Earnings Call Transcript - INVZ Q4 2021

Operator, Operator

Good morning, and welcome to Innoviz Fourth Quarter 2021 Earnings Conference Call. Joining us today are Omer Keilaf, Chief Executive Officer; and Eldar Cegla, Chief Financial Officer. Following the 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. 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 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. I will now turn the call over to Omer. Please go ahead.

Omer Keilaf, CEO

Hi everyone. Thank you for joining us today. I'm pleased to host our fourth quarter earnings call. Joining me is our CFO, Eldar Cegla. We also have a special guest, Oren Buskila, one of our Founders and our Chief R&D, who will discuss our R&D progress. I'll begin the presentation now. First, I’d like to highlight how Innoviz has successfully achieved our 2021 targets. We secured a design win with Level 4 for a shuttle program with an automotive company that utilizes multiple LiDARs. The shuttle program is set to launch by the end of this year or early next year, and we are pleased about our involvement. It employs InnovizOne technology. In March, we introduced a new product, InnovizTwo, which offers substantial improvements in performance and cost. We informed the market that the first samples would be available by year's end, and we've met that timeline. We were recognized as a direct supplier for one of the top car manufacturers and are awaiting decisions on that program, while also engaging with other car manufacturers. We have initiated high-volume production of InnovizOne with our partner Magna to support both the BMW initiative and the shuttle program. Additionally, we confirmed that we reached a design freeze for InnovizOne and are now focusing on production validation and preparing for program launches. We have also gained new capabilities; unlike our previous efforts with InnovizOne, we are now managing the design for manufacturing internally with InnovizTwo and Innoviz360. We established our own production line for small-scale InnovizTwo manufacturing, which facilitates rapid progress. Throughout the year, we've made several announcements regarding new partnerships and customers and will continue to do so. In our previous earnings call, we talked about numerous initiatives we are pursuing, including showcasing InnovizTwo for the first time at the Consumer Electronics Show in Las Vegas. Now, I would like to present a video of InnovizTwo. We have a working product, which is exciting. I’m Omer Keilaf, CEO and Founder of Innoviz, and I’m thrilled to present our first demo of InnovizTwo, a transformative technology for the autonomous driving sector. Let's take a look. This is InnovizTwo, our next generation of LiDAR technology. We are currently demonstrating the product live in Tel Aviv. Several automakers are evaluating LiDAR options for their vehicles for 2024 and 2025. Being able to showcase a product that meets all requirements and price points offers a substantial advantage, as it allows them to collect data and develop their algorithms using technology that satisfies their needs without risk. No other LiDAR delivers this level of performance. Innoviz has rich experience in developing LiDAR for automotive applications over the past 4.5 years. This extensive learning is built into our impressive product. I envision a future filled with these sensors, making autonomous driving a reality. We have a functioning product, and I want to review our accomplishments from the last quarter. We announced five new contracts for pre-production agreements and will provide further details shortly. We are actively engaged in several RFIs and RFQs in the market, and we have positive momentum. One program we anticipated announcing last year was delayed by the customer, who requested changes. We have addressed their needs and are now awaiting their decision. We are confident in our potential to secure significant business this year and anticipate more RFQs on the way. Our order book has increased by $200 million thanks to our advancements in the shuttle program, allowing us to include more LiDARs per vehicle. The maturity of the project has enabled us to raise our revenue expectations. We now have the first samples of InnovizTwo for customer testing and decision-making. We introduced another innovative product, Innoviz360, which opens new competitive opportunities for us, and I will share more details soon. We conducted a webinar on Level 3 standardization, introducing a white paper on LiDAR requirements for Level 3 performance, positioning Innoviz as a key contributor to this market's standards. We also participated in an MIT course focused on deep learning, showcasing our advancements in perception technologies. Furthermore, we received the IATF certification for production quality in the automotive sphere. Recently, we announced new partnerships and customers. Among the five pre-production deals, we secured a contract with Obayashi, a leading global construction company using our LiDARs for automated