Morning, welcome to Innoviz second quarter 2022 earnings conference call. Joining us today are Omer Keilaf, Chief Executive Officer, and Eldar Cegla, Chief Financial Officer. Following their formal remarks, we will open the call for your questions. I would like to remind everyone that this call is being recorded and will be available on the investor relations section of our website at ir.innoviz.tech. Before we begin, we would like to remind you that our discussions today will include forward-looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Innoviz. Actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them.
For discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the Risk Factors section of our Form 20-F filed with the SEC on March 30, 2022. I will now turn the call over to Omer. Please go ahead.
Hi, everyone, and good morning. I'm very excited to have you today on our second quarter of 2022. We had a very successful quarter following our recent announcement on our new customer, Volkswagen, which we are obviously very excited to talk about. Following the receiving of the contract from Volkswagen and reaching the first milestone of integration of our LiDARs to the test vehicles, we were happy finally to provide and give a press release about the recent award. Other than that, we have substantial progress on key programs, additional key programs, and we've actually already met or exceeded all of the targets that we have set for 2022. Now I will be very happy to start with the formal presentation. Thank you. Just one second. Sorry. Okay.
Innoviz vision is to become the world's leading Tier- 1 supplier for LiDAR and perception software for the automotive industry. Last week, Innoviz was proud to announce that we will serve as the direct supplier of LiDAR sensors to several brands within the Volkswagen Group while integrating our perception software to CARIAD's automated driving stack. As the program progresses, we expect more brands within the Volkswagen Group to be incorporated. VW is the second-largest car maker with more than 10 million cars sold annually with multiple brands including Audi, Porsche, Volkswagen, Škoda, and many others. We are full steam ahead with first samples already integrated into CARIAD's test vehicles.
We expect revenues from the program already in the coming years as the development of, and testing processes of our customers require hundreds to thousands of units in the next three to four years, which are priced several times greater than the official start of production, SOP. Following SOP, we expect an exponential ramp up over the lifetime of the project, which is eight to 10 years. From tens of thousands to over 1 million LiDARs annually to the Volkswagen Group at competitive price points. The Volkswagen Group nomination is reflected in Innoviz order book as an increase of $4 billion which now aggregates it to the total of $6.6 billion. Innoviz received multiple RFQs from all over the market. Volkswagen's set of requirements were the most demanding and eventually pushed us to design the best-in-class LiDAR to date.
Our ability to win the Volkswagen program was due to four main contributors. The first, the exceptional price and performance that our new product, InnovizTwo, is offering for achieving high-speed highway autonomous driving. The second, our rich automotive experience, working closely with leading companies such as BMW and Magna. The third, the maturity level that the InnovizTwo product is already at. The last is the Tier- 1 value proposition and capabilities that we offer. With the new Volkswagen win, as a Tier- 1, these four growing assets are the reason we are confident of our ability to win many more programs in the market. While we are working closely with multiple OEMs to become their LiDAR supplier, we value the importance of strengthening the collaboration with the leading platform vendors. We are happy to share unique events that Innoviz will host in the coming months.
Innoviz is hosting a partners, customers, and analysts event on September 19. The event will include keynote speakers and a tour to our facilities, InnovizTwo automated production and test runs. We are excited that two distinguished keynotes have already confirmed their attendance. Mr. Alex Vukotich, VP of Automotive Product Management at Qualcomm. Qualcomm, which provides the Snapdragon Ride platform, which was already selected by several leading OEMs and Tier- 1s. Dr. Richard Rau, VP of Autonomous Driving Sensors, Integration Platform and Corporation at BMW Group. Our second event on October 23, Innoviz and NVIDIA were selected to host a 3D perception workshop during the European Conference on Computer Vision ECCV. Innoviz and NVIDIA workshop will discuss unique challenges and advantages associated with the use of 3D data for autonomous driving. Volkswagen is our second nomination for series production of passenger vehicles, the first being BMW.
With this win, Innoviz is now servicing two of the world's leading car makers, which together represent 15% of the entire automotive market. From the inception of Innoviz, our strategy has been to focus on prominent industry-leading car makers. It is well known that the German car makers set the standards in the industry. Therefore, we have provided these customers our highest attention. BMW and Volkswagen are both innovators who strive to bring leading-edge technologies to the automotive market. Our proven track record of success in Germany has given us the maturity and global recognition of other car companies based in Europe, the U.S., Japan, and China, allowing us to offer our solution as a Tier- 1. We announced in May appointing Scott Craig and Brijesh Shukla as country manager of the U.S. and Japan.
