insulated glass units in the field. We investigated the issue and traced it to a component part provided by one of our suppliers. That component had been changed, but had passed all industry testing standards, including testing as an integrated system. We immediately worked with the supplier to identify the root cause, solved the technical issue, and helped redesign the component. No products produced after 2019 are affected by this issue. While we solved the problem going forward, we needed to support the customers that experienced failed IGUs due to this issue. Our standard warranty contractually covers only the parts we supply, and we have honored every contract by providing replacements. In addition, we voluntarily went above and beyond our contractual obligation to care for affected customers, and as a result, incurred additional costs. Our warranty liability has always included the cost to meet our contractual obligations, which in most cases is the replacement of defective materials. In 2019, after we identified the quality issue, we recorded an increase in our liability. The additional costs we were incurring to go above and beyond were reported as expenses in the periods in which they occurred, effectively a reserve for the contractual portion and a period expense for anything above and beyond. This issue and the associated costs were disclosed in the S-4 merger documents in late 2020. Ultimately, it was determined that these above and beyond costs should have been included in the warranty reserve, instead of the period cost. As Amy will discuss in more detail, we have now included these costs in the 2019 warranty accrual, which increased by a total of $28 million to be settled over the 10-year warranty period. In addition, as part of the restatement, our accounting team with the assistance of outside experts has looked deeply into other aspects of our accounting and financial reporting. I’m pleased to report that we have found no other material misstatements. In the long game of building great companies, every challenge brings with it an opportunity. At View, we have a culture of iterative learning and you will often hear us say, “We win or learn. We never lose”. I’m confident that we have learned from this experience and will emerge a stronger company built for the long term. Now, I want to provide a perspective on the market trends in real estate, discuss our products and the benefits to our customers, and share our progress in key industry verticals. First, the market trends. Real estate, the largest asset class in the world, is going through a once in a lifetime transformation. This change is driven by four key secular trends. The first trend is addressing climate change and improving energy security. Buildings consume 40% of the world’s energy, more than the transportation or industrial sectors. While there were attempts to address this in the past, we are seeing an acceleration of concerted actions and investments by corporations, asset managers, regulators, and society at large. The war in Ukraine and the resultant energy challenges have brought an additional imperative that energy efficiency equals energy security. In the 13 years I’ve been building View, this is the strongest push I have seen for energy efficiency. This includes new buildings, as well as the upgrade of existing buildings. The second trend is improving human experience in buildings. As humans, we spend 90% of our time inside buildings. For the longest time, buildings have been thought of as just monuments. But as we’ve seen with many industries that have been disrupted, there is a new way of thinking taking shape. There’s a commonsensical approach to user experience. We call it inside out, as opposed to outside in, building built around the experience of the user. UX is native to many people in tech, and this is a major opportunity to do exactly that in buildings. The third trend is improving human health and wellbeing. A lot of research is pointing to space impacting human health, such as quality of air we breathe, access to natural light, thermal comfort and acoustics. The pandemic has really brought this awareness to the forefront. We are investing heavily in the science and believe this is the next major frontier for people making explicit choices about the quality of space they consume. The fourth trend is digital transformation of real estate. We carry a smartphone in our pocket, a tablet or laptop in our briefcase, drive in a modern day automobile that has sensors, connectivity, and interactivity, and then enter a building that has dead walls. There’s a huge opportunity to make buildings more secure, efficient, connected and productive. There is broad recognition that real estate has lagged behind the rest of the industries in technology adoption and associated productivity gains. And there is now a strong pull from real estate companies to adopt smart technologies. The combination of these four secular trends creates a massive opportunity and View is addressing all of these megatrends with its products. Now, let me talk about our products. Our core product is the smart window. We recently introduced the fourth generation of our smart window and customer response has been terrific. Gen 4 is notable for several reasons. First, it delivers a superior aesthetic and the best natural color rendition and clarity in the industry. Next, it has a greater dynamic range, enabling us to better address glare in office environments and serve segments like life sciences and multifamily residential. And it also comes with our next generation smart building infrastructure, which is the backbone to securely operate and manage all of the building’s smart and connected devices. In 2021, we also launched the Smart Building Platform which integrates our smart windows into a fully digital envelope, essentially a digital skin to the building, which includes our converged secure network infrastructure, and incorporates end to end design and deployment services to provide customers a high quality, one stop shop experience. By assuming ownership of the digital envelope with a fully integrated performance solution, we build stronger customer relationships and eliminate friction with construction trades during project execution. We will provide additional value propositions to customers throughout the lifetime of their buildings by offering them seamless incorporation of upgrades and additional products that make their buildings more cyber secure, reduce energy consumption and operating costs, and improve user experiences. Included in this offering is our next generation smart building infrastructure that is the backbone to operate and manage all of the building’s smart connected devices. This infrastructure is enterprise grade, incorporates robust cyber security, future proofs buildings by incorporating very high communication bandwidth through optical fiber and is based on open standards like POE, so customers can easily add new capabilities and devices from View and others. We continue to build our capabilities in machine learning and AI to leverage the massive amounts of data in buildings, so we can deliver better experiences for people and lower the carbon footprint of buildings. To augment our organic efforts in this area, we made a couple of strategic acquisitions