Good morning, and welcome to Innovate's Second Quarter 2021 Earnings Conference Call. Joining us today are Omar Kaylaff, Innovi's Chief Executive Officer and Eldar Segla, Innovi's 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. Innovis.
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 Innovis. Actual results could differ materially from those anticipated in the forward looking statements. Forward looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ materially from any forward looking statements, please see the Risk Factors section of our Form 20 F filed with the SEC on April 21, 2020.
I will now turn the call over to Omer. Please go ahead.
Okay. Hi. Thank you, Maja. Thank you very much. So today, we want to make another exciting demo for you.
Last time, we did it from our garage, and this time, we're going to do this on the highway. As you can see here, you can see this is road number 6. It's the longest highway in Israel. You can see our car here and you can see our lidar. Come check it out.
You can see here, we positioned our LIDAR on the front of the car, and we have a camera as reference, so you can see what it's looking at. Okay. So let's go back. Can you open it? Okay.
Okay. So basically, the demo that I'm going to show you now is for our LiDAR on highway and our computer vision, which is running on this platform, which you can see here, everything that we run is under a very small chip. It's actually a very low cost chip, which is automotive grade. And now let's go into the car and drive. Okay.
So let's go in the car. Sorry about this. It takes a minute to go inside. Okay. Okay.
So we will go out to the highway safely. Okay. So what you're looking at is Inuviz 1. This is our 1st generation automotive grade product that I showed you I showed you a second ago. And now we're going to turn on, okay, the computer vision.
I see it's on. And okay. So what you're seeing is not, it's not a prototype. It's not, it's actually embedded in in our platform, which is going to production. And this is a very unique, I would say, advantage that we have developing this for many, many years.
Innovisa is collecting a lot of data. We have over a 1,000,000 patient, object detection, the objects that were collected. And you can see here that the LIDAR has a very high resolution and very high frame rate. Now, this is important because whenever you want to get an impression of the LIDAR, it is very important that you will check the LIDAR performance a moving platform, in a moving vehicle, because I've seen many demos of LIDARs that are made in I think? A 100?
A 100 and 5. You can go better than that. Alright. Drive safely. A nice demo that you can get an impression of what we're capable of.
So this is what we do on a day to day basis. There is no other LIDAR that can actually meet this performance in terms of resolution, frame rate and range. We're very U. S. Too, it will be raising.
Okay. So thanks to you again. And I let's move to the earnings call presentation. So we can move to this camera. So let's shut down this camera.
Okay. So now we can go to the more formal way to do an earnings call. As you can see, we tend to try to do things a bit differently because I think it's part of our nature to be slightly more innovative. Okay. I want to start before going into the quarterly details, I want to give to reinstate our mission.
As you know, transportation is a big part of our life. And yet, it is still the biggest threat one of the biggest threats that we have on our day to day due to our need to commute whether we drive or not. And this definitely doesn't need to remain. There should be no reason in the world why the right technology would not solve this problem. And this is why Innovis is committed to develop the technology that will bring safety to us all.
Every year, there are 1,300,000 people dying on the road and up to 50,000,000 people that are injured. I will share with you my personal story. When I was 10 years old, one night my family got a phone call from the hospital telling that my older sister is seriously injured in a car accident. It changed the life of my family. It changed my life.
And it took my sister a few years to go back on track. She's fine now. And as you can imagine, it makes me understand very clearly why this problem has to be solved and it could be solved. 80% to 90% of all accidents are due to human error. 94% of all fatal accidents are related to human error.
So we need to remove the human error, and it's possible. We just need to develop the right technologies. My background is Unit 81. Some of you might not know Unit 81. It's a very prestigious technology unit from the Israeli Defense Force developing very unique technologies.
Our slogan and our spirit is about talent, passion and commitment can make the impossible possible. And that's why I believe many of our engineers that come from there decided to join Innovis because they feel passion to bring an impact to this industry. 5 years ago, when I started Innovis, I was told many times that what I'm trying to pursue is impossible, which is exactly what I was looking for. I was looking to bring the right solutions that can actually make an impact. And my belief that if a certain problem is important enough, there should be no reason to assume that it's impossible to solve it.