It's the logical next step to capitalize on our growth opportunities following our nomination with Volkswagen. We already see the fruits of new business generation experience as we aim to break more new ground. We are in the process of conducting qualification processes to become a Tier- 1 with more car makers and look forward to sharing updates with you as those proceed. We believe these future partnerships will further strengthen and solidify our position as a leading supplier for autonomous vehicles. I'd like now to explain a little bit more about our Tier- 1 strategy. This slide shows the benefit of becoming a Tier- 1 supplier from volume perspective. As the demand for lower cost solutions in the industry increases, the pricing pressure requires higher vertical integration.
As you can see from the chart on the right, as a direct supplier Tier- 1, we can provide customers with a lower averaging price while increasing our revenues and keeping our margins. Clearly, this is a win-win, and why we remain focused on obtaining this business model. Many have asked about our need to spend CapEx on our production capacity as a Tier- 1. In these videos, you can see the production line we designed for the InnovizOne . As you can see, there are several machines that were developed to automate the production and testing of the first product. No parts of the assembly or testing is manual. The same is true for Innoviz Two. We are developing full automation of the Innoviz Two production and testing lines.
Once those machines are designed, built, and tested, we plan to ship them to third-party contract manufacturers with automotive-grade facilities to manage the operation of the production worldwide. The cost of the machines is fully funded by our customers. I am confident our Tier-1 capabilities, including our ability to manage mass production manufacturability, automotive grade quality, hardware validation, and computer vision validation, will serve as a differentiating factor as other OEMs selects their direct LiDAR supplier. Innoviz has recently moved to our new offices, which include our production lines, testing facilities, and a 300-meter underground laser testing track, the longest in Israel. Having the new production lines of Innoviz Two at Innoviz will help to enhance the process and save development costs, eliminate any risk of traveling restrictions that might slow the ramp up, and reduce the production cost until volume ramps up.
We are in the process of moving the InnovizOne test lines between the offices and expect these lines to ramp up soon. The production lines of InnovizOne continue to run uninterrupted as they are located offsite. In parallel, we are working to establish the InnovizTwo production line in the new offices to support volume ramp up beginning early 2023. We remain focused on establishing our leading position in the automotive market with key OEMs in the near term, expanding and leveraging the maturity of the InnovizOne products to benefit non-automotive segments in the industry, and expand our market share to be a key driver for revenue. We see important opportunities in the non-automotive markets where we will leverage the maturity of our products. We expect the average selling price to be higher in the non-automotive market where volumes per program are lower.
Highlighting further our strong momentum with non-automotive partnerships. We recently announced a cooperation agreement with Joowon Industrial Co., Ltd., who will serve as a distributor for a wide range of Innoviz applications across industries from industrial machinery to heavy equipment in the Korean market and beyond. We also announced that Innoviz LiDARs were selected by Japan Post to construct digital maps on their postal delivery cars, paving the way for next generation smart cities services such as autonomous driving and unmanned delivery. Turning to our sales funnel and targets. We have already met or exceeded our 2022 targets. We continue to see momentum and bring new potential customer into our sales funnel. Currently, we are managing 12 automotive RFIs and RFQs at different stages, where almost all of them are for passenger vehicle programs. We expect to see two to three programs being decided in the next six months.
Our overall automotive market share increased by 12% to a total of 15%. We are excited about the progress we've made and know that we are just at the beginning. We expect to drive material revenue during 2023 from our previously announced series wins with BMW and the L4 shuttle pool, as well as from non-automotive end markets. Overall, I remain confident in our cash position. We've always been conservative with regards to how we allocate capital, and we'll continue to do so going forward. As we win additional OEM contracts and establish ourselves as a leading LiDAR supplier in the automotive market, we will manage our expenses accordingly and evaluate all options available to us to ensure we are optimally positioned to continue executing our strategy.
We're continuing to invest in technology and perception software and are in the process of ramping up the V1 sample, which will include performance improvements over the V0, but more importantly, is designed for volume production. We are currently focused on maturing and automating the process to support the volume ramp-up targeted to the beginning of 2023. In parallel, our innovation team is working on the final design details of the Innoviz360 with most parts already in production. We plan to start the integration during Q3 with the expectation of showing first samples of Innoviz360 by the end of the year as planned. I'd like to show a short video on InnovizTwo. As always, we are happy to share with our investors the progress we make and feel proud of what we've managed to accomplish so far.