last year. The first is IoTium, which is a secure, managed edge-cloud and remote access solution. The IoTium platform can be deployed in both, new and existing buildings. It is currently providing secure converged services for over 30 million square feet of real estate, including portfolio wide deployments at Alexandria Real Estate, Kilroy, Charter Hall, and BentallGreenOak Canada. The second is WorxWell, the building data analytics platform we acquired from RXR, one of the leading real estate companies in New York. WorxWell aggregates all building and tenant data, including occupancy, access control, air quality, temperature, environmental factors, and data from equipment and building management systems into consolidated dashboards to optimize every aspect of building operations and workplace experience. It generates insights to reduce energy and maintenance costs, extend equipment lifetimes and improve user experiences. WorxWell is already deployed in 25 million square feet. And we continue to add new features to drive broader market option. Both the IoTium Security Suite and WorxWell are subscription based or SaaS products that can be deployed in existing buildings. We also continue to build integrations with third-party products to give our customers greater flexibility and to establish View as the smart building backbone and platform. We also launched View Immersive Experiences, a transparent digital interactive surface that incorporates see-through, high-definition displays into our smart windows. These next generation displays are already installed in offices, multi-family residences, and airports, and there’s a tremendous opportunity to rethink windows as digital canvases that we can use to collaborate, educate, and entertain. As you can see, with each of our products, we are addressing climate change by optimizing energy usage, providing healthier, better experiences to benefit people, and as a result increase differentiation for our customers and make their assets more valuable, and using technology both hardware and software to make buildings more connected, smarter, and more efficient, again, a powerful combination of people, planet and profit. Now, let me discuss how View is doing in key real estate verticals. In the office sector, the pandemic has clearly caused a major disruption with work-from-home and mix more trends. While there’s still a debate about the future of the office, there are some clear trends taking shape. Corporations continue to build campuses because they see the office space as a necessary tool to drive culture and collaboration. Corporate shift to secondary cities, such as Austin, Nashville and Boulder is causing a need for more office space in those cities. In the more established markets, while there is overall vacancy in the office, we are seeing a clear flight to quality. Well-amenitized Class A office spaces are in high demand, while older class B and C offices are struggling. This is forcing landlords to modernize and reposition those assets. Remember, for every new building being built, there are over a 100 existing buildings, often in great locations. So, this is a massive opportunity. While we don’t control the overall macro, we can absolutely capitalize on these strengths. For View, some of the key customer wins and shipments in 2021 include continued growth with Google in New York in the Bay Area, Amazon in the Seattle area, Uber with their new hub in Dallas, and Walmart’s new campus in Bentonville. View is also the base of design in the Lake Nona smart city with the Tavistock Development Company. We also see increased traction with office renovations, with a few notable projects, being 111 Wall Street, the former Citigroup building in Manhattan being developed by Nightingale and Wafra, and other major renovations on New York’s Third Avenue with Nuveen and the Durst Organization. Now turning to the life sciences sector. That sector has seen significant growth in the last five years, and the pandemic has accelerated funding and resources into life sciences, making it one of the fastest growing sectors in commercial real estate. View Smart Windows have unique benefits for life science tenants. In addition to making the building more sustainable and improving user experience, View Smart Windows also provide enhanced UV protection for lab equipment and sensitive supplies. In life sciences, we’re seeing particularly strong aversion to blinds and shades, which collect dust and germs that can contaminate lab samples and tests. And with heat and UV control, the labs can be placed at the perimeter of the building, as opposed to the core, allowing scientists access to natural light and views. Some of our notable wins in the life science vertical include Callan Ridge, our second project with Healthpeak Properties in San Diego, University Place, a life science project in Philadelphia, and View is also installed in lab spaces developed by Trammell Crow, in Chicago’s Fulton market neighborhood. Now turning to the airport’s vertical. The U.S. is in an investment mega cycle for airport infrastructure, and construction remained robust throughout the pandemic. Airport modernization projects are focused on sustainability and improved passenger experiences, and View delivers on both of these trends. View’s installed are being installed in 14 major airports in the U.S., including San Francisco, Dallas Fort Worth, Charlotte, Douglas, Boston, Logan, and Memphis. And we continue to grow our presence with several key wins, including Terminal 5 at Chicago O’Hare and Delta’s new terminal at LaGuardia. And finally, multifamily residential. We’ve experienced very strong growth in the multifamily residential sector. Multifamily has been the fastest growing real estate segment, and over 20% of our recent design wins are in multifamily, and we expect to continue to see strong growth in this area. Multifamily is particularly compelling for View, because we can see the direct impact of our benefits on the building owners’ economics. We now have evidence that apartment renters are willing to pay $100 to $150 a month higher rents for units with View Smart Windows compared to similar units in the same building without View Smart Windows. Demonstrated economic benefits like this will continue to drive increased adoption of smart windows. Remember, in this case, it’s not just cost reduction, but actually a revenue benefit to the developer of the building. Some notable wins in multifamily include Nabr, co-founded by the world renowned architect Bjarke Ingels where View will be installed in SoFA One, Silicon Valley; Atria Development in Toronto, and the Durst Organization’s 67-storey apartment tower in Long Island City, the tallest building in Queens. As you know, residential is the largest sector and product learning and success in multifamily will set us up well to enter the single-family sector in the future. Stay tuned for more on that. With that, I’d like to introduce Amy Reeves, our CFO, to cover the 2021 results. Amy brings to View over 20 years of public company finance and accounting experience. Amy joined view last summer as our Principal Accounting Officer and was promoted to CFO in February of this year. I’m pleased with all that Amy and her team have accomplished in getting us here today. Amy, over to you.

