Innoviz Technologies Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 2, 2023

Key Takeaways

  • First production shipment of Innoviz 1 LiDAR sensors and AI perception software units to BMW’s 7 Series began early in Q3, marking Innoviz’s inaugural SOP milestone.
  • Entering a Tier 1 development phase for a second-generation LiDAR platform with Innoviz 2 sensor and a custom ASIC enables Innoviz to sell the full hardware-plus-software package directly to BMW.
  • Unveiled the Innoviz Core AI compute model—a dedicated LiDAR ECU that offloads processing from the central ECU, supports MRM software, and paves the way for future sensor-fusion capabilities.
  • Second-generation custom ASIC taped out, doubles point-cloud resolution and extends detection range to over 450 meters, with automotive qualification slated for mid-late 2024.
  • Q2 revenue rose 45% QoQ to $1.5 million, with Q3 revenue expected to double and FY 2023 guidance raised to $15–20 million in unit sales and $20–70 million in NRE bookings.
AI Generated. May Contain Errors.
Earnings Conference Call
Innoviz Technologies Q2 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good morning. This is Rob Moffett, Vice President of Corporate Development and Investor Relations at Innoviz. And I want to welcome you to our earnings conference call. Joining us today are Omer Kalaf, Chief Executive Officer and Eldar Segla, Chief Financial Officer. Following their opening remarks, we will open the call to your questions.

Operator

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, I would like to remind you that our discussion today will include forward looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Innovus. Actual results could differ materially from those anticipated in the 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 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.

Operator

I will now turn the call over to Omer. Please go ahead.

Speaker 1

Thank you, Rob, and good morning, everyone, and thank you for joining us. 2Q was a really, really big quarter for Innovis. While the quarter itself was only 90 days long, you could say it was actually 5 years in the making. This quarter we delivered on what was easily the biggest milestone in our company's history. We shipped our 1st production units ever.

Speaker 1

They are on their way to our customer and close partner BMW and will be installed in the grill of the beautiful 7 Series, which will include our Innovis 1 LiDAR sensor and our AI enabled perception software package. I know many of you saw this already, but BMW blog did a wonderful article and video summarizing BMW Group's plans for the level 37 series. If you haven't watched it yet, I encourage you to go to the bmwblog.com or search for it on YouTube. In the video, you can see the 7 Series driving seamlessly through a variety of scenarios and hear more about BMW's plans and timeline for deploying the technology. We've been saying for a while now that the platform was expected to SOP in the back half of twenty twenty three.

Speaker 1

So to get the 1st production units out in the earlier part of the Q3 feels like a nice win. While there's always going to be some level of uncertainty in the LiDAR industry, we are building a track record of credibility that includes delivering on our goals. While the 7 Series SOP now underway, we are turning our attention to additional models and markets. But the 7th while the 7th series was planned to be our initial flagship launch for the Innovis 1, we've said in the past that our technology was certified on several models and variants within the BMW Group. We are pursuing integration and additional models with additional models.

Speaker 1

This includes supporting the recently announced localized development efforts of level 3 autonomous driving including within China. While all of the news about the 1st generation Inovis platform Innovis 1 platform is obviously exciting, the bigger news today is around this morning announcement that we are entering an all new development phase of a 2nd generation ladder platform for the BMW Group that is built around the Innovus 2 sensor and our AI enabled perception software stack as an opportunity for a second platform with BMW. Our 1st generation program included selling Innovis 1 components and perception software to BMW. The lighter components were shipped to Magna, the Tier 1 on that program and then manufactured into a finished ladder and shipped to BMW. But the 2nd generation platform that we're developing is remarkably different.

Speaker 1

First of all, we are quoting the program now as a Tier 1. This means that instead of selling lighter components and only getting part of the economics, we could have the opportunity to sell the entire package including the lighter and the AI compute model directly to the customer. And since this new platform is being developed around the much more advanced Innovus 2 LIDAR sensor and it's planned to run on our newest custom ASIC which I'll talk more about shortly. It is expected to be able to offer a much more robust perception software package including several new AI enabled features. Without going into too much detail, this stronger version of our perception software is designed to do much more than earlier versions.