driving. Another partnership involves Syracuse, which is applying our technology for automated crane control. We're pleased to collaborate with Whale Dynamics to aid their efforts in bringing autonomous Level 4 systems to market and have finalized an agreement enhancing automation for ports and defect detection using InnovizOne. We are enhancing our customer portfolio with the maturation of InnovizOne and soon InnovizTwo. Our funnel indicates we currently have two ongoing series production programs with BMW, and we will share more about this initiative and the shuttle program throughout the year. We have successfully increased our pre-production programs by five, with 12 companies engaged in various stages of RFIs and RFQs, many representing meaningful opportunities in our order books. Our goal for 2022 is to secure 10 pre-production initiatives to meet our revenue expectations, along with at least one more automotive program that could expand our order book by at least 70%. Next, I want to discuss Innoviz's strategy regarding business development in automotive and beyond. We consistently evaluate the total addressable market for LiDARs, identifying not only interested markets but those likely to advance soon. Our studies inform us about market expectations. We have recognized LiDAR platforms and integrated them into our offerings, continually improving them while providing essential software tools. The fastest expanding segments for LiDAR today are Level 2 and Level 3 applications. By observing various automotive companies' activities, we identify significant opportunities for LiDAR in these levels. The decision-making processes for these programs are underway, and most resolutions will occur in the next year. Companies making decisions thereafter will depend on these established results. Through extensive research, we have created a white paper demonstrating our deep understanding of these markets, available on our website. We introduced InnovizTwo to meet our customers' specifications alongside our perception software, which has matured from InnovizOne's extensive testing to mitigate risks in launching technology. We recognize Level 4 as another promising market. We are currently reviewing different RFQs from various customers, exploring opportunities in shuttles, robotaxis, and trucks, anticipated to launch in 2026 or 2027. The requirements for Level 4 indeed vary from those for Levels 2 and 3, emphasizing industrial design, with multiple LiDARs distributed around the vehicle to achieve zero blind spots. For this purpose, we launched Innoviz360, designed over the past year and viewed as the optimal combination of InnovizTwo and Innoviz360 to address these markets. We also see potential beyond automotive, including military, surveillance, and construction sectors. These broader markets could eventually eclipse the automotive space. Any application currently using 2D sensors is expected to transition to 3D sensors. We are actively investigating requirements and integrating tools and analytics to embrace this intricate market landscape rather than relying solely on automotive integration processes. In software development, our perception software has been in development for six years. We identified its importance from Innoviz's inception, recognizing that customers would require more than a sensor; they need integrated object detection, classification, movement detection, lane markings, and more. We offer this alongside our LiDAR technology, generating revenue not just from initial sales but through ongoing subscription support. For Levels 4 and 5, the RFQs we are exploring include additional demands related to various driving directions and sensor fusion, along with zero blind spot support, which will also factor into our pricing. Our established perception software positions us to penetrate non-automotive applications effectively. Our automotive-grade object detection and classification system enables us to integrate seamlessly into various markets. We will continue developing additional tools to enhance our offerings. Our cash position is robust, with $370 million raised in 2021 and $300 million currently available. We manage our funding prudently, ensuring we are not adversely affected by the ongoing chip shortage. In summary, Innoviz is well-prepared to succeed in this market. We have two significant automotive customers, a large order book, and an optimistic future pipeline. Our advanced technology, recognized capabilities, and mature offerings allow car makers to adopt our technology without risk. Our perception software has more operational experience than any competitor, and with ample capital to execute our strategy, we offer extensive industrialization experience, currently operating three production lines to support our initiatives. Our automotive background is embedded in our product line, enabling customers to progress from Level 2 to Levels 3, 4, and 5. We will continue to pursue growth and achieve our objectives. I will now turn it over to Oren Buskila to discuss our R&D efforts.