[Amy Reeves:]

Thank you, Rao, and good afternoon, everyone. I’m Amy Reeves, and I will cover the financial results included in our earnings release, published earlier today. I will also provide a bit more color on the financial restatement. I’m very proud of the team’s who hard work this past year, and I’m pleased with the accounting infrastructure we’ve built in finance to support the remarkable opportunity that exists at View. After I started at View, we made several key hires to strengthen the accounting team, including a Revenue and Operations Controller, a Director of Financial Systems and Compliance, and a Director of SEC Reporting and Technical Accounting. We’ve also partnered with leading global accounting advisory firms to perform a comprehensive risk assessment and to assist with the documentation, evaluation, and testing of View’s internal controls. We will be further investing in remediation efforts this year to address material weaknesses in our internal controls, including implementing new controls and redesigning existing controls. In summary, we’ve made significant investments in people and process that enable us to present our financial results with confidence. I’m confident that we have built the right team that will establish a strong foundation for success. Moving on to the warranty-related accrual issue, which Rao discussed earlier. As previously reported, the investigation of the Company’s audit committee into our warranty-related accruals is complete. And we are pleased to be able to share our financial results with you today. The restatement stems from a correction to our accounting for our warranty liability. This warranty liability has always included the costs to meet our contractual warranty obligations. In 2019, after we identified the root cause of the issue that Rao discussed earlier, we recorded an increase to our liability to take into consideration our contractual obligation for the additional failures we estimated would occur in the effective products during the warranty period. As Rao also mentioned, the additional costs we were incurring to go above and beyond for our customers were reported as expenses in the periods in which they occurred. We originally recorded in our financial statements, included in our S4 merger documents, $3 million of these above and beyond costs in 2020 and $2 million in 2019. Ultimately it was determined that these above and beyond costs that we intended to incur should have been included in the warranty liability. We also determined that our model originally used for the calculating the warranty obligation overestimated the failure rate related to this issue. The correction of these two errors has the effect of an increase in losses in the originally stated 2019 P&L when we established the specific liability for this issue, and correspondingly, a reduction in losses in the originally stated 2020 P&L as we settle those warranty claims. On November 9th of last year, we provided guidance for the restated balances. And today, we reported that our restated warranty liabilities are within those guided ranges. As of December 31, 2020, we are reporting a restated warranty liability of $48 million, within the guidance of $38 million to $55 million, and compared to the previously reported warranty accrual of $23 million. As of December 31, 2021, we are reporting a warranty liability of $42 million. I would like to note, these adjustments reflect our expected obligations over the course of the 10-year product warranty period. It is also important to highlight, outside of the previously reported misstatements in our warranty liabilities, we did not identify any other material misstatements. As Rao mentioned, we invested a significant amount of time and attention, including the use of outside resources to review our prior period financial statements in order to be confident in the accuracy of our financial reports. We announced today that NASDAQ has granted View until June 30th to file our 10-K and 10-Q filings following our earnings release. These filings will allow View to regain compliance with NASDAQ Listing Requirements. We are looking forward to putting this issue to rest. Now, let’s turn to our fiscal year 2021 results. 2021 was a strong year for View, despite the uncertainty caused by the financial restatement. As Rao mentioned, we more than doubled revenues to $74 million, representing 125% year-over-year growth, including sales from our expanded product offerings. This growth was also driven by three other primary factors