Speaker 1

1 of the best example of that is the new minimum risk maneuver or MRM software that we can that we plan on developing They operate with some of the highest engineering and design standards in the industry. We have set high bar together with the 7 series launch and I believe we are both excited to continue that work on developing a next generation platform. As part of this process, BMW is making a meaningful investment in terms of time and resources and is embedding a dedicated team of engineers with Innovis so that we can move quickly on this next phase of development. This 2nd generation program is planned to target a much broader range of models than the 1st generation program and with a higher install rates that should result in higher and larger volumes. We believe that lighter technology and level 3 driving is going to become much more common over the next decade as it trickles down from cutting edge EVs and luxury ultra luxury models and more into mainstream vehicles.

Speaker 1

This opportunity for Innovis doesn't exist just at BMW or Volkswagen but across the entire industry. We can see the level of opportunity that is out there in our RFI and RFQ pipeline level 3 vehicles are increasingly going to become a reality. Next, I want to introduce you to the Inovis Core, our new AI compute model. This is the dedicated compute model that I mentioned earlier as part of the solution that is being developed for BMW. I want you to think about the core as a new base for us to grow our suite of AI machine learning powered software.

Speaker 1

It offers decentralized compute power dedicated entirely to the LiDAR and the LiDAR based software solutions. By leveraging the core, we can reduce the total compute load of the central ECU. This can reduce the cost of the central ECU to the OEM and free up compute resources for other applications, all by creating a dedicated ECU for the lighter and other lighter based solutions. This is a critical component of the BMW solution that we are developing due to the more robust perception software and the entirely new application built off it such as the new MLM software. Having a second compute resource should allow for more total processing power, which can unlock analysis at higher resolution and increase frame rates.

Speaker 1

And with that reduce the overall bandwidth and simplify the system architecture. It also separates the hardware from the central ECU adding a layer of redundancy that is critical for level 3 or higher system. The Inovis core is designed to be connected to the Because operating system. This can enable a number of functions including over their updates, data sharing and high definition three d mapping. It also enables connectivity through dedicated ports to other sensors such as the camera or radar.

Speaker 1

While we are not integrating camera or radar data into our software offering today, with the Innovis Core as a platform, it should be possible to begin working on solutions that can integrate this functionality in the future. This gives us a path for ongoing future software product development and extensions. I want to revisit our MRM solution. Last quarter, we introduced the concept of the MRM to you. And this quarter, we announced that we have begun development of the solution with BMW as part of our offering.

Speaker 1

As a quick reminder, the MLM is software that is designed to sit on top of the Innovus core AI compute model within a vehicle and operate as a backup system. In the event of a complication with the primary system the MLM could take over control of the vehicle offering a transition period for the driver to retake control of the vehicle and offer the ability to safely pull the vehicle to the side of the road if the driver does not retake control within a specific timeframe. MRM systems are not new. They have been around for several years, but historically they have been camera based. We believe that operating a lateral based system should offer key structural advantages over camera systems, including a true three d image along with reduced risk in low light and extreme sunk situation as well as an environmental consideration like rain or snow.

Speaker 1

Customers have told us that in order to be able to drive at increasingly faster highway speeds, the MRM system 3 d sensing I think replacing the 2 d solution being used today. The Innovis MRM solution is developed to fuse AI, deep learning and classic computer processing for object detection and classification, landmark and lane marking detection, path planning and maneuvering. The dedicated power processing pipeline is expected to ensure fail safe execution of any needed risk maneuver. Successfully building out this product category would be a natural extension of the success we have already demonstrated in perception software and would help us to move further up the stack potentially offering additional incremental opportunities down the road. The benefits of having a larger software offering are clear.

