Omer Keilaf
Analyst · today, and we undertake no obligation to publicly update or revise them. For discussion of some 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 March 9, 2023. I will now turn the call over to Omer. Please go ahead
Thank you, Rob, and good morning everyone and thank you for joining us. Before we begin our business commentary, I wanted to spend a moment on the situation in Israel. The safety and security of our employees is of the utmost importance, and I can report that everyone at Innoviz is safe. With a small portion of the local workforce serving in the reserves, the rest of our team has stepped up to cover what is needed, and I want to thank them for their incredible fortitude at this challenging time. Innoviz was able to remain open with no meaningful operational impact. As a reminder, we are located in the center of the country, a good distance away from the conflict zone. All of our automotive customers are located outside of Israel, and our high-volume manufacturing sites are in the United States and Germany, with a third planned for Asia. Determined to not let the situation slow us down, during the week of the attack, we achieved an important milestone on time, delivering the final SOP version of the perception software of the BMW 7 Series launch. We worked closely with the teams at Magna and BMW to complete testing and lock the final version of the software that will be installed on the vehicles in the coming weeks. Since then, we've also delivered on milestones for the Volkswagen Group program and the BMW Gen 2 program, all while managing audits, testing, and negotiating with multiple OEMs in our RFQ pipeline and staying on track to deliver record revenues for the fourth quarter. With that said, let's turn to our BMW SOP. In the early weeks of the third quarter, we moved forward on a very important milestone in our company's history, moving into SOP with our BMW Gen 1 program. The components are shipped to Magna for final assembly at a plant in Michigan and then head to BMW for installation on the 7 Series. And as I mentioned earlier, we also locked in the final SOP-ready version of our AI-enabled perception software and shipped it on time to BMW as well. We've been pointing to the back half of 2023 launch for a while. So to get to this phase is a huge win. And I believe we are building a track record of credibility that includes delivering on our goals and timelines. I mentioned this on the last call, but we still get a lot of questions from investors on BMW plan for LiDAR and Level 3 driving. BMWBLOG did a wonderful article and video in August, summarizing BMW Group's plan for the Level 3 7 Series. In the video, you can see the car driving seamlessly through a variety of scenarios and hear more about BMW's plans and timeline for deploying the technology. If you haven't watched it yet, I encourage you to go to BMWBLOG.com or search for it on YouTube. As we go through the rest of the year, I'm sure you will continue to hear more details about BMW's strategy for automated driving. I also suspect you will see a growing amount of media coverage on the vehicles, particularly as they start to arrive in dealerships and get on the road. We continue to expect vehicles on the road later this year. We will also be amplifying this huge milestone on our end, particularly at CES, where we plan to have a version of the LiDAR-enabled 7 Series at our own booth. If you're going to be in Las Vegas for the show, we would love to have you to stop by. While the 7 Series was always planned to be our initial flagship launch for the InnovizOne, we've said in the past that our technology was certified on several models and variants within the BMW Group, and our efforts are now shifting towards integration with additional models. We hope to be able to update you with more developments on this topic in the coming quarters. Needless to say, moving forward on this important program is a source of a great pride at Innoviz, not only internally, but also externally. It sends a strong signal to other OEMs that we can reach SOP and hit our goals and milestones. It also further differentiates us from our competition. There are a number of other LiDAR companies out there claiming to compete with us in automotive LiDAR space. But some don't have even a single series production award yet. And some have awards but have yet to execute on SOP-related milestones. From our experience, those who haven't executed on these milestones don't even know how much they don't know at this point. And as we transition from SOP preparation to steady state manufacturing, it frees up a lot of bandwidths, both physically and mentally, enabling us to concentrate even more of our efforts on winning next round of business that are currently in our RFI and RFQ pipeline. The other program that we have that is moving into SOP is our Shuttle program. As a reminder, this is a full Level 4 program. The customer is a leading automotive supplier who is building this vehicle directly in order to become an early leader in the rapidly growing autonomous shuttle market. We expect this program to be fully driverless electric vehicle capable of carrying over 20 passengers and the ability to operate 24 hours a day. The earliest applications are likely to be people movers in environments like airports, college campuses, private communities, and corporate campuses. But the shuttle is also expected to be capable of operating in mixed traffic and dedicated lanes. This opens it up to urban centers and possibly even suburban environments where it could become a lower cost or much more flexible alternative to legacy public transportation models. The public