Innoviz Technologies Ltd. Q4 FY2023 Earnings Call

Good morning, this is Rob Moffatt, Vice President of Corporate Development and Investor Relations at InnoVizz, and I want to welcome you to our earnings conference call. Joining us today are Omer Keilaf, Chief Executive Officer, and Eldar Cegla, Chief Financial Officer. Following their opening remarks, we will open the call to 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.InnoVizz.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 InnoVizz. 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 important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the risk factors section of our Form 20-F filed with the SEC on March 9, 2023. I will now turn the call over to Omer. Please go ahead.

Thank you Rob, and good morning everyone, and thank you for joining us. We have a lot to talk about today. Q4 was a record quarter for us. There has been some important customer progress since the year ended and since the quarter has ended. The first thing I want to highlight is the amazing revenue performance: full year revenues of nearly $21 million were up 246% year-over-year, and even with raising guidance mid-year, we came in above the high end of the guidance range. In addition to that, we delivered Q4 2023 revenues of nearly $15 million, an increase of nearly 850% year-over-year, and also above the high end of our quarterly guidance range. The strong revenue performance came from a combination of production revenues, robust sample shipments, and NREs, and it validates our three-pronged approach to growing future revenue streams. We also saw positive customer developments in the quarter with BMW and Volkswagen unveiling a new shared program with Mobilite as the platform partner, and unveiling a strategic realignment to maintain our cost discipline and extend our cash runway as we position the business for rapid transformational growth. The combination of strong revenues and disciplined cost management led to an impressive cash performance with our quarterly cash burn at just $14.5 million, a record low since InnoVizz became a public company, which allowed us to finish the year with approximately $150 million in cash and equivalents, leaving us with a strong runway that we expect to last through the market share capture window. I’ll go through each one of these topics now. Let’s start with the news we shared today on BMW. In this morning’s earnings press release, we disclosed that we are working on a second vehicle and the geography for the InnoVizz 1 deployment. When we first announced the production award several years ago, we said that the InnoVizz 1 was tested and certified on three vehicles: the 7 Series, the 5 Series, and the iX. But to date, we’ve only been able to share details on the 7 Series, which is now on sale in Germany, with delivery scheduled to begin in the upcoming weeks in March of 2024. Today’s news is that we are working on an InnoVizz 1 deployment on the BMW 5 Series in China, which is a very important geography. BMW recently received approval to begin level 3 testing in China, and we are working closely with the teams performing on-road testing and software development specific to the Chinese market. If all goes well, we could see the technology deployed on the locally built 5 Series. It is still early to share a lot of details at this point, but we expect that we’ll have more to say in the coming quarters. Moving on to Volkswagen. At CES, we unveiled the ID.Bus light commercial vehicle program as our second program with the Volkswagen Group. This represents an important development for three reasons. First, it shows the strength of our relationship with Volkswagen; our progress towards SOP with our first program is tracking well, and they have confidence in our ability to bring a second program to market within the same timeframe. Second, the volumes from these programs are incremental to the award that we announced in 2022, supporting additional revenue growth and accelerating our path towards breakeven. Lastly, it deepens our relationship with Mobilite, who is working as an autonomy platform partner for the Volkswagen Group. The ID.Bus is a light commercial vehicle aimed at the mobility market. It will be a level 4 program with multiple riders per vehicle. A test suite of vehicles is being deployed in Austin, Texas, and Munich, Germany, and we expect the program to become increasingly visible to the public as we go through 2022-2024 and the test suite grows as it progresses toward a planned 2026 commercial launch. Additionally, development with our first Volkswagen award is progressing nicely. I flew to Germany to deliver the first batches of our InnoBis 2B sample with our second-generation ASIC, and our partners at VW couldn't be happier. We are gearing up for advanced winter testing in Germany and Sweden and will remain focused on the B sample phase in 2024, before moving to the C sample and D sample phase in 2025 as we progress toward SOP later in the year. All in all, I’m very excited about the progress we are making with this important