Speaker 1

1st, they can build upon and further expand the value that our LiDAR sensor technology brings to the table. And second, the gross margin profile on the software is much higher than hardware. In the automotive end market where you have more than 19,000,000 units of volume per year, you can generate meaningful leverage and strong returns on investment capital from a growing software suite. As we are talking about the intersection between hardware and software, I want to talk a little bit about our 2nd generation custom ASIC, which was taped out a few months ago and is now in our labs. An ASIC is an application specific integrated circuit.

Speaker 1

It's a very high level. It's a custom built chip designed specifically for one use. And for us, it's a 16 nanometer chip mixed signal automotive process design that has nearly 50 processor with multiple dedicated proprietary displays to process dozens of pixels simultaneously at the speed of light. Our first generation ASIC was taped out in 2019. That chip has clearly served its purpose.

Speaker 1

Having won multiple Sears production awards since then and building a substantial RFI and RFQ pipeline for us, This is the chip that is going to integrate SOP vehicles this year, but we believe this 2nd generation chip is going to take our performance to the next level, leveraging several additional years of learning and R and D. There are 2 key benefits of this 2nd generation ASIC. The first that it unlocks much more range, taking our maximum range detection range to over 4 50 meters, up from 300 meters before. And the second is to have better resolution. The more powerful chip enables us to produce millions of more points.

Speaker 1

In fact, we were able to nearly double the total of number of points that we can process per second. This can power the higher density point cloud with even better resolution than before. Together this dramatically higher range and resolution translates into more points of data. And that data is what fuels our AI tools including the neural networks that are critical part of our software development. Faster neural network training translates into better perception software.

Speaker 1

Better perception software can unlock new features like enabling vehicles to travel at higher speed or operate in more complex environments. Moving faster than competitors and unlocking features like this can drive higher serious production wins rates for our sensors and higher dollar value for our software packages all while deepening our embedded relationships with customers. While we are on the topic of resolution, I want to take you through a quick trip through our company's history. On the right hand side of the you can see the progress, the progression of our point cloud over time. As I mentioned earlier, we didn't have the 1st generation custom ASIC until 2019.

Speaker 1

So the point clouds before them were much more limited. And as you can see in 2020 with the addition of our first custom ASIC coupled with our improvements in the optics hardware and software we took a big step forward. In 2022 we had another big leap forward with the development of the Innovis 2. We didn't stop there. The video you see on the screen is one of the latest point clouds from the Innovis 2 with the 1st generation ASIC.

Speaker 1

You can see it has continued to improve since last year and it is at a point where we are approaching high definition camera like resolution with the added benefits of a true 3 d point cloud. I'm confident that once we get the 2nd generation ASIC fully integrated we'll take another major step forward and broaden the gap between us and the competitors. In terms of our timeline, we expect the first samples with this new chip to ship this phone to our customers including Volkswagen and BMW including our recently announced new light commercial vehicle for gunpowder. We're beginning automotive qualification of the part which should be ready for mass production by mid late 2024. And while we are on the topic, I just want to make one more point.

Speaker 1

And that's that there are a number of other players out there in the lighter industry that are still using FPGAs instead of custom ASIC. While it's true that you can build a lighter with FPGAs at Innovis, we strongly believe that you won't be able to scale a lighter company that way. If we try to produce the Innovis too with FPGAs, it would take somewhere between 4 to 6 very expensive FPGAs adding 100 of dollars of cost to the finished product. It would be heavier, take more space, produce more heat and consume much more power. And while not really matching our current performance since only a custom ASIC allows for the power processing of dozens of channels of data, which is the salt of the higher pixel rate and improved resolution.

Speaker 1

I believe that our 1st generation custom ASIC has been a major source of the competitive advantage that we have demonstrated thus far. And this next chip is going to take our lead to the next level. One of the other benefits of our custom ASIC is that I wanted to touch on is the ability to support multiple lighter configuration with just one architecture. We designed our chip to have the flexibility to be able to offer a wide area of configurations across all different types of ranges, resolutions, field of views and frame rates. We can tweak the product with only minor changes that can mostly be done through the software.