Oren Buskila, Chief R&D

Thank you, Omer. I'm very glad to be here and truly excited to share this update on our R&D progress from the past quarter. I'll start by taking a step back and reviewing the six years since Innoviz began. When we started in 2016, the only LiDARs available for the automotive market had very poor performance, significantly lacking the requirements set by automakers for self-driving capabilities. Since then, we have achieved exceptional progress with InnovizOne. In 2020, we launched the first prototype of InnovizOne, providing unprecedented performance in terms of range and resolution, enabling LiDAR to finally be suitable for automotive self-driving on public roads. Throughout this journey, we adhered closely to the requirements defined by the automotive industry regarding liability, quality, and cost. Now, in 2022, just six years after the company was founded, we are ready to introduce InnovizTwo, a much-improved next-generation product, which will offer dramatic enhancements in performance while simultaneously reducing costs. In terms of performance, InnovizTwo will feature double the resolution in each axis, specifically 0.05 x 0.05 degrees in both X and Y axes, along with a broader field of view and a follow-through viewing angle of 120 x 40 degrees. This will also come with increased range, which becomes more challenging as we increase resolution. With respect to the dimensions and price point, InnovizTwo is designed to cater to both Level 2 consumer cars and Level 5 deployments. Now, regarding the InnovizTwo project, we met our objective of delivering the first InnovizTwo samples back in January, showcased during CES Vegas, where we presented the B0 samples, preliminary samples of InnovizTwo. Despite being preliminary, they already met most of the performance objectives set for InnovizTwo, including the 120 x 40 degrees field of view, the 0.05 x 0.05 resolution, and the more than 200 meters range for a dim 10% reflectivity target. This was accomplished with a frame rate of 10 frames per second, which we expect to improve with the next versions of the product. Speaking of future versions, InnovizTwo B1 will be available in Q3 of this year and will feature significant reductions in size. Here I am holding in my hands, and I hope you can see them. This is the InnovizTwo B0, which is currently sampling. And this is the Innoviz B1, coming later this year. You can see both from the presentation and perhaps the video that we have dramatically reduced the height of the B1 compared to B0, targeting a more diverse range of mounting options on the vehicle, including the roofline, where vertical height is crucial. The field of view of the B1 has been adjusted to accommodate this slimmer height. We have met the production intense frame rate of 20 frames per second with the B1 without sacrificing either resolution or range achievable with the B0. The B1 is also designed for manufacturing, meaning that all its components are ready for high-volume production with high yield and low cost. In developing the B1, we are also establishing the production tools required for its manufacturing line. This will begin with a low volume production line, which will follow up with a mass production line for future versions. On the top right, you can observe a point cloud captured with the B0 just yesterday. This is very recent data. For those of you used to analyzing point clouds, I believe you will appreciate the resolution and angular accuracy demonstrated. This is superior performance we are already experiencing with the B0, which will only enhance with the B1. InnovizTwo will also be the first product from Innoviz that features onboard perception software. This signifies that we are covering both common perception architectures of vehicles. The first being distributed processing architecture, where every sensor processes its raw data locally and outputs an object list of what it detects. Therefore, the InnovizTwo will host this software, allowing it to process data locally in the LiDAR box. Consequently, there will be no need for any external processing of the point cloud. Nonetheless, we will still provide both the object list and the raw point cloud if customers find it useful. This method of local processing lowers the compute load on the central computer of the vehicle, simplifies the data interface, and reduces latency, all contributing towards a more streamlined integration of InnovizTwo into car systems while simultaneously lowering overall part costs. The second architecture we’ve also supported in the past is centralized processing, where all sensors, including the LiDAR, do not process their data locally, instead sending it to the central computer for processing and fusion of perception features. In this