Now Innovis for that is developing a very unique technology. Our high end solid state LiDAR, which is targeted for low cost, is developed in order to allow carmakers to accelerate the adoption of life saving technologies. And that's why that's what we're doing. Developing impossible and solving impossible problems is not easy. It's not only about the excitement of autonomous driving.
It's really about the very hard work that my team is doing day and night to make it happen. And I'm very proud for my team that is committed to make it happen. Now I want to go into the quarterly updates, and I will start with the technology development. We have Innovis 1, which we've that have gone through several design cycles and it's on the verge to reach its hardware freeze. And that will allow us to reach high volume production.
There are currently 2 production lines that are active. 1 is in Germany and one in the U. S. That will support Innovis 1 manufacturing. Innovis 1 plus is evolution of Innovis 1.
It's a new version that allows us to improve the performance of the product by extending its range and doubling its resolution. And that serves more and more customers that will leverage on a very mature platform. It will also leverage on the existing production lines that can benefit that can reach to production faster. Innovis 2 is making great progress. We are meeting our plans.
There are already samples that are in production. We are waiting for the last component to arrive. It should arrive in October. And that will allow us to do the integration and have first samples. It's a revolutionary product that will have a substantial improvement in performance, above 30x and 70% cost reduction.
That will definitely accelerate adoption of the technology to many spaces. I'm happy to share with you some of the feedbacks and these are just a few of some of the comments that we get from customers that are using our product. It is very encouraging and I would say reaffirming our mission. We've been working for many years to make this available and it's great to see that our product is creating a good and strong value to our customers. And we will continue to develop new technologies to support our partners.
We have few cars. We have several cars around the world and it's growing. In order to collect more data, we collect data in 3 continents. This data is helping us to strengthen our computer vision. I'm showing you here 2 videos that can help in understanding how it works.
So when we go out and collect the raw data, the data is stored and we use it in order to build a catalog of objects, whether it's trucks, cars and pedestrians. We do we run everything through our computer vision in order to get classification and we use manual annotation in order to make it more accurate. And we have over 1,000,000 verified objects that are used in order to give us a ground truth for our perception. In parallel to this, we have simulation tools that help us to, again, strengthen our computer vision by having endless objects and testing edge cases and specific SIM, what you're looking at is a simulation of Innovis2, which is now in production and it allows us already to make progress. Now going to the commercials.
So we announced a few partnership and distribute new distributors throughout the last few months, and I'm happy to share more color on that. We have new partners in different countries. All of them are going to help us to generate more sales and get our products more mature. And of course, those in different countries that will are new to us. We have a new partner in China.
It's a cool startup called Whale Dynamics. Whale Dynamics is developing a full stack Level 4 platform and have decided to use Innovis 1 as their primary sensor in China. Coron AI, located in the U. K, developing computer vision solutions and applications for autonomous driving and smart cities. On the distribution, we have a new partner in Singapore, which we just recently announced.
Imperium is a very interesting company that is developing softer, robust autonomous driving that is doing sensor fusion, again decided to use Innovis BONE for their platform and will help us to distribute our solution in Singapore. EDOM is one of the largest electronic and semiconductor in China, and they will serve as a path as a channel for us to increase our sales in China, but also to provide support to customers. Spring Cloud is a very known B2B company in Korea, mobility that provides mobility as a service. And their intention to provide to have a strong ecosystem of autonomous driving in Korea, they've decided to use Innovy. I want to use this opportunity to thank all of our partners in this space and for more than that, for working with us.
It's an important journey. Now this slide, which it talks about probably 90% of Innovi's attention in the last quarter and basically throughout every day. It's our engagements with new customers. When we are working with customers that are looking to use the LiDAR, the discussions are far more complex, more complex than just talking about the KPIs of the LIDAR, which is resolution, range and frame rate, which I would love to talk and explain why we believe that Innovis 1 and for sure Innovis 2 is the most superior LIDAR in the space. But the discussions are far more complex and goes into any angle which is related to going to high volume manufacturing.