[Dr. Rao Mulpuri:]

Thank you, Amy. Now, let’s talk about the journey ahead and a path to profitability. All of our accomplishments to date have prepared us very well. Looking to the future, we have the three ingredients needed already in place

[Operator:]

Thank you. And we will now be conducting a question-and-answer session. Our first question comes from Pavel Molchanov with Raymond James. Please state your question.

[Pavel Molchanov:]

Thanks for taking the question, and good to reconnect. The guidance you’ve given on revenue is obviously on the slower side compared to the kind of 100% annual doubling that you talked about as a baseline as part of the staff process last year. What explains the cooling off of the growth rate from over 100% last year to less than half of that this year?

[Dr. Rao Mulpuri:]

Hey Pavel, thanks for the question. So, first of all, as you heard we achieved record revenues of $74 million in 2021 with well over 100% -- 125% year-over-year growth. Looking to ‘22, we’re forecasting $100 million to $110 million, and to your point, yes, it’s a lower growth rate, somewhere between 35% to 50% over last year. The most important thing here is the products are getting better, our operations capabilities are getting better, and our customers continues to realize value and have belief in the business. But there’s also a sense that some of our customers are waiting for us to emerge from this process that we’ve been through with the risk of delisting and restatement. So, there’s a little bit of temporary slowdown in acquiring new customers. But with this issue behind us, we do expect to resume much higher growth rates. But that does explain kind of where we are in ‘22. But going forward, we do anticipate that we’ll be in a much higher growth rate.

[Pavel Molchanov:]

Okay, understood. Gross margin turning positive, I know you’re not giving any specific timetable for that particular milestone. But, can you just talk about what utilization of Olive Branch needs to reach before you can turn gross margin positive just at the plant level?

[Dr. Rao Mulpuri:]

Yes. So, as you’ve heard us talk about this in the past, our projections are roughly same for what we expect this factory to be able to do for us. That factory and our products are designed to do about $1 billion of revenue when it’s running at full scale. It needs some more CapEx to get there, not a lot, it’s a fraction of what we’ve already invested. But clearly, we need to kind of manage the demand and then match the supply, including people, processes, and of course, some more equipment to be installed. To answer your question, the path to gross margin positive and profitability, which will be achieved well before that plant is fully ramped up, is all dependent on scale for us. And that means continuing to turn the crank on the front end, the flywheel effect with the industry, bring in the orders and keep ramping the factory. And we anticipate being in gross margin positive in the second half of next year.