scenario, Innoviz not only outputs the point cloud but also provides corresponding perception software to run on the central computing platform, which operates on a different chip than the one inside InnovizTwo. The output remains the raw point cloud, and the Innoviz software running on central compute is responsible for road object detection, as seen in the accompanying image. We currently support most processors from various automotive-grade vendors and aim to expand support across further vendors. Now, I'd like to showcase a quick video of the InnovizTwo B0 recorded recently in beautiful Tel Aviv. This video was captured not too long ago. In it, the exceptional resolution and range afforded by our product can be observed. It's vital to reiterate that this is achieved without any aggregation of frames — each frame shown is captured separately using live recording from the LiDAR. Thus, this exemplifies how Innoviz is disrupting the automotive LiDAR sector. Additionally, beyond automotive, there are other segments that have historically been underserved due to low performance and high-cost LiDARs, which are also relatively large. This is about to change with Innoviz360, the first LiDAR from Innoviz that offers 360-degree coverage, providing a surround view. Its vertical field of view is also impressive at 64 degrees, all within a very compact package, as you can see from the mock-up right here, which is considerably smaller than competing LiDARs on the market today. The cost of Innoviz360 will also be highly competitive compared to any other available competitors. Our ability to offer this performance, cost-effective pricing, and aggressive timelines for samples stems from the integration of the optical engine from InnovizTwo into Innoviz360, as we adapt this technology to accommodate the 360-degree coverage. Understanding the significance of resolution is crucial. Why does the resolution of Innoviz360 matter? Let's examine the examples shown. The left displays the same scene simulated by the best-in-class LiDAR available today, while the right exhibits the future capabilities of Innoviz360, characterized by a tenfold increase in scan lines. When focusing on the center of the field of view, the lines are dense, and most objects are clearly visible. However, as we glance toward the edges, it becomes apparent that with fewer scan lines, large spaces between lines render it possible to overlook critical small objects. Conversely, on the right with Innoviz360, even small simulated objects, such as a dog or a cat, are easily detectable, whereas they may go unnoticed by the competitor's LiDAR. Innoviz continues to innovate, not only on a system level but also at the component level. We are actively working on the next-generation ASIC, which will support increased pixel rates and boosted maximum ranges up to 500 meters, along with support for additional interfaces and advanced security standards anticipated within the automotive industry. We plan to make samples of this ASIC available by 2023, positioning it to support both future products and current Innoviz offerings. This is 100% compatible with existing Innoviz LiDAR products. In addition to the ASIC, we are developing the next-generation detector, which will surpass sensitivity levels of all detectors of its kind, thereby granting enhanced range, better resolution, and various other benefits that we will discuss at another time. Engineering samples will be accessible in 2023. A further update on perception software: We are actively engaged in SRS, or Safety Related Scenarios, which entails emulating actual road scenarios cars from our customers might encounter. The goal of this is to validate both point cloud performance and the efficacy of our perception features. Another major endeavor currently underway in this area is the Endurance Runs. This is an extensive global campaign aimed at collecting hundreds of thousands of miles driven in different countries to validate point cloud performance and perception capabilities in real-world scenarios. This initiative has just commenced as we've established that the KPIs needed for production have been met. Currently, we are prepared to log extensive miles on the roads for this recording campaign. To summarize, Innoviz's R&D objectives for this year include completing product validation of InnovizOne, preparing for the commencement of volume production of InnovizTwo, delivering the B1 sample of InnovizTwo designed for manufacturing, achieving the first engineering samples of Innoviz360, and maintaining as well as enhancing Innoviz's technology leadership with our components and perception software. With that, I wish to thank you and turn the presentation over to Eldar Cegla, our CFO, who will present the 2021 financial results.