Those are the discussions that are related to mechanical integration within the car, quality audits, manufacturing plans, yield reliability, ASPICE and cybersecurity. I'm very proud of my team that is able to keep a very strong relationship with multiple customers and serving as a university for knowledge of how to develop an automotive LiDAR, we've been told by a very strong OEM in the space that Innovus is really the company with the highest level of expertise and knowledge in how to bring the lighter to automotive, and I'm very proud to hear that. So far, we revealed about 2 design wins for series production in the automotive space. We told you about our award with the shuttle program with the European Tier 1 that is going to that is planning out to have the shutters already end of next year. This program is going well.
We had several integration sessions on both sides. Also on the BMW program, things go on track. We are on the verge for a design freeze that will allow us to go to the D sample, having our product going into SOP of our line in middle of 2022. Here, I want to mention another category, which we haven't discussed previously, but it is important for us to give this guidance. We have 2 programs that already are in what we call advanced development project.
Those are customers that have evaluated different types of sensors and decided to use Innovis as the primary sensor to announce that we have signed another contract with European truck company that decided to use Inovis LiDAR's Inovis 1 as to equip all of its trucks beginning of next year for their testing and development of their platform. This is, of course, going along with a lot of activities we do on a lot of management. As a summary of our funnel, we've got nice propagation between the different stages, increase of the number of partners and customers going into the commercial requirements and negotiation. We are showing here a new category of the ADP, which has grown by 1, an increase of our potential order book by $200,000,000 I will be happy to explain more about our order book. These are questions that we are getting from time to time.
I'm referring to the $2,400,000,000 that comes from the BMW program and the shuttle program. The way we calculated these numbers, the order book, is a very straightforward way. We took the number of cars that BMW is selling on average on every year through the models that are expected to use our LIDAR, which are the 7 Series and the 5 Series and more and others. And we multiplied it by the penetration rates that we expect and we took as a benchmark the radar technology, which was in a similar position, and we multiplied it by the ASP that was agreed between the companies. And this is how we reached the $2,000,000,000 It's a very familiar standard process that companies are doing in this space.
On the shutter program, there was no benchmark. So what we've done here is slightly different. We received from our customer 3 scenarios in which they believe the program will grow. And we took also the minimum committed volume that was granted in our contract when we signed the deal. We did a weighted average while giving the minimum the highest probability has been a conservative approach, which led to the total sum of $400,000,000 And I would add to it that things are going very well, and we actually are more optimistic about us being in a much more bigger position and growing this order book.
Now going into the corporate update. We've increased our staff to support multiple programs. We had 29 hires, most of it comes in the R and D. Here, I want to share with you something that is important for me as the CEO of this company. In the last two quarters, we had about 8 people that used to work at Innovis in the early days and decided to leave because they were exhausted.
And they decided to come back. For me, it's a very strong recognition. You asked them for the reason of them coming back, it was mostly because they missed working in the movies and they feel passionate about going back and complete our mission. For me, as a CEO of the company, it's the most important thing and hopefully it will continue. I will hand over it now to Ildar to go over the financials.
Thank you, Omer, and good morning, everyone. Revenues for the Q2 of 2021 were $1,000,000 an increase of 39% compared to the Q1 of this year. We see continuous growth from our InnovisONE product. InnovisONE related revenues for the Q2 of 2021 were $990,000 an increase of 29% compared to the $770,000 in the Q2 of 2020. We expect the portion of the revenues from Enovese 1 LIDARs to increase as we increase production to meet order volumes.
Operating expense for Q2 2021 was $70,700,000 an increase from 13 $500,000 in Q2 2020. The $70,700,000 of operating expenses included $49,900,000 of stock based compensation as well as $1,800,000 of issuance costs. The primary reason for the increase in operating costs was $47,000,000 attributable to stock based compensation granted as part of the SPAC business combination. In Q2 2021, we continued to invest heavily in R and D, with R and D expenses totaling $32,000,000 of which $17,600,000 was attributable to Spark based compensation compared to $11,500,000 of R and D expenses incurred in Q2 2020, of which $500,000 was attributable to stock based compensation. Our balance sheet as of June 30, 2021, reflects the closing of our Spark business combination transaction with $156,000,000 in cash and $195,000,000 in stock in short term deposits.