transportation operating model has barely changed since the move from trolleys and cable cars to buses nearly 100 years ago. This is an end market that we believe is primed for disruption through automation. In the initial stages, the shuttles can complement existing bus and train transportation systems, possibly linking different modes of transportation together or connecting otherwise uneconomical routes. Over time, it's not hard to imagine the autonomous routes increasingly dislocating the legacy routes as adoption grows. This secular growth opportunity could also extend to the other Level 4 program that we are working on. The light commercial vehicle program that we announced during the first quarter, that program remains on track for a mid-decade SOP with a healthy growth in samples between now and then. Another thing to keep in mind with these Level 4 programs is that they utilize multiple LiDAR units. Most Level 4 typically deploy anywhere between three to six LiDARs per vehicle. In fact, the shuttle program that we're SOP'ing later this year initially planned for four LiDARs per vehicle, one in each corner of the shuttle. But they have since moved to a six-LiDAR design after incorporating two additional units on the sides with a wider field of view. Not only does this increase the dollar content per vehicle, but it also shows the flexibility of what our LiDAR are able to bring to the table, ranging from ultra long-range forward-facing LiDAR to wide field of view mounted LiDAR and anything in between, with only a minimal change to our hardware or software. And while we are on the topic of growing content per vehicle, I wanted to offer a little more color on the second-generation program that we are developing for BMW. Last quarter, we shared that we have begun development of an all-new second-generation platform that is built around InnovizTwo sensor and our AI-enabled perception software stack. We also spoke in detail about how we have the potential to meaningfully grow our software content and dollar value. And this quarter, I wanted to give you a little bit more color on what the overall change in the content per vehicle could look like. A key part of our long-term strategy is to drive the price of the LiDAR sensor lower in order to drive adoption rates higher. Tailwinds from potentially rapid increases in volumes as we move up the S-curve have the opportunity to be a meaningfully positive net contributor to both the revenue and profit line. But as we drive sensor costs lower, our goal is to continue to drive content per vehicle higher by expanding into new product categories. To articulate this point, I think it would be helpful to compare how our business model and CPV has evolved over time. In the first-generation program with BMW, we were operating as a Tier-2 supplier, selling only components to Magna, not a full LiDAR to BMW. Magna takes those components, integrates them into other parts of the hardware, and then sells the finished LiDAR to BMW. We were only capturing a portion of the total system value around $600 to $700 per vehicle. Since winning that contract in 2018, we've undergone two transformative changes. First, we transitioned from a Tier-2 supplier to a Tier 1, capturing a much larger portion of the economics and moving from selling components to selling full systems. This moves also increases the amount of non-recurring engineering, or NRE revenues, available to us. The second transition was moving from InnovizOne to InnovizTwo. Thanks to several technological and engineering breakthroughs, we moved from a design that was built on four lasers and four detectors to a design built on a single laser and single detector. This, along with the host of other changes, resulted in a bill of material, BOM, that was roughly 70% lower than InnovizOne. This was a massive reduction in cost, and these changes were a key catalyst for our Tier 1 design win, with Volkswagen in 2022 and the big acceleration in commercial activity we have seen since then. Despite the 70% reduction in material costs, we were still able to grow the total content per vehicle into the $500 to $1,000 range, thanks to our pivot to being a Tier 1, which enabled us to capture the full system value. Looking forward, we believe we can use the Gen 2 system that we are developing as a potential template for our future programs. Here, we would continue to leverage the 70% lower BOM of the InnovizTwo to drive higher LiDAR adoption, while pairing it with a higher value and more robust version of our perception software and all-new products like the InnovizCore AI Compute Module and the Minimum Risk Maneuver software. By providing more value and functionality to customers, we believe we can get CPV nicely over the $1,000 mark while also increasing our mix of higher-margin software revenue. We are very focused on making this template for future customers. Next, I want to give a quick update on Volkswagen. Overall, our program with VW continues to progress nicely, and the sensor suite for the initial program continues to evolve. We moved from the A-Sample to the B-Sample back in March, and we continue to test and fine tune within the B-Sample stage. Having released our new B2.0 sample during this quarter, each new version unlocks incremental levels of performance, functionality, industrialization, and the newest version is based on our second-generation custom ASIC. Last quarter, we shared with you that we have finished the tape-out of the ASIC. The new chip has two key benefits. The first, is that it unlocks a configuration that enables much more range, taking our maximum detection range -- detection from 300 meters to 450. And the second is that it