Eldar Cegla, CFO

Thank you very much, Oren, and good morning, everyone. We'll start in a moment. One moment please. So, Innoviz 2021— in 2021, Innoviz successfully closed a business combination with a SPAC, which provided over $370 million in gross proceeds. By year-end, we maintained a high liquidity level of $304 million in cash, short-term deposits, and marketable securities. Our operating cash flow during 2021 adhered to the planned budget, and Innoviz's debt-free cash assets enable us to execute our plans for 2022. Revenues for 2021 were $5.5 million while revenues for 2020 were negative at $9.4 million. InnovizOne-related revenues in 2021 increased by 28% to $4.3 million compared to revenues of $3.3 million in 2020. The Company expects InnovizOne sales to continue to grow this year as we also target selling the first samples of InnovizTwo. Operating expenses for 2021 were $152.6 million, an increase from $66.2 million in 2020. Operating expenses in 2021 included $64.7 million in stock-based compensation, compared to $3.2 million in stock-based compensation for 2020. The rise in operating expenses compared to 2020 was primarily due to the increase in stock-based compensation and personnel-related expenses. Furthermore, research and development expenses for 2021 totaled $93.3 million, rising from $57 million in 2020. Research and development expenses in 2021 included $25.5 million attributed to stock-based compensation, compared to $2.6 million in 2020. To conclude, we will continue to focus on developing groundbreaking technology and products for the automotive market and beyond. We believe we are well positioned to execute our strategy and growth plans this year. With that, I will turn the call back over to Omer for closing remarks. Thank you.

Omer Keilaf, CEO

Yes, thank you, Eldar. So again, thank you very much for joining us today. Innoviz is working very hard to succeed. I believe we have the best setup that we could wish for, with a very promising product and portfolio. Our team is putting in a significant effort to make this happen. With that, I’d like to invite you to ask your questions; I am happy to answer them.

Operator, Operator

Our first question today comes from Mark Delaney from Goldman Sachs. Please go ahead.

Mark Delaney, Analyst

Yes, good afternoon and thank you very much for taking the question. I was hoping, first, if you could talk a little bit more around the top-line trajectory for 2022. I realize you’re not giving specific guidance, but maybe you can talk about whether or not you think there’s potential to begin series production this year. You have the BMW program that I thought you had the potential to start this year. So, you guys were thinking about revenue in 2022. Is that something we should be contemplating for the latter part of this year?

Omer Keilaf, CEO

Yes. I’ll start, and maybe Eldar can continue here. The launch of the programs is dependent on our customers' announcements, which we obviously cannot discuss. However, we assume that the shuttle program will be completed this year and that BMW will ideally announce as well. I believe you'll receive more information soon on that. There are several customers we are serving beyond merely supporting these programs, and some of those we discussed today will help us meet a significant part of our targets. We will continue working on bringing these deals forward. The fact that InnovizOne is now more mature and we’ve achieved design freeze on the production volume, helps us provide the product to more customers so they can make final decisions and proceed with orders that will facilitate meeting our targets. Generally speaking, the programs we are competing for, which we expected to finalize decisions for by the end of last year, have encountered about a six-month delay, which has shifted our revenue prospects potentially by six months, but we expect revenue growth to be in line with our initial assumptions.

Eldar Cegla, CFO

So, adding to that: our focus is on gaining market share. As Omer stated, there is a shift in revenue timelines from last year to this year; once we secure those programs, we hope they will generate additional revenue. We also plan to begin selling the first samples of InnovizTwo as we roll out into the market.

Omer Keilaf, CEO

I want to emphasize that the inclusion of Innoviz360 in our portfolio opens up a new total addressable market for us and new opportunities. We anticipate a greater penetration into automotive markets next year, which will facilitate our growth potential.

Mark Delaney, Analyst

Okay. Omer, just to clarify, I realize we need to hear from BMW on when they would start series production, but would Innoviz be ready to support them this year if they choose to begin later in 2022?

Omer Keilaf, CEO

Yes.