Through this transaction, we are maintaining significant cash levels of over $350,000,000 that will support the company's cash needs in the coming years. Our issuance costs were 26 point $3,000,000 paid in cash and $77,300,000 through equity. Innovis primarily Innovis private warrants are classified as liabilities and are measured at fair value through earnings. During the 3 months ended on June 30, 2021, the company recorded $850,000 loss related to the change in fair value of the private loans. Before I turn the call back to Omer, I would like to briefly comment on the F-one we filed on July 27.
As part of the business combination with the SPAC, Innovis agreed to file a registration statement on Form F-one to register the release of shares and warrants of pre closing Innovis security holders and PIPE investors. Innovis filed a registration statement and it was declared effective by the SEC on August 3, 2021. While the shares of certain pre closing Innovate shareholders registered for resale remain subject to 180 days of contractual lockup, the shares of pipe investors are now freely tradable. This completes my financial overview. Back to you, Omer.
Thank you, Elgam. Okay. So last statement.
Thank you for joining us on today's call. We are pleased with our development in the past quarter and believe we are in the right path to grow and become the multiphoner. We have been and will continue to be focused on several big opportunities that are out there for us. In everything we do, in all solutions, safety comes first. For us at Innovis, safety is not just a lighter feature.
It's the reason we are in business. It's our mission, our driving force. The more our customer base and pipeline grow, the safer the roads of the world will be. Thank you very much, and I'll be happy to answer your questions.
Thank you. Our first question today is coming from the line of Michael Filatov. Michael, please unmute yourself and go ahead.
Hi, guys. Can you hear me?
Yes. Hi, Michael.
Great. Hi. How are you doing? This has been a great presentation. I really appreciate it.
I don't think I've seen an earnings call in a car before. So I'm a big fan. Anyway, so first things first, I just wanted to sort of get maybe more of an update on the BMW award. It sounds like we see start of production in Q2 of next year, which maybe implies we start to see it in cars in the back half of next year. But I mean, is that the right way to think about it?
And maybe could you confirm which model you expect
to see it launch on?
You mentioned the 5 Series, the 7 Series, but I guess there was a quote from the SVP of automated driving a BMW that said maybe the IX would have this new technology toolkit. So any comments around that would
be helpful.
Yes, sure, Michael. So first, I can only repeat the quotes from BMW public quotes. Recently, 2 months ago, there was a quote saying that they plan to use Level 3 technologies on the 7 Series, the 5 Series and the IX, as I mentioned. Related to the time line, we cannot quote on behalf of BMW. We can't give a quote on our readiness for production, which is middle of next year, and that is related to the production validation of the Magna wholly production line that is now in position to the B sample.
Okay. Understood. Understood. And then Eldar, maybe a question for you as well. You guys said in the press release, you're reiterating sort of confidence in the long term guidance.
Now I'm not sure if that includes the 2021 revenue outlook for from the stack presentations. But if so, that would imply sort of a pretty big ramp up in the back half of the year. Do you still feel comfortable about the target you'd laid out for the full year? And if so, I mean, what should we expect for the back half?
So basically, we did not give guidance specific guidance for this year. Of course, there are the projections that we showed during the this should be impactful on our revenue stream.
Okay, got it. And one more, just last quarter you referenced 6 prospects in the late stage commercial negotiations worth about $3,000,000,000 of order book, including 4 engagements, I believe, with OEMs. Now that number of prospects has grown to 8, and I'm wondering, which is great news, but I'm wondering if you could give an update on whether or not the same 6 prospects are in that included in those numbers? And then what's the mix? Are any more of those OEMs or sort of other opportunities?
So out of those 6, one of them propagated into the ADP, which is a truck company. There are additional 3 that enter that stage. The bigger programs are still ongoing and we have we are actually very optimistic about those. We are making very good progress, and we will give updates once those will converge in the next 6 to 12 months.
Okay. All
right, great. Thanks a lot guys. I appreciate it.
Thank you.
Thank you, Michael. Our next question comes from the line of Mark Delaney. Mark, please go ahead and unmute yourself and ask your question.
Yes. Can you hear me?
Yes. I'm here.
Thank you very much for the presentation and the demo. Very helpful to see. Question on the intermediate term outlook and I think in the de SPAC presentation, the company had talked about $1,000,000 of revenue in the plan for 2022. Wondering if you guys still feel comfortable with that general zip code of revenue as we're trying to think
about next year? So we are not yet changing our guidance on that. We are ramping up our production line. We are as I said earlier, we are on the verge of losing our design, which will allow us to increase our volume, and that will allow us to reach much higher revenues. Anything you want to add
to this? Yes, that amount, that's good.