Speaker 1

As a result, we can create end to end solution for a variety of use cases from long haul commercial truck that need ultra long range for highway speeds all the way down to wide field of view, static smart city applications. With this benefit, we can go to the market with 1 architecture built around our already cost advantaged 905 nanometer based single laser, single detector solution and fulfill almost any use case across automotive, tracking, robotaxis, buses, shutters, smart cities and more. All the same optics, the same hardware and the same This should enable us to run much higher volumes through the same components rapidly lowering our cost per unit, driving attractive unit cost economics and delivering potentially a meaningful structural cost advantage. Next, I want to give a quick update on the new light commercial vehicle program that we announced last quarter. As you recall, we said that this program where we are moving on a faster than normal timeline due to the fact that we're displacing a development stage competitor mid project.

Speaker 1

I'm happy to share that we've already begun shipping sample units to the customer with the first units being sent towards the end of the second quarter with additional shipments expected to ramp through the back half of the year. With those units now in the customer hands, we expect that you will be able to see the new test vehicles on the roads in the coming months with our LiDAR offering additional tangible evidence of Innovi's ongoing commercial momentum. Moving on to our pipeline, even with the 2 of the platform moving from our pipeline to our awards and programs category, year to date we're still solidly in the middle of the 10 to 15 range of programs in an official RFI or RFQ process. And we still have roughly half in the more advanced RFQ stage. And while the first half of the year has been defined by success primarily with existing customers, we believe that the back half of the year and the 4th quarter in particular could be defined by new customers.

Speaker 1

One interesting insight that I have to offer from some of our RFQ work this quarter is that 1 customer has indicated they are only considering 905 nanometer solutions and another has decided to shortlist these 905 solutions to only 905 solutions. For both, this follows their previous experience with other solutions and the challenges they face with power consumption and resolution. As we disclosed in the past, we are working on more than 5 active RFQs in power, which is the highest level of activity in the company's history. There appears to be a very robust level of activity all targeting the 25 to 2028 OEMs monthly compete on the technology. And we believe the next big differentiation factor is going to be level 3 driving exactly like what BMW is bringing to the roads now.

Speaker 1

And between the programs we've already announced and the 10 to 15 in the RFI and RFQ pipeline we've either already won business or actively floating new awards with 8 out of the top 10 global automakers. We ultimately believe that this is likely going to be a winner takes most kind of market. The technology is safety critical. There are very high levels of tech differentiations and the player that wins the most business is ultimately going to have a scale and cost leadership advantage that is likely going to be difficult to match. Given the fact that most of these programs will be on the road for 10 for 8 to 10 years, we believe that a major portion of the industry market share is going to be determined in the next 12 to 18 months.

Speaker 1

And with that, I will turn the call over to Uldan.

Speaker 2

Thank you, Omer and good morning everyone. Starting with cash, we ended Q2 2023 with approximately $130,000,000 in cash, bank deposit, marketable securities and short term restricted cash on the balance sheet. With our cost structure being largely mature, our operating cash outlays remained mostly stable during the quarter with cash operating expense roughly flat quarter over quarter and in line with our 2023 budget. Moving our cost structure being large sorry, moving to the income statement, revenues in Q2, 2023 came in at $1,500,000 compared to Q1, 2023 revenue of $1,000,000 delivered a 45% quarter over quarter increase. On a year over year basis, it compared to Q2, 2022 revenues of $1,800,000 and was impacted by our 2023 pivot towards SOP with BMW, which weighed on the first half of the year as we transition from selling lighter samples units to selling just the components to Magna, who is the Tier 1 for the BMW program.