Mark Delaney, Analyst

Okay. Yes, my follow-up question is on that ADAS L2, L3 program with a big OEM customer. You talked about it on the last call, and you said today they’ve asked for some changes, and you guys are working to address that feedback. Still feel good about winning it? Maybe you could elaborate a bit more on that, in terms of timelines and how long do you think this may take? You mentioned a new variant of the InnovizTwo, the B1, will be ready in the third quarter. Is that the very innovative InnovizTwo you would need to potentially win that? Or is it realistic to expect an update on that front around that time in Q3?

Omer Keilaf, CEO

I will start with the second question since it’s quite relevant. We have designed InnovizTwo based on discussions with our customers, particularly with the customer we expect to make a decision soon who has a short timeline for launch. We are ensuring we align with all of their requirements throughout the year while supporting them with the products needed. Those changes also reflect the transition to the B1 sample from B0. As for the first question, we have strong confidence in this program. It has been in close discussion for over a year and a half. We still view ourselves as well-positioned to potentially secure it. In terms of timing, we are waiting for a decision; I can't provide specifics on when that will occur, but we hope to hear back soon.

Mark Delaney, Analyst

Okay. If the sample of the B1 is in the third quarter, could you get a decision from that customer before sampling it in Q3? Or do they need that sample in hand before making a decision?

Omer Keilaf, CEO

No, they don’t. I mean, the B0 is already meeting their needs in order to make a decision.

Mark Delaney, Analyst

Okay. Thank you. I'll turn it over.

Operator, Operator

Our next question comes from the line of Michael Pilato from Berenberg. Please go ahead.

Michael Pilato, Analyst

Hey, guys. Can you hear me?

Omer Keilaf, CEO

Yes.

Michael Pilato, Analyst

Great. Thanks for the presentation and for taking the questions. So first one just branching off of Mark's questions. In relation to that large OEM you're engaging with right now, I think you've previously said you were competing against one other supplier for that business. Has that changed at all? Is there a change in the competitive dynamics within that particular engagement?

Omer Keilaf, CEO

Well, the requirements from the end of last year have shifted. And from our understanding, the other competitor hasn't been able to fulfill them. I'm not aware of the current situation, nor whether there might be any other competitor capable of meeting those requirements. Our assumption is that there is not, but we have limited visibility into that competitive landscape.

Michael Pilato, Analyst

Okay. Understood. Looking at your guidance to potential order book growth of 30% or more, if you assume that you win another OEM program, whether it's this one we're discussing or another, I would have thought a win with another large OEM would impact the order book to a greater extent than perhaps 30%, given the size of the BMW order book. Can you clarify whether that assumption includes an OEM win or is it without one?

Omer Keilaf, CEO

A win with an OEM would certainly elevate that figure. We've conducted a weighted average assessment of the various opportunities, but, yes, a full OEM win would significantly boost that metric.

Michael Pilato, Analyst

Okay, great. I know you haven't talked about BMW's launch timing, but hypothetically, if you were on an OEM program set to launch in early 2023, would you start to see revenues associated with that program in late 2022? Would there be pre-production revenues tied to it or ramp-up revenues in the quarters leading up to launch?

Omer Keilaf, CEO

We are already generating revenues from the BMW program; pre-production testing involves validating hundreds of units, which will result in income for Innoviz. So the answer is yes.

Michael Pilato, Analyst

Okay, great. Just one more. We've discussed the one OEM program you are engaged with now, but it seems like there are several others. How many OEMs are you currently engaging with? At what stage are we in the RFQ process or negotiations? How many decisions do you think will be made this year, if you had to guess?

Omer Keilaf, CEO

We currently have approximately six OEMs in discussion out of the 12 mentioned previously. This year, we anticipate at least half of those making decisions; and all might conclude in the second half of the year. We expect at least three to reach a conclusion during that time frame.

Michael Pilato, Analyst

Okay, great. Thank you, guys, so much. Appreciate it.

Omer Keilaf, CEO

Sure.

Operator, Operator

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

Andres Sheppard, Analyst

Hey, guys. Can you hear me, okay?

Omer Keilaf, CEO

Yes.