customer. Throughout 2023, we said we believe there are additional opportunities for us at Volkswagen beyond the series production award we secured in 2022, and with the ID Buzz announcement at CES, we delivered on that promise. But we are not stopping there. We are actively working on an additional one to two programs within the Volkswagen Group, encompassing multiple brands, multiple platforms, and multiple vehicles. It’s too early to share further details than that, but we hope to be able to disclose more as we go through 2024. Volkswagen is the world’s second largest automotive OEM, capable of producing over 10 million vehicles per year. We believe that there is a long runway for growth. We also see a long runway for growth with Mobilite as an autonomy platform partner, as you've heard us talk about before. There are three leading autonomous driving platforms in the automotive industry: Mobileye, Qualcomm, and NVIDIA. These partners operate the compute hardware and software that integrates the sensing and perception inputs from the various ADAS components such as LiDAR, Radar, and Cameras, and play an important role in the sensor fusion and driving decision layers of software. We currently have series production awards with two of these players: Mobileye and Qualcomm, and we are working on several NVIDIA programs in our RFI and RFQ pipeline for the Epirian platform. For innovators integrating with these platforms establishes a meaningful competitive advantage that can reduce friction in the LiDAR selection process and increase our odds of winning additional business from OEMs. Being already integrated with the major compute platforms on existing programs can significantly reduce the time, cost, and risk that it takes for additional automakers to deploy the same system. We are essentially becoming an off-the-shelf solution, making it increasingly easy for additional OEMs to choose InnoVizz as their LiDAR supplier. This is further enhanced by the work that we are doing ahead of our Volkswagen SOP. In order to be ready to launch on time, we are planning our InnoVizz 2 production capacity to be prepared to ship by late 2025. There are many OEMs targeting launches in 2026, '27, '28. The fastest, least expensive, and lowest risk way to prepare for this is with an autonomy platform partner like Mobileye, Qualcomm, or NVIDIA, and with a LiDAR supplier that has already proven they can deliver on SOP milestones and with the technical capabilities, price point, and SOP timeline of the InnoVizz 2. Next, I will provide some thoughts on the global regulatory environment and discuss some important updates both globally and in China, and how we see these developments shaping the LiDAR industry. As many of you know, the United States Department of Defense continues to be very active in terms of identifying companies that may have ties to the Chinese military. To the extent that the DoD places specific LiDAR companies on its 1260 age list, it could make it more difficult for these companies to win business with global OEMs that sell into the US market. Conversely, if similar actions were to be replicated within the Chinese regulatory environment, it could make it difficult for the US LiDAR companies to be deployed on vehicles aimed at the domestic Chinese market. This is where InnoVizz has another competitive advantage. As an Israeli company, we’re not caught up in the politics on either side of this debate. I like to say that InnoVizz is the Switzerland of LiDARs. We are neutral and can serve customers globally. We have plans to operate in China with both BMW and Volkswagen. We’re actively quoting multiple RFIs and RFQs with global OEMs that plan to sell into the US and the Chinese market with the same technology stack. The cost of bringing a level three or level four program to market is substantial, and it’ll be extremely expensive for OEMs to run duplicative tech stacks in different markets with different LiDAR vendors. They need to absorb those costs across as many units as possible with the global LIDAR platform. And with that, let’s segue into what I think is some very positive news out of China. In addition to BMW, multiple other OEMs have received permits to begin level three testing in China in late 2023. To date, China has been a level two market. What we are seeing on the ground is a rapid pivot toward accelerating the development of level three autonomy. The Chinese automotive market moves very fast, as does technology. If regulators there decide to embrace level three autonomy, it can be done in a very short time. Similar to the prior topic, this could have implications globally. Chinese OEMs have proven themselves as very competitive manufacturers of highly capable vehicles at affordable prices, particularly when it comes to EVs. And while Chinese exports haven't found their way to the US market, they are starting to have an early impact in some parts of Europe and the rest of the world. This is a topic that OEMs are paying close attention to. If China rapidly pivots toward embracing level three autonomy in the same way that it