can support much higher resolution. The more powerful chip enables us to produce millions of more points. In fact, we were able to nearly double the total number of points that we can process per second. This can power a higher density point cloud with even better resolution than before. Continuous improvement like this in both our sensor and software suite are aiding our conversations with OEMs. With Volkswagen specifically, we are in advanced conversations exploring the potential addition of multiple platforms that would be incremental to our initial series production award. We hope to have more to share on this in the coming quarters. But as I always say, video speaks better than words. I'm excited to share with you some of the early point-cloud footage from the new ASIC. Last quarter, when I shared the update, we said that we hope to get close to high-definition camera-like levels of resolution with the added benefits of true 3D dimensional LiDAR-based map. As you can see in the video, we're essentially there. And this is still an early version of the point cloud. We're confident that it will only continue to improve from here. We are working quickly to bring this new level of functionality into the hands of our customers and prospects. Customer interest has been strong, and InnovizTwo shipments were 102% up quarter over quarter in the third quarter. Keep in mind, the benefits aren't just in the sensor side. The dramatically higher range and resolution translates into more points of data. That data is what fuels our AI tools, including the neural networks that are a critical part of our software development. Faster neural networks training translates into better perception software, and better perception software unlock new features like enabling vehicles to travel at higher speed or operate in more complex environments. Continuous improvements like this in both our sensor and software suite are a big part of why we are seeing so much commercial momentum, including in our RFI and RFQ pipeline. As a reminder, we had a record number of programs moved from the RFI to the RFQ process in the first quarter of '23. And now, over half of the 10 to 15 programs in the pipeline are in the RFQ stage. There are big differences between the RFI, request for information, and an RFQ, request for quotation. An RFI is much less structured process. And we've seen some programs remain in the RFI stage for over two years, whereas others have transitioned to the RFQ in less than six months. At the RFI stage, OEMs may just be testing systems, performing R&D activities, collecting data. Typically, the programs are working towards a production launch, but they don't move into the RFQ stage until a clear decision to go forward with the program has been made. At that point, the OEM has typically fully decided that the vehicle is going to series production, committed to a timeline for production, and has decided the vehicle will include a LiDAR. The OEM dedicates costly resources to the program, including entire engineering, supply chain, finance, and product management teams. This represents a meaningful investment from the OEM, and it's much more tangible signal of a commitment to that program. The step-up in the RFQs that we've seen in '23 appears to be a strong signal that the LiDAR industry is maturing, and the Level 3 autonomy megatrend is beginning. We believe it is solid evidence that OEMs are increasingly in a race to deploy the technology. Failure to stay ahead of the curve, particularly for luxury brands, runs the risk of potentially competitive irrelevancy and resulting market share losses, and could do long-term damage to a brand. It also runs the risk of missing an important source of profit and the transition to recurring revenues for OEMs. Missing the opportunity to deploy a must-have consumer tech like Level 3 autonomy may not only result in lost volumes and market share, but it could also translate into lost profit dollars on advanced features. Many of the OEMs that we talk to are looking for opportunities to grow their recurring revenue streams, with vehicles lasting increasingly longer, and with EV's potentially driving that trend even further. It seems that the OEMs are hungry for opportunities to complement their one-time sale with recurring revenues. The industry has had some success with products like telematics and connectivity, but in my opinion, the single-best opportunity for recurring revenues lies in monthly subscriptions for autonomous driving packages and the ongoing over-the-air software that will underpin them in the future of software-defined vehicles. I believe this has been part of the driving force behind multiple OEMs pivoting from RFIs to RFQs more or less at the same time. I think there is a growing fear of missing this opportunity -- this potentially massive megatrend. Basically, it's corporate FOMO. In fact, if you look at our RFQs, the majority of the programs are with a top 10 Global OEM. This is a lot of shots on goal. We don't need to win them all. We already have BMW and Volkswagen Group as customers, and they collectively represent 15% of global automotive production. We believe that if we can secure just one or two more major OEMs as customer and we will have a substantial lead in what we expect will be a winner takes most market. These programs converted to RFQ at different points and are moving along different timelines. All of the programs have moved on to various phases of audits of the technology, focusing on quality, software, supply chain, and more. The first phase typically revolves around the product itself, focusing on the sensor and software suite. There can often be a point in the