Speaker 2

That step down was most evident in Q1 2023 and since then our quarter over quarter revenue cadence has accelerated nicely with sequential revenue growth of 45% in the 2nd quarter supported by a 47% quarter over quarter increase in total unit shipped. As we think about revenue cadence for the year, we expect revenues in the Q3 to approximately double versus the Q2, driven by a combination of high NRE service revenues coupled with additional unit volume growth. In fact, we have already secured orders for the Q3 surpassing the revenues in Q2 and we are only in the 5 weeks into the quarter. And looking forward to the Q4, we expect an even more meaningful step up in sequential revenues with tailwinds from improving production volumes, revenue based NREs and increased sample shipment to new program. Moving forward down to the income statement, on the cost side, operating expenses for Q2 2023 were $30,400,000 an increase from $28,800,000 in Q2 2022.

Speaker 2

Q2, 2023 operating expenses included $5,000,000 of share based compensation compared to $4,400,000 in Q2 2022. The increase in quarterly operating expenses compared to the last year Q2 operating expenses was primarily due to the higher R and D expenses mainly on Innovis II costs, a general increase in headcount associated share based compensation and facilities costs. Research and development expenses for Q2, twenty twenty 3 were $23,800,000 an increase from $21,900,000 in Q2, 2022. The quarter included $3,400,000 attributable to share based compensation compared to $2,700,000 in Q2, 2022. In conclusion, we are delivering on the gross cadence that we outlaid coming into the year.

Speaker 2

Q1 2023 was a trough. We delivered 45% quarter over quarter growth in Q2 and have a line of sight to approximately 100% quarter over quarter growth in Q3 and a very strong Q4. Importantly, we are delivering on the milestones that we have set for the company. We kicked off SOP with BMW and the shutter program is around the corner. We just kicked off the B Sample phase of a 2nd generation lighter development program with BMW and we are diligently going after all of the programs in our robust pipeline.

Speaker 2

We expect to finish the year on a very strong note with continued momentum for 2024 and beyond. And with that, I will turn the call back to Omar.

Speaker 1

Thanks, Eldar. I wanted to wrap up with some more good news, which is our guidance. As Eldar noted, we delivered 45% quarter over quarter growth in the second quarter And we have line of sight to double our revenues sequentially in the 3rd quarter and delivering a stronger result in the 4th. And with that kind of trajectory in mind, we are taking our revenue forecast higher raising it from $12,000,000 to $15,000,000 to $15,000,000 to $20,000,000 This is driven by both volumes and annuities. Our unit volumes are accelerating from the Q1 trough fueled by 2 drivers our BMW and shuttle launches and shipments to our new secure programs including the new light commercial vehicle program.

Speaker 1

Additionally, as a result of increased activity in our RFQ program and program expansions and increased confidence level are likely to convert some of this program based on the progress that we have made year to date, we are also raising the midpoint of our new NRE booking guidance range as well increasing from $20,000,000 to $40,000,000 to $20,000,000 to $70,000,000 this year. The wider range represents the wide variety of outcomes that is out there and the sheer scope of some of the NRE awards. If we add the NRE quotes that we are asking for on the different RFQs and other program extensions from existing customer well they are indicated that decision should come this year. We can come to the number that is over double the high end of the range. But these awards are very lumpy with a typical range of $20,000,000 to $40,000,000 each with some as large as $60,000,000 Given the fact that we can control the timing of the decisions of the customer, the customers we feel that the need to discount the range, but given the increase in the total amount of dollars that we are competing on since we have first set the target from the beginning of the year we felt the need to communicate opportunities set that is in front of us.

Speaker 1

On the customer side, our targets remain the same. We continue to expect 1 to 3 additional programs from existing customers and continue to target adding at least 2 series production awards with new customers. These are ambitious goals, but we are moving fast and making solid progress towards making them a reality in 2023. Before turning the call over to the Q and A, I wanted to offer a few final remarks. It's always important for us to share with you the roadmap that the company is on.