As you will see in the video, the Innoviz Two has outstanding results that leave our customers very impressed and excited. I truly believe it's the best LiDAR out there today, and since it has a very attractive price point and performance, I feel very confident in its ability to be widely sourced by many car makers making their decisions in the near future. With that, I'll turn it over to Eldar to go over the financials.
Thank you, Omer, and good morning, everyone. I would like to start by briefly explaining how our Volkswagen-related $4 billion forward-looking order book was calculated. In terms of volume production, the Volkswagen Group holds about 10% of the market share, which translates to over 10 million vehicles sold annually. The program plan is based on three years of development and validation, followed by eight to 10 years of sales, with the expectation to see growing take rate of 1%-14% over the course of the program, starting with the more premium brands and car models, and trickling down over the years to the less expensive car brands and models. We expect to supply our LiDAR sensors for at least 8 million cars over the lifetime of the program. Multiplied by the ASP aggregates to the $4 billion order book we have announced.
We maintain a high liquidity level of approximately $246 million in cash, short-term deposits, restricted cash, and marketable security as of June 30, 2022. We are using our resources responsibly, staying within our expense budgets for the second quarter of 2022, and maintaining a robust cash position, which gives us both the flexibility to execute our 2022 strategy and provide us with a runway to invest in our new and innovative products and technology. Revenues for Q2 2022 were $1.8 million compared to Q2 2021 revenues of $1 million. Our revenues in Q2 this year were InnovizOne related.
We are also targeting to sell the first samples of InnovizTwo later this year. Operating expenses for the first quarter of 2022 were $28.8 million, a decrease from $70.7 million in the second quarter of 2021. Operating expenses in Q2 2022 included $4.4 million of share-based compensation compared to $49.9 million of share-based compensation in Q2 2021. The decrease in operating expenses in Q2 2022 compared to Q2 2021 was primarily due to a decrease in share-based compensation, partially offset by an increase in headcount during the second quarter of 2022. Research and development expenses for Q2 2022 were $21.9 million, a decrease from $32.1 million in Q2 2021.
Research and development expenses in Q2 2022 included $2.7 million attributable to share-based compensation compared to $17.6 million attributable to share-based compensation in Q1 2021. To conclude, we maintain a strong position in the marketplace, as evidenced by our recent design win with Volkswagen Group, and we believe that we are well-positioned to gain additional market share during this year and the years to come. With that, I will turn the call back to Omer for closing remarks.
Thanks, Eldar. I'm energized by how far we have come in the recent months and look forward to updating you on our progress on future earnings call. Before I open up for questions, I'm happy to share that we will be back to New York during the week of September 5th, taking part in both Citi Global Technology Conference, as well as the Evercore ISI Annual Technology Conference. We are happy to meet with you there. Thank you for joining us today. With that, I will turn the call over to the operator to take us into the Q&A.
Thank you. 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 from Goldman Sachs. Please go ahead.
Yes. Thanks very much for taking the questions, and good afternoon. First question is better understanding on CARIAD. You know, I do think there's been media reports around some software challenges at CARIAD. You know, I think some of the brands, according to the media, were rethinking you know what they wanted to use from CARIAD versus maybe doing some stuff themselves. I'm hoping to better understand to what extent you've already factored some of those dynamics into the order book.
You know, I think the order book calculation of $4 billion was pretty conservative if I understood it correctly, and if anything, perhaps there's chances to expand the number of models that you're on, but maybe you could speak a little bit more in terms of, you know, how confident the different brands are or how excited the different brands are in using this product and what opportunities there are to, perhaps even build on the amount of the order book so far there.
Sure. Thank you for asking the question. Innoviz is confirmed or contracted to be a supplier, direct supplier, Tier- 1, for all of the brands. Our agreement is with all of the brands within Volkswagen, and the program is managed by CARIAD. CARIAD is responsible for the driving stack that eventually will be integrated into the different brands. Our activity and integration discussions are with each brand by itself. There are already several brands that discussions are ongoing. Eventually, our software is also integrated into this platform. CARIAD platform will host our perception software as part of the overall software that will drive the car. No changes are related to the program.
Things are going very smoothly, I would say, and the dynamics are very, very positive. To your last comment, I am actually very optimistic that additional brands will be included as following the discussions we are having now.