rapidly pivoted toward embracing EV technology, this could add another layer to the global competitive environment. At a high level, we foresee Western OEMs accelerating their level three autonomous platform timelines to get ahead of incremental competitive threats from Chinese OEMs. This has the potential to accelerate level three timelines globally. It could create a level three gold rush. Next, I want to talk a little bit about the strategic realignment we announced at the end of January. As we have talked about in the past with both the InnoVizz one and InnoVizz two programs in the development stages, we had been running two parallel cost structures, but as the InnoVizz one sensor and perception software shifted into series production late last year, much of that development work was completed with the InnoVizz one work stream winding down. We initially reallocated headcount towards development projects like the LIDAR-based minimum risk maneuver or MRM software and the InnoVizz core AI compute model. In discussing these technologies with new customers, it became clear that most OEMs are hyper-focused on more mature solutions like the InnoVizz two sensor and perception software and bringing those technologies to market as soon as possible before focusing on other products. With that in mind, we made a decision to concentrate the majority of our go-forward investment on the InnoVizz two sensor and perception software platform and bringing that to market. With the rich RFI and RFQ pipeline that we already have, we allocated as much of our staff as possible to InnoVizz two focused projects. The transition offered an opportunity to train some planned expenses to help reduce our burn and extend our cash runway. As a result of these changes, roughly 13% of the company headcount was reduced, along with some related OpEx and CapEx. The cost of these actions is expected to be fully completed by the end of the first quarter and are expected to reduce our planned cash outlays by $22 to $24 million on an annualized basis. We also used this transition as an opportunity to integrate our hardware and software development departments into one unified R&D unit, which had been running separately. The new combined group will be led by Aisha Musci, who has served as our head of software reporting to me for the past several years. As part of that transition, Oren Buskila, our current chief R&D, will be moving on to pursue a new opportunity outside the latter industry. We thank him for his many years of service and wish him the best of luck. Aisha has already begun her work on integrating the two departments and reorganizing the work streams in a more efficient way that allows for faster product development and simplified customer planning across both hardware and software. This is not just a reorganization of a few teams; it’s about entirely different workflows and processes aimed at positioning the company for rapid transformative growth across multiple customers. It’s an important reset of our organizational structure that will allow us to serve a much larger number of clients in the coming years. One example of how we are focusing our go-forward investment on the InnoVizz two sensor and software platform includes a new slim design sub-variant that the team developed. We have a customer in the pipeline that is focused on going to the market with a behind-the-windshield LiDAR solution. It would sit in the area around the rearview mirror. A deployment like this requires a very slim profile as there are already other sensors and technology in the same part of the car, and because it’s easier to integrate it into the windshield due to the curve of the glass. The customer is a top 10 global automaker with potential for meaningful ladder volumes. The team worked to develop a hardware solution that could meet their strict physical requirements without sacrificing performance or requiring a meaningful re-engineering of the interior components. This part was critical for us as we want to share as much of the interior engineering cost with customers as possible to reduce bespoke hardware work, driving volume-based costs lower and incremental margins higher. It took some time to solve for, but ultimately there were several creative solutions that overcame the challenges. In the end, it resulted in a new exterior design that reduced the height of the sensor from 45 millimeters to potentially a smallest 25 millimeters. The customer was impressed with our solution, and we have continued to move forward in the bid process. This work isn't specified to just one customer. We think it can be broadly relevant to future programs interested in behind the windshield or slimmer roofline deployments where the new profile could be appropriate. This is just one example of how concentrating our time, focus, and investment on the InnoVizz two platform can result in solutions with a broad market fit and earlier potential payoff and likely higher overall return on investment. And with that, I will turn the call over to Eldar to review our Q4 '23 and 2023 financials.