Speaker 1

Months later we delivered on Volkswagen. Coming into this year we hinted at the program expansion in the next quarter we delivered the live commercial vehicle announcement. Last quarter we said that we're working on the MRM solution for our customer and this quarter we announced that expanded BMW offering with MRM and our AI compute model. And for the last year we've been pointing to the 2023 SOP with BMW and we just began shipping the production units a few weeks ago. We want investors to recognize that we are delivering on the things that we say that we're going to do and we consistently work very hard to make them happen.

Speaker 1

There were a lot of additional new milestones for us to deliver on shared on this today call and I'm confident that we can continue our track record of executing on what we say we are going to do. With that operator, please turn it over to the Q and A. Thank you. Thank you.

Speaker 3

In order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Once again, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our first question today comes from the line of Mark Delaney of Goldman Sachs. Please go ahead.

Speaker 4

Yes. Thank you very much for taking the questions. Congratulations on the start of production with BMW for the 7 Series, which I realize is a big milestone for the company. Now that you're at SOP, I'm hoping to better understand how quickly that may ramp up in terms of your own revenue opportunity

Speaker 1

7 series. We are expecting additional models to follow. With the 7 series. We are expecting additional models to follow. In terms of the volume of the 7 series, I cannot share more information.

Speaker 1

We expect a smooth launch at the beginning and ramping up following that.

Speaker 4

Okay. No, I appreciate that. And then second question was something you brought up last quarter. You mentioned you were in discussions with NVIDIA to be integrated into series production programs leveraging the Hyperion platform. Is there any update you can share on progress there?

Speaker 1

We actually started the OEM in which this is related to. We started the audit to become their Tier 1, still work in process but going well.

Speaker 4

Okay. That's helpful. Just lastly for me, today you spoke about the MRM system and also developing higher value software in conjunction with BMW. Are those going to be exclusive product categories for BMW given the code development? Or can Innovus develop those sorts of products for other OEMs?

Speaker 4

And then if so, how much of the engineering work can you potentially leverage that you're currently working on with BMW or do you need to do that from scratch? Thanks.

Speaker 1

So actually the MRM discussion was first introduced by from BMW and we are approaching other OEMs with this kind of solution to try to see this is something that can fit in their architecture. I would say that we are getting good feedback from customers which this comes as a very interesting proposition having that the MLM based on the LIDAR has better potential in terms of safety. There are synergies. Some of this development is tailored to BMW. There is a lot of integration related to the vehicle itself when it comes of the control.

Speaker 1

I expect that there should be some synergy, but this is really early stage to say that.

Speaker 3

Mark, any further comments?

Speaker 4

No. Thank you very much.

Speaker 3

Thank you. Our next question today comes from the line of Andreas Sheppard of Cantor. Please go ahead.

Speaker 5

Hey, good morning guys or good afternoon. Can you hear me okay?

Speaker 1

Yes.

Speaker 5

Wonderful. Congratulations on the quarter and thanks for taking our question. I was wondering if perhaps you can give us a little more color on the NRE bookings. Obviously, the increase in the targets there is excellent. Just wondering if you maybe have any more visibility in terms of whether this will be recognized into either revenue or contract expense, just a little more color there?

Speaker 5

And when do you see this taking place? Is this a Q4 event or perhaps a gradual through Q3 and Q4? Thank you.

Speaker 2

Yes. So the booking of NRE, we are trying always through our contract to push them as into the revenue line. Some of the NRE will definitely be already recognized in Q3 and I think more so even in Q4 and there will be a significant impact also for next year.

Speaker 5

Got it. Thanks, Eldar. And then maybe just on liquidity with roughly $130,000,000 now in total liquidity. Just remind us what is the run rate with that liquidity in hand? That's still sufficient obviously through SOP later this year, but just remind us kind of what the run rate there is?

Speaker 5

Thank you.

Speaker 2

Yes. So our run rate as you probably noted from this quarter and looking back on the previous quarter,

Speaker 1

we

Speaker 2

are not spending more money. It's actually going down and it's but it's roughly stable and will still stay stable. On the other side, we do expect these revenues coming in, in addition to the NREs that are supporting our cash flows. So we think this will support us and maybe you will see over time a better and better cash flow.