That's very helpful. Thanks for that. For my second question, you mentioned that two to three programs could be decided in the next six to 12 months in the automotive market. Do you have any indications from those potential customers about how likely Innoviz may be to win or any more detail you can share on your expectations for potentially winning some additional programs out of those two to three that you mentioned? Thanks.
I believe that Innoviz is positioned very strongly on those programs. I obviously eventually it's a decision that we're pending to. With that, I would say, the level of discussions and the nature of the details that are now discussed, I would say that I am overall positive. I would rather wait with the news when they would conclude. Maybe I would just say those are related to passenger vehicle programs and as such are very interesting for us. You know, once we have the program with Volkswagen, we can guarantee the volume.
Having the volume in our economies of scale allows Innoviz to be very competitive, even with programs of car makers that are not at the size of Volkswagen. That's a very key element in our ability to be very competitive on all programs right now, because we can leverage on guaranteed volume we have with a certain program. Basically, this is why I would say traditionally, selections made by car companies like Volkswagen is so critical, and why other car makers tend to follow decisions made by the Volkswagen Group. Can we-
Mark, are you there? Okay, we'll proceed to our next question. Our next question comes from the line of Andres Sheppard from Cantor Fitzgerald. Please go ahead.
Hey, Omer, Eldar, good afternoon. Congrats on the quarter and thank you for taking my question. I thought that slide about the Volkswagen and the order book assumptions was very, very helpful. I just wanna make sure I understood it correctly. With this new agreement, the expectation is for revenues to start ramping up, I think in between three and four years, I think initially. Once that takes place, the expectation is that the sensors will be used in over 10 million vehicles per year. Maybe you can give a little more detail on that. I just wanna make sure I understood it.
We definitely target that number, but no. I mean, we're talking about the penetration rate from 1%-14% of the total volume out of the 10 million, and which is related to. I mean, the kickoff is related now to several brands. There are several models that are already planning to launch with the LiDAR, and every year there will be releases of more cars every year, and there will be a ramp-up. The total eventually of the entire program is calculated based on a sum of roughly six million cars for the duration of eight to 10 years. We believe that eventually more brands will use the LiDAR and the numbers could grow.
Got it. That's very helpful, Omer. Thanks for that, color. Maybe in regards to then the switching gears for a minute, the BMW partnership. You've mentioned today that you expect material revenue starting towards the end of next year. I'm wondering, can you maybe give us a little more granularity as to how you see those ramping up? Maybe not necessarily quantifying it specifically, but just at a high level, you know, can you just give us a sense of what that agreement will look like as those revenues begin to ramp up next year?
Okay. There are two parts to the revenues that are expected from the program. One is related to NRE, which was agreed with BMW to be provided at the SOP time. The second part, which is related to the sales of cars, which will be equipped with Innoviz LiDARs.
Okay. Got it. Maybe, sorry, one last question if I may. In regards to the 12 prospective customer agreements that you are working off, of which sounds like most of them are for passenger vehicle programs, so that's great. Is the hope, the strategy to, I mean, how likely is it to secure those 12 agreements? Should we be a little bit more conservative, perhaps assume, you know, a handful of them? Or, I mean, how confident are you in those 12 programs?
Look, I believe that in any one of them, Innoviz is going to be or already is on the shortlist. A shortlist means that there is either one competitor or two. Our competitors are other Tier- 1s in the market because car makers would make their decision based on whether the supplier meets their group standards. You can probably estimate who might be our competitors. InnovizTwo is a very strong product, both from performance but also from pricing. With the stamp of a Tier-1 supplier now by a very credible car maker, which is the Volkswagen Group, gives us a very strong position and removes any friction in any discussion we had so far with any car maker to become a direct supplier to their program.
I would say that, you know, we used to say that our conversion rate is one to three because that's what we usually see, between one or two companies competing on the RFQ in the last discussion. I would probably say that since we have increased our chances due to the recent win, I would probably at least take a 50% probability from my perspective, but you can be conservative, more conservative than me.
Got it. Fair enough. Thank you. Sorry, maybe one last one for me, if I could. In terms of the, I guess, do you find that now being recognized as a Tier -1, is that you know. Maybe talk about that. Has that given you additional credibility with these other OEMs? Are you finding that having a Tier -1 status has increased the likelihood of securing these deals? Or have you seen a quick improvement in the perception of Innoviz's product as a result of the Tier- 1 status? Thank you.