Okay. That's helpful. And then the follow-up question was around gross margin. And I think last quarter, you mentioned some very good progress on your manufacturing yields getting to, I think, in excess of 90%. Is this potentially some good progress on yields?
At the same time, there's been a lot of increases in component costs impacting a number of different parts of the automotive industry and potentially some of those higher costs could be sustained into the 2022 timeframe. So as you think about some of those puts and takes in terms of input costs as well as where your yields are tracking. Maybe you can talk about whether or not you feel comfortable with the gross margin trajectory that you had outlined. Again, you're not trying to get specific to this year, but over the intermediate term. Thanks.
So we still don't know the full impact of the situation, if it's going to be maintained, the shortage of components. At this level or during this year, it still has some impact, but very low impact because the volume out volumes are low and the impact is a factor of more of the production might ramp up and the different overheads that are against the relative low volume? Maybe I can answer this.
If I may go ahead. Okay. So as you know, Marc, that we are on a program for automotive grade. And as such, we are required to keep our design open as long as we complete the design validation in order to make the needed changes. As of today, we have completed the design validation of the existing design, and we don't see yet any reason to make any change.
So we are optimistic that this design, the one that we are now entering into, will not require any change. We've gone through a lot of testing. Once we will get to the time that we will see that all of our tests have passed, we can freeze the design and go to higher volume. Once you're in an iterative mode, you cannot go into high volume orders that obviously have impact on the cost of each part of the device. And therefore, once we will freeze the design, it will allow us to work with bigger batches of the different components, and that will allow us to improve our gross margins.
I hope I'll add some follow-up.
Understood. Thank you very much.
Thank you.
Thank you, Mark. Our next question comes from the line of Kevin Cassidy. Kevin,
Congratulations on the progress. I just maybe along the same lines of manufacturing, what are your agreements looking like as you're setting them up for holding inventory or how much inventory your customers might be asking you to hold for them? Or will the customer hold inventory? I just want to understand the production ramp. So thank you for the question.
So usually how it works in the automotive is that the different customers ask for a minimum quantity. This is the minimum that is usually a relatively low number and low commitment. And these commitments are expected by the different vendors to be met. So at least at this point of time, I don't see any significant ramp or significant obligation to stock up additional inventory in order to meet these minimum orders. Of course, we are very optimistic about the ramp up.
And once U. S. OPs start of production, you can assess the real ramp up into the market and according to which, and it's usually half a year in advance, you can assess the committed volume and do the relevant purchases.
Maybe I can add something. I think it's also important to understand that in our engagement with Magna and BMW, our business model is such that the inventory is actually held by Magna, not by us. So we sell Magna our components. So most of the inventory is actually held by the Tier 1 and Opus.
Us. Our next question is coming from the line of Michael Filatov. Michael, go ahead and unmute yourself.
Thank you, guys. Figured I'd come back for a little more. So, yes, you talked about the Innovis 1 plus Now, I'm just wondering when you expect that to be ready for serial production or high volume production. Is it fair to assume that the timeline to say a D sample product for the Innovis 1 plus would be quicker than it would be for a new product given that it's based off the Innovis 1 architecture?
Yes, definitely. Based on the fact that it's a very minor change in just basically a few components, So the design validation and production validation would be faster. Currently, when in discussions with customers, we're talking about an automotive grade version 1 year following the Innovus 1 as a precaution, but we are planning to push it there faster.
Okay, got it. And is there any way you could frame sort of the improvement in performance in terms of quantitative metrics between Innovus 1 and Innovus 1 plus? Yes.
It's doubled the resolution from 0.1 to 0.05 degrees resolution and about, I think, around 30% range improvement. So it's taking us to the 400 meters that we need. So it's a very interesting product. We just had a very good trip to the U. S.
Now that Corona is allowing some more traveling. It's great to get some firsthand demos and demonstration. I think there is a very good fit for Innovis 1 plus for the truck industry. At least that's kind of it seems that there is a very good interest coming from that area.