Speaker 1

Maybe I can add to this. So we are expecting some NRE already this year and we're talking about bookings of NREs that the high end of it and our target is $70,000,000 in front of us there is a bigger opportunity which is very meaningful in our ability to fund our activities. I would add that in part to this we are in discussion with our strategic customers in regards to pulling in prepayments and NOEs in order to strengthen our balance sheet.

Speaker 5

Got it. Okay. That's super helpful. And maybe just one last one if I may. Any color on kind of what gross margins might look like for the second half of the year?

Speaker 5

Obviously, with the significant ramp up in revenue, is it safe to assume a big improvement around gross margins? Thank you.

Speaker 2

Yes. So as we are able to recognize the NREs, this will be a great contribution to our gross margin. So I am optimistic that the trend that you are seeing now will be even stronger towards the second half of the year.

Speaker 5

Got it. Thank you so much guys and congratulations on the quarter again. I'll pass it on.

Speaker 1

Thank you. Thank you.

Speaker 3

As a reminder, in order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our next question today comes from the line of Samik Chatterjee of JPMorgan. Please go ahead. So, Mika, are you able to unmute yourself?

Speaker 2

Samik,

Speaker 3

your line is unmuted. Please go ahead. Our next question today comes from the line of Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Speaker 6

Yeah, thanks for taking my question and congratulations on the SOP starting. Very interesting that the Innovis Core, is that is that custom ASICs inside there? Also, you said a GPU and a CPU, or are those merchant supply that you've designed for this system?

Speaker 1

So the ASIC I was referring to, Ariel, on the call is an ASIC that comes goes into the LIDAR, into the Innovis 1 or Innovis 2. The chip that we're using in our Innovis core is a chip that comes from a supplier, which has very strong processing power about 35 tops and multiple processing accelerators. We haven't yet disclosed who the partner there is.

Speaker 6

Okay, great. Thanks. And you know just as your R and D spending, what's the split and what do you expect the split to be in the future hardware versus software?

Speaker 2

So roughly speaking, it's I would say 60% of the hardware, 40% on the software. At this point, obviously, the hardware team needs it's not only headcount, we are spending also on the hardware itself and the test and the different testing and labs and so on. So software is a little bit less cost consuming.

Speaker 1

I would want to to that maybe because I think that it's very interesting to see companies like Innovus usually when you're developing and enabling technology such as the LIDAR then you obviously have a certain weight on the hardware. Of course, when those sensors and the technology materialize and becomes more mature, the software becomes a bigger part of the company and the services upon it will drive the company forward. So at this point, we are building the enabling technologies which are you know the harbor around it but actually foresee that in the long run the software will become a bigger part.

Speaker 6

Okay, great. Thanks. And if I can get in one more question just a point of clarification for you know last quarter you mentioned you had one program that was in late stage discussion. Maybe just to be clear is this was this the announced BMW program or was that the new light vehicle program?

Speaker 1

No, it was actually the light commercial vehicle was announced last quarter. We're actually referring to the BMW program that we were kicking off this time. The purpose of this joint development is to get the architecture more mature towards expected launch of the program to serious production towards the end of the year.

Speaker 6

Okay, great. Thanks.

Speaker 3

Thank you. Our final question today comes from the line of Kevin Garrigan of Westpark Capital. Please go ahead.

Speaker 7

Yeah. Hey, good morning, Omar and Elder. Let me echo my congrats on the announcements today. As you guys kind of move up the software stack, I know you guys are the 1st LiDAR company for MRM, but are you finding the conversations you're having with OEMs in this kind of area more difficult than you know, for, you know, a LiDAR production agreement and that there's, you know, more increased competition in this kind of area?

Speaker 1

So again, the MRM solution was first introduced from the side of BMW and since then we've been working with them on the definition of the product. This has been gone for the last more than 6 months. Other customers we are out, I would say introducing this solution to them. This does not yet come as a new requirement from other OEMs. This is different than the perception software which was always part of the discussion and it comes up in many RFQs.