Thank you, Omer, and good morning everyone. Starting with cash, we ended Q4 2023 with approximately $150 million in cash, bank deposits, marketable securities, and short-term restricted cash on the balance sheet. The combination of strong revenues coupled with disciplined cost management led to the lowest quarterly cash burn in our history since becoming a public company. Cash used in operations and capital expenditures came in at roughly $14.5 million, which compares to prior trends in the $27 million to $29 million range. Needless to say, we were excited with this outcome, and it demonstrates the impact that growing revenues coupled with cost management can have on the trajectory of cash lines. Looking to the income statement, revenues in Q4 2023 came in at $14.9 million compared to Q3 2023 revenues of $3.5 million, delivering a 328% quarter-over-quarter increase. On a year-over-year basis, it compared to Q4 2022 revenues of $1.6 million, delivering a growth of nearly 850% year-over-year. This led to full-year 2023 revenue of $20.9 million, well ahead of the high end of our guidance range, coming in at a very strong 245% year-over-year growth in revenues. On the cost side, operating expenses for Q4 2023 were $29.5 million, a decrease of 12% from $33.5 million in Q4 2022, and on a full-year basis, 2023 operating expenses of $121 million came in roughly $4 million lower than the full year of 2022 for a 3% decline. This quarter’s operating expenses included $5.5 million of share-based compensation compared to $5.3 million in Q4 2022. Research and development expenses for Q4 2023 were $22.1 million, a decrease from $26.2 million in Q4 2022. The quarter’s R&D expenses included $3.6 million attributable to share-based compensation compared to $3.4 million in Q4 2022. In conclusion, the financial performance in the fourth quarter and the full year of 2023 was stellar. We exceeded our revenue targets all while controlling our cost and executing on critical milestones like the BMW-SOP, which led to a fourth-quarter cash burn that was our lowest in history since becoming a public company. Going forward, the strategic realignment shows a continued focus on disciplined management of cost, which when coupled with continued revenue growth has the potential to extend our cash runway through the remainder of the market share capture window. And with that, I will turn the call back to Omer.