Got it. Okay. Thanks. And then should we assume that the Innovus 2 is still on track to be delivering samples to customers by the end of the year?
Yes, yes. We already did several design validation showing us the 30 times and actually higher improvement in the optical performance. We're very eager to have the first samples in our hands starting to build it. Most of the components are on their way to in production and the boats are in production and we're going to have it integrated for the first time during October and to be able to ship first samples to customers that we are in discussion with. It's a very intriguing product due to the very high performance and cost.
This I mean, I can use this opportunity maybe to share more information. Innovus 2 is 70% cost reduced versus the Inovus 1. And I was asked several times about how we managed to do it. And maybe here I can say that Inovese 1 is based on 4 lasers and 4 detectors in order to scan the entire SIEM. In Innovative 2, we're going to use only 1 laser and 1 detector, which explains how we managed to make it significantly cheaper, not only because of the less number of components of the laser and detector, but also because the number of optical alignment and basically optics collimators, etcetera, everything becomes much more simple.
The production cycle is going to be extremely faster because it requires alignment of only 1 channel versus 4, actually more in Novus 1. And I think it's a very attractive product. It's intriguing to think about how we can use less lasers in the next product, but probably one would be the limit.
Got it. No, it's helpful. Looking forward to hearing customer feedback when that gets to your customers. One last one. You talked about how KPIs sort of performance specs aren't really they're not the whole game, right?
And there's lots of other factors that your customers consider when evaluating LIDARs. Maybe you could talk about how your experience with BMW sort of helps you win with these other OEMs? Because I think we all know at this point that it wasn't the easiest road and they have a pretty high bar for testing and validation. So how that sort of prepares you to win with other OEMs?
Definitely. I think one of the things I saw in the last quarter that in many discussions with customers, We are Innovis is like a university for LIDAR development. We have a menu of many topics that I think that Innovils keeps a lot of knowledge around when it's related to developing LIDAR for automotive products. And these things that are related to from cleaning system to the integration with the camera and simulation of the heat transfer. So we've done a lot of lessons learned throughout this process.
We really give the menu to our customers and I see that there are many things that we have gone through and have experienced that the carmakers that are now doing audits for a solution are leveraging from our experience. So I think this is a big element out of this and but also into the KPIs because when you think about an autonomous car driving on the highway, there are many use cases that we encounter that we can provide as guidance to the customers in order for them to understand. This comes from also from obscureness of the cars and how to manage a situation when suddenly you have dirt on the window and calculations that are related to reaction time of the car in specific scenes. We have a lot of tools for simulation of driving scenarios that we share with our customers. So it's really end to end.
It's also related to logistics and RMA. And for sure, in the computer vision, there are many fields, many elements there that are related to lane detection and under drivable, over drivable. I mean, I'm happy to do maybe next time sessions that we can share more information about the way the market is analyzing the requirements for the LIDAR and maybe explain better for the market to understand how those requirements are eventually translated to the LIDAR. I can happily do it next time.
That would be great. Really appreciate the time. Thanks.
Thank you. Our next question comes from the audience, and I will read it on their behalf. What does the 1,000,000 object annotation mean for the Innovus app platform? Are there more platform developments coming?
The computer vision is a growing asset. And what I mean is that the more data that you collect in your catalog, the more the stronger the confidence level that you have with your algorithms. Now in order to have a strong as in any AI, data is the fuel behind it and you need to have very accurate data set that is used for training. 1,000,000 validated objects means that there was someone that not only collected the data, but also verified its accuracy. And this is kind of a ground truth that is used by our system.
And it carries over beyond the INUVIUS 1. It goes to the Innovus 1 plus and it goes to the Innovus 2. And we collect it ourselves. By the way, we're also collecting it through our partners that are giving us edge cases as they are using our LiDARs outdoor. And whenever they see an interesting case, they are sharing it with us.
So it helps us also to cover some corona cases.
Thank you. You have no further questions. Please move ahead.
Okay. Thank you. No further questions. Okay. So thank you all very much.
Keep following us on LinkedIn and Twitter. We'll try to share our path and our journey on a day to day basis. And see you next time on the earnings call.
Thank you very much. That does conclude our call for today. Have a great day.