Speaker 1

And I believe that this part of the education that we're doing is allowing the customers to understand the potential of using the MRM and that might lead to additional business on it.

Speaker 7

Okay, got it. That makes sense. And then just I know there was an announcement recently about BMW doing R and D in China for Level 3. Can you guys give us a sense of what you guys are doing in China beyond the Asian based OEM to capture any other production awards over there?

Speaker 1

Sure. So, generally, when you're validating your perception software you need to do it based on the data that comes from the target, I would say, area in which you want to operate your system. Since as you probably know, there are limitations in the ability to extract data from China. So we have a compliance room where we are operating engineers that are working on data in China that are people that are from China. In order for us to support a possible launch in China by BMW and also other customers that we have that also plan to launch in China.

Speaker 7

Okay, got it. Thanks guys.

Speaker 3

Thank you. We have a follow-up question from the line of Samik Chatterjee from JPMorgan. Please go

Speaker 1

ahead.

Speaker 3

Samik, are you able to unmute?

Speaker 8

Hey, guys. Can you hear me now?

Speaker 1

Yes. Hi, Suneet.

Speaker 8

Okay. Great. So I guess I jumped on a bit late, but if I can ask you about the extension of the program you have in regards to BMW on Innovus 1. I'm just wondering why is the company taking the action to extend the association or extend models on Innoviz 1? Is it really more of a time to market decision rather than sort of wait to integrate Innovus 2 or how you're thinking about why sort of work with the older generation product and not wait for the new one?

Speaker 8

Is it a more of a time to market constraint? I have a follow-up.

Speaker 2

Thank

Speaker 1

you. So maybe just to make sure, Samik, the announcement we've made today is related to Innovis2. It's the new platform is going to focus on the integration and development features around Innovis 2, not Innovis 1.

Speaker 8

Right. The additional model and variance that you announced for the 1st generation platform, my question was more around that as to why you extend the model vehicles with the 1st generation and not wait for the second one. What's the driver of that decision from the company?

Speaker 1

Okay, okay. So this is related still to the first platform. This is a vehicle that we've been testing for some time. I mean, the effort of integrating a ladder to so it can launch with level 3 takes a very long time and testing. The platform is adopted and tested and validated with Innovis 1 and therefore the launch was expected to follow the 7 series would still use Innovis 1.

Speaker 8

Okay, got it. And then just in terms of the relationship that you're extending with BMW to now do more parts of the software stack and the compute sort of box as well. It sounds like a great opportunity, but also if you sort of extend that to other OEMs as well, it does seem like you need more resources or more people to sort of support those additional OEMs with the customization that you'll need to drive. How are you thinking about then sort of the overall sort of headcount? How are you thinking about the OpEx here just given that that entails a lot more customization than probably if you only were shipping the LiDAR module, right?

Speaker 1

So in terms in regards to the Innovis compute model that's actually an activity that we are working on for some time. We already have I would say an early version of it. In terms of the R and D effort, it's not a very extensive L1. Most of the effort is related into the perception software which we already are doing. We are offering the compute model to other customer as other customers.

Speaker 1

This is in regards to the computer vision not to the MLM so far. I mean, most of the RFQs that we have do include perception software, some of them require and compute model. So that's very, I would say, beneficial also for other programs. In regards to the MLM, this effort is I mean obviously supported by NREs that we are collecting from the customer in order to support it and we see it as an opportunity to strengthen our R and D capabilities and offer it to other customers.

Speaker 8

Okay. I'll leave it there. Thank you. Thanks and sorry about earlier.

Speaker 3

Thank you. Thank you. You have no further questions. Please proceed.

Speaker 1

Okay. Thank you, everyone. I appreciate the time that you have spent with us. We are working very, very hard to make this progress with customers such as BMW and Volkswagen and we are expecting to give you, say, more from our the fruits of our work. Thank you very much.

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