Thank you, Eldar. Looking back at 2023, I'm proud to say that we have delivered on many accomplishments. Our most meaningful progress was on the existing customer side with BMW; we successfully managed to transition into full series production on the i7 with the InnoVizz 1, making us the only other pure play company with a level three passenger car on the road. For the InnoVizz 2, we initiated the B sample work we announced in August, which we expect to be the foundation for an expansion of additional development work packages. On the Volkswagen side, we disclosed a second program with the ID Buzz, and we made meaningful progress on securing one to two additional programs that we think we can get over the finish line in 2024. As a reminder, the ID Buzz is incremental to the Volkswagen Award that we announced in 2022, and the additional one to two programs that we hope to convert soon could be meaningfully incremental to our existing Volkswagen volumes. Growing our contracted production volumes is our number one goal. We are indifferent to where the volumes come from, whether it's from an existing customer or a new customer; each brings its own benefits. Additional volumes and NRE service revenues with an existing customer can require less incremental work and relationship management, along with other synergies resulting in a stronger margin profile over time. Volumes from new customers can offer entry points for new growth in additional vehicles and platforms down the road. In addition, locking up incremental market share volume from either source helps absorb our fixed cost and brings us closer to being breakeven and ultimately free cash flow positive. 2023 was very productive in terms of growing our relationships with new customers. While we made meaningful progress, particularly on the RFQ side of our pipeline, we didn’t reach sign series production awards with new customers before the end of '23, though we hope to convert them in 2024. Out of the 10 to 15 programs in the pipeline and the roughly half that are in the more advanced RFQ stage, we had three programs in particular with new customers that were further along than others and were planned to make a decision by year-end. Two of the programs are for global deployment of level three vehicles. Those program decision timelines have been pushed into 2024, and we remain very active on the programs in advance RFQ process that we believe includes only five. A few final players will remain confident that we have a strong position in these RFQs and that we have good odds of converting them into production. One of the three programs was targeting a global deployment of LIDAR-enabled level two vehicles very late in the year. The customer pivoted this program to be a China-only vehicle and is now exploring a separate global level three program for a different vehicle at a different date. We were not the natural choice for a China-only basic level two deployment, and the award went to a local Chinese player. However, through the process, we have built a solid relationship with the customer, and they appreciate and respect our technology, and we are expecting the RFI process for the new global level three vehicles in the coming months. While the revised China-only RFQ has moved out of the pipeline, we had two new RFIs from major global OEMs come in, resulting in a net positive gain of one program and leaving the pipeline still in the range of 10 to 15 programs with roughly half still in the RFQ process. As for the NRE bookings, while we were able to secure roughly $12 million of new bookings, having the new customer program decisions move into 2024 made it difficult for us to hit our '23 targets. Similar to our new customer targets, we simply viewed this metric as pushed out. We rolled this target over into 2024 Outlook where we are confident that we can meet and ideally exceed. There are many deals on the table, and we believe that we are in a strong position to bring several of them over the finish line. For the cash collection target too, the payments planned for December '23 for work completed in '23 came in a few weeks later, arriving in early '24. These late payments would have pushed us towards the midpoint of the guidance range. On the revenue side, '23 was very strong. Full year revenues of nearly $21 million were up 246% year-over-year, and even with raising guidance mid-year, we came in above the high end of the guidance range. We accomplished that through a combination of production revenues, sample shipments, and NRE service revenues. While customer decision timelines, which are outside of our control, didn’t conclude before year-end, I feel like the outperformance on the revenue line is proof of our desire to build a longer-term track record of under-promising and over-delivering. Based on the conversations we are having with customers, OEMs are still very much focused on making autonomy a reality. In fact, we are seeing a shift in the OEMs' priorities away from electrification and towards autonomy. OEMs know that consumers are increasingly buying cars based on technology, not horsepower, and market share trends will be awarded to those that are on the cutting edge. With the EV evolution stalling, OEMs are eager to pivot to the next big mega trend, and there appears to be a growing consensus that it will evolve around level two plus and level three autonomy. On the competitive side, we are seeing LIDAR players struggling with their technology and SOP timelines. Meanwhile, their customers see the progress that is occurring with InnoVizz at BMW and Volkswagen. As a reminder, the ID Buzz was a competitive conquest win. Looking forward to 2024 and beyond, we believe there could be additional opportunities for conquest in 2024. We're simplifying our guidance structure to three metrics. Since much of the activity that we’re expected to conclude in late 2023 is still ongoing and very active, we are essentially rolling over those targets into '24. If the scope of activity that we think is possible plays out, we are confident that they will prove conservative and we could have the ability to raise them during the year as we did with revenues during 2023. On the customer front, we expect two to three additional programs from both existing and new customers. On the NRE service revenue side, we expect that we'll translate into $20 to $70 million of new NRE bookings in 2024. For revenue, we are going to revert to quarterly guidance. Last year was the first year we gave annual guidance, and it was a little premature. There are many factors that can influence full-year numbers, including lumpy income that may be recognized either as revenue or a contract expense depending on accounting treatment, which is difficult to know in advance at the beginning of the year. It is also difficult to know in advance what take rates on the i7 in Germany might look like and the timing for adding additional vehicles or additional geographies such as the 5 Series in China to the InnoVizz 1 deployment. We saw how this played out in 2023. We initially set the bar too low at $12 million to $15 million, then we raised it to $15 million to $20 million, and even that proved conservative by year-end. We don’t want to set the bar too high, but we don’t want to set it too low, and we feel like quarterly guidance will ultimately be a more prudent and accurate way to approach revenue targets. With this in mind, we are targeting first-quarter of '24 revenue of $5 to $6 million, which would be up roughly 400% to 500% year-over-year. Similar to 2023, we expect revenues to be more back half weighted based on seasonality, channel field, and customer activity. All in all, we are off to another exciting year in 2024. We are extremely busy pursuing additional programs with both new and existing customers, and we know that we have a lot to deliver on. We are also ramping up our work towards the InnoVizz 2 SOP, which is right around the corner. We are already deep into the first quarter of 24, and to be ready for 2026 shipments, we are preparing the InnoVizz 2 product roadmap and production capacity to be ready for late 2025. This will be here sooner than you expect. This is obviously important for our existing customers, but it also gives us a critical competitive advantage that is becoming a point of increasing focus in our conversations with new customers. Even though OEMs' decisions are moving slower than planned, their SOP timelines mostly haven't changed. We have multiple RFQs that are still working toward 2026 and 2027 SOP targets. For those OEMs, engaging with a LIDAR supplier while the wheels are already in motion to be ready for production in late 2025 is a significant advantage. We also have the benefit of our contract manufacturing strategy, which allows us to be infinitely flexible. If additional awards come in, we can rapidly ramp up new lines at our manufacturing partners in any region of the world that a customer would want us to produce without the disruption, delay, or capital requirements of building our own factories. The capital needs would be minimal, and the pace at which we could deploy capacity would be substantial. We are in a great position heading into 2024, and I'm confident that we will have a lot more to talk about in the coming quarters. With that operator, please turn it over to Q&A. Thank you.