middle where two, or at most three players are short-listed, and the focus moves away from the technology and move towards the manufacturing strategy and operations. Within the group of RFQs, three of the programs are moving faster and went through the financial audit and certification of high-volume manufacturing stage in the early fall. These programs have since moved into the final stage, which includes definitive price negotiations and detailed planning of post-nomination milestones. This was a critical factor behind our capital raise in August. When we look at who we are competing against most often in these RFQs, it's not the early-stage LiDAR pure-play companies most investors typically assume, instead it's the more established Tier 1's. And while they try to compete on their operating history, we compete on our technology. And this is a matchup that we will take all day long because we are often told by customers that our technology is better. And we've won against these bigger Tier 1's before. We've won on BMW; we've won on Volkswagen based on our technology. And I'm confident that we can do this again and again. With that in mind, we felt it was important to keep any bidding process focused on the technology advantage. That is why we undertook the capital raise. It was successful for us as it accomplished three critical things. One, it raised additional $65 million, giving us an even longer cash runway. Two, it showed that we have continued support from our largest existing institutional shareholders. And three, it allowed us to move into the final phase of several RFQs. And as a signal of our confidence, several of us participated in the deal. My fellow Co-Founder, Oren Buskila, and I, both bought stock during the transaction. And our Chairman of the Board, Amichai Steimberg, made an open market purchase the week after. We are heavily invested in Innoviz alongside you. We are confident that if we win even just one or two of these deals with the help of the capital raise, the long-term outcome will have been worth the short-term volatility. Because when we look at the LiDAR industry, we believe our next one to two deals have the potential to permanently shape the industry. You've heard me talk about the flywheel effect before. In this industry, we believe that wins will lead to more wins. First of all, this is a safety-critical technology, and each time an OEM chooses us as a partner, it can send a message of confidence to other OEMs and make it easier to choose Innoviz. There can be a tremendous amount of signal value in every win. Second, we already have series production awards with two out of the three main autonomy platform providers, as we are reporting, an RFQ right now with the third. Being already integrated into the platform software makes it less costly and less risky to choose us as the LiDAR vendor and it can speed up the OEM time to market. And third, more wins translates into higher volumes, leading to more purchasing power and lower unit costs. In fact, I think you can already see some early proof of the flywheel effect in motion for us. After winning BMW in 2018, it took us over three years to win our next production award. From there, it took us a full year to announce the next one. You can see the pace of the activity has clearly accelerated in the past year. And if we can finalize these advanced-stage RFQs, it will offer even more evidence that the flywheel effect is working in our favor. Turning to our 2023 targets. We have raised portions of our guidance twice year to date. In the first quarter, we raised the high end of the range of our targets for additional programs from existing customers following our announcement of the light commercial vehicle. And in the second quarter, we raised our revenue guidance following increased visibility into higher volumes and NRE revenues. We also took the upper end of the net new NRE bookings range higher, following progress we were still seeing in our RFQ pipeline, coupled with the scope of the NRE awards being quoted on the programs that are progressing the fastest. Today, we are reiterating our targets, including guidance for 2023 revenue of $15 million to $20 million, which represents year-over-year line growth of 150% to 230%. Coming into the year, we flagged that the revenue would trough in the first quarter as our BMW program pricing transitioned from sample pricing to production pricing, which was a more of a 10x decline in our initial ASPs, but would be an offset by higher volumes in the later quarters. Following that reset in pricing, we said that revenues would grow meaningfully quarter over quarter, particularly in the back half of the year as we approach SOP and unlock NRE revenues. Revenue proceeds to grow 45% sequentially in the second quarter and were followed by an even stronger 138% quarter over quarter in the third quarter. If you consider our $15 million to $20 million revenue target range and subtract year-to-date revenue of around $6 million, it implies a fourth-quarter revenue in the range of $9 million to $14 million. At the midpoint, that would represent roughly 230% quarter-over-quarter growth and over 600% year-over-year growth. It has the potential to not only be our largest quarter ever, but larger than any of our prior full-year revenue numbers. I say this not only because I'm proud of what we are delivering, but also as a further evidence of us delivering on what we say we are going to do. We said that Q1 was the trough. We delivered two quarters of strong sequential growth, and we are now in the process of potentially delivering our largest quarterly revenue number ever. And with that, I will turn the call over to Eldar.