[Pavel Molchanov:]

Okay. That’s very useful. And then lastly, we talked about this about a year ago on the last call. What are your thoughts on expanding the footprint of the business outside of North America, particularly in the context of what you talked about, Rao, which is the urgency of energy efficiency in the context of the war, record-high gas prices, record-high electricity prices across the Atlantic?

[Dr. Rao Mulpuri:]

Yes. So clearly, I mean, look, someday every window will be smart and should be smart, because it’s so important for the planet. And it drives such a big improvement in quality of life in terms of people’s experience and health. And clearly, we’re designing our products and our company to achieve that. That will take some time. So, you’re going to walk before you run. Clearly our markets today are focused on North America, mainly U.S. and Canada, and we’ve done some pilot products -- projects elsewhere in the world. To your point, I think particularly Europe can and will likely be the largest market in the medium term, because it has more severe, I guess, issues relative to energy and energy security. But also I think there’s a little stronger will out there, has been, around climate change in terms of regulation and people’s attitude. By the way, that’s growing significantly and getting very strong here in the U.S. as well. I think with respect to international and specifically Europe, our ability to ship from North America in a container and then support our customers today isn’t as strong as it is here. I mean, we’ve -- we’re now in the 20 major urban geographies within the U.S. and Canada, where we have not only salespeople, but also project managers, customer service engineers, customer success folks that kind of work with the occupants in the building after it’s installed. We do need to build out that kind of infrastructure elsewhere in the world and frankly also be in a position to build manufacturing locally, fairly quickly thereafter. So, you will hear from us more as we progress further. At this point, we absolutely see a path to profitability right here in North America. That doesn’t mean opportunistically we won’t be entering other markets. Also, with COVID, over the last couple of years, travel has been harder, going into overseas markets, it would have raised our burn rate. So, we stayed disciplined here and focused on the customers that have already committed to us, especially with repeat business with them. So, your points are well taken. We will be in the international markets in the future. We’ll come back to you, once we have more concrete plans.

[Operator:]

Our next question comes from Ryan Heeb with Goldman Sachs. Please state your question.

[Ryan Heeb:]

Hi. This is Ryan Heeb on for Mark Delaney. And thank you very much for taking the question. The first is going to be on free cash flow. Could you discuss at all the level of revenue needed to reach free cash flow breakeven?

[Dr. Rao Mulpuri:]

Yes. Thanks, Ryan. As I mentioned, we will be free cash flow positive with the plant we already have. We don’t need to build another plant to get there. And as you know, given all the fixed costs are already in place, the key to free cash flow positive for us and profitability is scale. And so, we think it’s a couple of more turns of the crank with respect to driving market adoption and growth, especially with our existing customers and potentially new ones, but also driving economies of scale on the back end. So, we’re a couple of years out. We can achieve this within the plant. As I mentioned earlier to Pavel’s question, we’re going to get the gross margin positive in the second half of next year. That gets us halfway there to the cash burn, right? Because that allows us to say, okay, our factory is now writing its own checks. We still have R&D and SG&A to cover. And as we keep turning the crank, we’re going to get to keep free cash flow positive.

[Ryan Heeb:]

And then secondly, maybe just on demand. Could you talk a bit about any potential demand impact you guys have seen from the accounting review, or is that not something that you guys really seeing yet?

[Dr. Rao Mulpuri:]

I think to be fair, I’d say, in our growth kind of trajectory, the threat of delisting and the restatement itself has cast a question on the Company. Clearly, a lot of our key customers have stayed with us and have strong belief in us. But, when it comes to new customers and new orders, there’s been a big question mark. And everyone’s been waiting for today to happen. A lot of people have been rooting for us and just making sure we get through this process. So, there has been some, I would say, slowdown in people’s thinking relative to this. And with this process behind us, we expect to get back to normal levels that we had last year.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the floor back over to Dr. Rao Mulpuri for closing comments. Thank you.

[Dr. Rao Mulpuri:]

Thank you. Thank you all again for joining us. I’m grateful for our amazing colleagues, customers, partners, and shareholders for the support that we’ve received throughout this period. We’re excited to move forward to continue to drive industry transformation and growing View into a world class company. Thank you.

[Operator:]

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.