Thank you. Our first question comes from Mark Delaney from Goldman Sachs. Mark, please go ahead.

Yes. Thanks so much for taking the questions. To start, I was hoping you could comment on how the Forward Looking order book has evolved, which at one point I think was estimated to be north of $6 billion, and to what extent the order book and future revenue pipeline is being impacted by slower projected customer sales of EVs using your LiDAR. Thank you.

Sure. We didn’t update the order book, having said that the main change in the order book comes from the addition of the ID Buzz. As we said in the past, we would not make updates to the order book based on a senior customer in order to not reflect the program size in respect to our customer confidentiality. So we will make updates once we bring more programs and then we can communicate them.

I guess though, if you could talk more about how you would see revenue progressing over the next two to three years given some of the changes in your projected EV sales from some of the models that may be using your LiDAR. Have you seen any shifts in customer plans around volumes that you can share, even if on a qualitative basis?

Sure. I mean, I would say that we were not getting any feedback from customers concerning their slowdown of EV or not. The LiDAR platform is not correlated specifically to EVs that can operate on combustion engines just as well. So, so far we didn’t get any communication regarding EV slowdown related to the volumes that they expect.

Understood. One last one from me. If I could please, I realize you're not guiding 2024 revenue, but I am hoping to better understand how you're thinking of the shape of the year. Would you anticipate first-quarter revenue to be the low point of the year, given what you know about customer schedules and NRE opportunities, or is there any other qualitative commentary on the shape of the year that you may be able to share? Thanks.

So yeah. Specifically, as we said on the earnings call previously, we are expecting that the second half will be more meaningful, but we don’t give any specific guidance for each quarter since it is very lumpy because of the structure of the revenues that we are expecting.

Okay. Thank you. Our next question comes from the line of Andres Shepherd from Cantor. Andres, please go ahead.

Yes, good afternoon everyone. Congratulations on the quarter and thanks for taking our questions. Maybe to follow up on that last question specifically regarding the $20 to $70 million in new NRE bookings that you're targeting for 2024. I'm wondering if you have a sense as to when the majority of this will be recognized. Is this a Q4, Q3 story, or is this something that maybe will be expected gradually throughout the year? And if you have a sense of whether some of it or most of it will be likely recognized as revenue versus a contract expense? Thank you.

Yeah, so the NRE bookings will be recognized over the lifetime of a program up to SOP, which means whatever we book this year will probably be recognized over a couple of years, maybe two to four years until SOP, and as we mentioned before, it’s difficult to say how it will be recognized and what point of time and if it will be recognized as revenue or rather on the expense side.

I mean, when we talk with customers, we try to draft the agreement in a way that we can recognize it as revenue. Maybe you can give examples on kind of…

Yeah, I don’t want to go into the accounting side, but if it’s usually you look at a specific contract, if it’s specific to a customer or more generic, and then based on that you are able to recognize it accordingly.

Got it. Okay. That’s helpful. And maybe as a follow-up, I’m wondering if you could give us some direction on your path to break even gross margins. You know, I know you're not guiding gross margins, but do you anticipate this could potentially be a 2024 timeframe, or are we looking more into perhaps next year and onward? Thank you.

So I think you need to look at the trend that we have shown over the past year in 2023. So Q1 was roughly almost 400 negative margins, and then Q4 was negative 15% margins. I think you see a nice trend here. We are hoping that the trend will continue. I don’t want to say when we expect to be positive, but we are expecting, or we are hoping that this trend will continue and at least we will be flat this year.

Got it. Okay. And maybe one last one, if I could just in regards to your liquidity. So you have now roughly $150 million. Just curious as to how you're thinking about future capital raising opportunities. What is the run rate with the current liquidity on hand? Thank you.

So I think that in terms of liquidity, we were able to end the year with $150 million. We started the year with $186 million. We were able, as we said, to start collecting NRE, which we said will balance off significantly our expense. So as we win more programs, we will be able to continue to balance off our expense side. Our goal is to be viable throughout the window of opportunity that we are seeing in front of us the capture, and each program that we win extends our runway with additional NREs.

What I can add, maybe to this. We’re seeing in front of us several big opportunities that we are working on for quite a long time, and that can unlock opportunities for us for, I would say for the next two years. We’ve been spending a lot of effort and time in trying to bring those opportunities and unlock them, and I believe that InnoVizz is positioned very strongly to make that a reality. I feel that if we continue to be as successful as we were in the last two years, I believe that our technology is currently leading the pack in many ways. I believe that our experience, our customer base is giving us many advantages. I think some of the dynamics in the geopolitics give us a big step up right now. So I feel that there are several opportunities in front of us that could be very meaningful. I’m positive that we’ll be able to reach them.

Thank you. Our next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Kevin, please go ahead. You can unmute.

Sure. Yes, thank you for letting me ask the question, and congratulations on the progress. Just on the RFI and RFQ process, you mentioned there are delays. Can you go into more details on what the delays are? Is it the additional competition or OEMs just being more cautious or technical obstacles? Maybe if you could give some details on that.