Definitely. I mean, before we had the ability to talk about our design win with Volkswagen as a direct supplier, there were car makers that at first perceived it as a risk. That was completely removed once we were able to talk about the fact that we were able to go through the quality assessment process to become a direct supplier to the group and to all of the brands in the group. Therefore, we already kicked off with some car makers. We already kicked off the process to become a Tier- 1, meaning that eventually a car maker, in order for them to add you to their supplier system, you need to go through a process and make sure that you meet their group standards.
All of their quality assessment for production, logistics, quality, software development. Since we were able to show that we passed that with a very credible customer, the motivation grew, and therefore, those were already starting. Funny enough, now that we are a Tier -1 to the Volkswagen Group, and we are on their system as a Tier -1, we were handed with an RFQ for radar to compete. We don't plan to answer the RFQ, but it shows that, once you're a qualified Tier -1 to the car company, basically it opens a door, or you can say connects the bridge between you and the car maker to offer the different technologies. Because becoming a Tier- 1 is not related to the technology, it's related to the company.
It means that you're a reliable supplier that the company can decide to work with. I find it as a very strong opportunity for Innoviz to grow going forward.
Wonderful. Thank you so much, Omer. Thanks for answering all my questions. I'll pass it on. Thanks again, and congrats.
Thank you.
Thank you. As a reminder, in order to ask a question, please raise your hand using your mobile or desktop application. Our next question today comes from the line of Kevin Garrigan from Rosenblatt Securities. Please go ahead.
Yeah, thanks for taking my question, and congratulations on the win. Just in the CapEx discussion, you mentioned that it's customer paid for the equipment. Can you give us a little more details on how that arrangement works?
Sure. I mean, Eldar, you want to?
Yeah, sure. Our investment in CapEx is offset to the client, meaning if a certain client needs a certain capacity, he's paying for the specific line that he is using. We are designing our own machines that build up the LiDARs, and we can very easily duplicate these machines and locate it everywhere in the world where it's needed. The cost is covered by our clients, so there isn't additional burden.
Yeah, maybe I'll.
on our cash flow.
Yeah, maybe I'll add to it, and sorry, Eldar. In order to build a LiDAR, basically there are two machines that we developed. One is for the optical assembly. Today with InnovizTwo it became significantly simpler than InnovizOne because we only have one laser and one detector, so the cycle time or the processes have been really shortened. The footprint of the machine is actually the size of a very similar table to what you're looking at. The capacity of every machine is quite high. It's in the order of 100 or 200,000 LiDARs in a year, and it's a very inexpensive, I would say, equipment. Eventually, you can imagine, and I showed it on the video, it's a robotic arm that places the optics.
That's the design that we developed, and we can build those machines, and as Eldar said, eventually we can place them in different locations in the world where it's convenient for the different customers. The footprint is small. The operation of the production is simple because it's all automatic. The ramp up and then we have experienced that already with InnovizOne, meaning that the production line which is consisting of this process, we designed it and built it and tested it in Germany, then we shipped it to the U.S., where Magna is managing this process. They are operating this. Eventually, this is one machine. The second one is related to the testing.
It's a chamber where you place the LiDAR inside, and basically there are targets that are moving in and out, and you need to calibrate and test the LiDAR. Once those machines are up and running, you can duplicate them and place them in different locations. They are not very expensive, and they have quite nice capacity. Other than that, when it comes to the PCBs, the electronic boards are very standard, I would say, material. We don't need to develop those processes. Those are very standard, and we can use companies to produce the electronics, and the assembly is very simple. I hope it adds more color.
Yeah. Thanks very much. That's great detail. Maybe just a simple question on the Volkswagen or, what's the configuration? Is it gonna be just one of your LiDAR or are there opportunities for, say, a lane change LiDAR or other LiDAR on the vehicle?
It's a single -LiDAR configuration. I'm not sure I understand the second question.
Oh, it's just, you know, some are talking about LiDAR for lane changing, you know, side views.
Well, the field of view. Yeah. I don't know if you've seen the video. The field of view is high enough. It's 120 over 40 degrees, which captures the field of view for any cut-in scenarios that is required by the customer.
Okay. Thank you.
Welcome.
Thank you. You have no further questions. Please proceed.
Okay. Thank you very much. I would say that in Innoviz there is a rush of excitement. We definitely see the vote of confidence from a customer like Volkswagen is a dream come true. Also, we are also seeing so many other opportunities that we are excited to have as well. I hope that we will be able to bring them to the table as well, and I'm sure we will. Thank you very much, and talk to you next time.