So it depends on the OEM. There are several discussions with one customer related to their desire to, I would say, continue discussions on some interface cybersecurity. I mean, that’s specifically what we’re doing, having that they wanted to check if we can support different kinds of interfaces. It sounds very technical, but eventually, this requires a strong integration between us and the compute platform they’re using. It requires a good alignment before they can feel comfortable with the nomination based on this architecture. So there are several technical discussions on this, and you need to understand that once you kick off a project, the customer needs to feel very confident that nothing changes. If for any reason they learn they need to change something in the product on either side, whether it’s the LiDAR or the compute platform, it’s a very expensive decision to make. Therefore, they are cautious about freezing the design and kicking off. That’s one. Another OEM, I think, is mostly related to their internal kind of changing teams. They added a new team coming from another activity they stopped working on, and that team had to be integrated into the team, which kind of slowed down things towards the end of the year. However, I can say that the progress in the last few weeks was very significant. I would say we’re catching up there.

Okay, great. Maybe you touched on something there about the platforms, and I wanted to ask about that. You had mentioned you're on the Qualcomm and Mobileye platform, and that’s great news. But is the decision still, I guess they’re not packaged together. The OEM can decide one platform with Qualcomm and then even choose a competitor’s LiDAR?

Yeah, definitely. I mean, eventually, it’s the OEM's decision on which LiDAR to use, but I would say the following: Eventually when they make those decisions, there are many different metrics they look at before making that decision. One of them is risk related to doing something that someone else didn’t do. And second is cost. I mean, obviously, if someone were to ask whether Qualcomm or another player should start developing their platform based on another LiDAR, that would be a very expensive effort. I’m sure they would not just carry the cost themselves; they would just pass that back to the OEM. From a cost perspective, I don’t think there’s much motivation for anyone to do that, but it’s never the decision of the platform player. They have ways to, I would say, give the motivation to the OEM not to add too much effort when it’s not needed.

Thank you. Our next question comes from the line of Kevin Garrigan from West Park Capital. Kevin, please go ahead.

Yeah. Hey, Omar and Eldar, thanks for taking my question. Let me echo my congrats on the progress. Can you talk a little bit more about your contract manufacturing strategy? You know, just remind us how many manufacturing partners you have, you know, what have you learned working with them, and any thoughts on eventually building kind of your own manufacturing facility? Or do you feel contract manufacturers are kind of the best strategy?

So you know, it’s always depends on the return on investment that you’re making compared to the market volume. I mean, eventually, right now we are trying to be elastic in terms of supporting different OEMs in different locations. We don’t want to be committed to one geography. While we are trying to scale our ability to work with contract manufacturers, I believe it’s one of our strengths today because we have access to different facilities that we don’t need to make investments in ramping them up. Another part, which I think is important when you go through an audit with an OEM—and this is primarily for the top 10 OEMs that set the highest quality standards. When you are audited for a program, they cannot audit you. They cannot nominate you based on a facility that does not exist. When you’re certified as a tier one to an OEM and nominated for serious production, the teams need to be in the facility and audited, and ensure that the activity and the operation is meeting the standards. You cannot be nominated based on a future facility that one day will meet their requirements. We did not have any alternative other than working with project manufacturers because, for example, when we were audited by Audi, they wanted to be in the facility that will eventually serve them, and they want to make sure, and we provided them five options of different contact manufacturers. They had a preference to one specific because of their previous engagement, which was audited, and they successfully managed to go through. Now that specific contract manufacturer has different facilities in different areas around the world, and that gives us that flexibility. I believe that once the program volumes reach several millions a year in production, it would start to make sense for InnoVizz to make those investments. But I think at this point in time it makes more sense, and I think it’s part of our advantages.

Yes. Got it. Got it. Okay. Yeah, that makes sense, and I appreciate the color on that. My second question, just with BMW getting ready for deliveries, can you just talk about how unit projections change from when you originally won the contract when you’re about a quarter out, you know, from kind of starter production? I mean, I’m assuming you kind of get more color on the units, but do you kind of go from yearly projections to the OEM giving you weekly or quarterly estimates, or do they stick with kind of the yearly projections?

So, I mean, eventually, we know BMW is launching for the first time. They’ll have a level 3 program as expected that will be a soft launch kind of testing the waters. There are plans to launch additional vehicles, as I mentioned. One of them is also in China. But I cannot say right now the volumes. I believe that over the course of the following quarters, we’ll see the ramp, and probably we’ll get a better understanding of how fast it’ll get to the maximum capacity.

Thank you. There are no further questions, so thank you all for your participation, and this concludes your call.