Eldar Cegla, CFO

Yes.

Andres Sheppard, Analyst

Wonderful. Thank you for taking my questioning. Congrats on the quarter. A lot of the questions have been answered. Maybe one quick follow-up is you've mentioned the 10 pre-production programs you're expecting to secure in 2022. I'm wondering, can you quantify those a little bit further in terms of what those could mean for both top-line revenue? And perhaps how many of those are in late stages, middle stages, or early stages?

Omer Keilaf, CEO

We are in talks with several customers already. As I mentioned, there are 12 customers — six in automotive and six outside. To reach 10 this year, we are already engaged in late discussion stages. We view them as critical in fulfilling our targets for '23 in terms of revenue generation.

Andres Sheppard, Analyst

Got it. Thank you very much. One last follow-up for me is on your liquidity status. If we look at cash alone, it appears to have decreased significantly over the quarter. Are there plans for additional capital raising? Has the strategy shifted due to this new cash position?

Eldar Cegla, CFO

The cash level decreased by approximately $20 million, which is within our expectations. Additional capital raise requires a meaningful context — it shouldn't happen standalone. Should there be a compelling transaction that adds value for our business or shareholders, it could become an option. However, we raised substantial cash last year and are fully prepared to execute our strategy for this year.

Andres Sheppard, Analyst

Got it. A quick follow-up there, if I can. The cash and equivalents situation shows a drop from around $140 million in Q3 to about $25 million in Q4. What is a comfortable level of cash and equivalents you feel at ease going forward? Is there a threshold you wouldn't want to dip below?

Eldar Cegla, CFO

I’m not sure I follow the question. However, the total amount of cash, short-term deposits, and marketable securities stands at $304 million.

Omer Keilaf, CEO

We operate without debt.

Eldar Cegla, CFO

And without any debt. In Q4, we spent over $20 million as planned. We are very comfortable regarding cash levels.

Mark Delaney, Analyst

Got it. That makes sense. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Mark Delaney from Goldman Sachs. Please go ahead.

Mark Delaney, Analyst

Yes, thank you for taking the follow-up. I was hoping to dig in a little more on that last topic of cash flow. Do you have any expectations for cash use in 2022 that you’re able to share with us?

Omer Keilaf, CEO

Let me address this. Our plans for '22 can be categorized into four main activities. Approximately one-third is allocated to efforts pertaining to InnovizOne as we finalize production validation, testing, and ramping it up in preparation for our product launches. Another third pertains to InnovizTwo, specifically related to bringing it towards volume production for 2023 while ensuring we are prepared to start ramping up the manufacturing volume. I would say about 80% of the last third goes toward expenses associated with perception software and development, and the remaining pertains to Innoviz360, additional efforts within our innovation team.

Mark Delaney, Analyst

Got it. Any sort of quantification around cash use in 2022? What does that add up to in total — $100 million, $150 million — if you can give some rough ranges?

Eldar Cegla, CFO

We aren't providing forward-looking cash utilization numbers, but 70% of our expenditures are allocated to R&D. As noted, there were similar cash-utilization levels last quarter, and there will be an increase. However, we believe we are well-positioned to fully fund our R&D plans.

Omer Keilaf, CEO

I think it’s prudent to refrain from providing exact numbers right now. There are several sizable programs we're competing on. Those outcomes will dictate how we manage our expenses while remaining efficient. We are already gearing up for an exciting year.

Mark Delaney, Analyst

Okay. That makes sense. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Michael Pilato from Berenberg. Please go ahead.

Michael Pilato, Analyst

I just have another follow-up since you got me on the line. You talked about the update to the ASIC chip and the receiver that would be expected in 2023. Will these updates be built into the products you're offering or potentially offering to customers, such as this large OEM you're engaged with? Would those be retrofitted into designs, or would that be specifically for upcoming product generations?

Oren Buskila, Chief R&D

The two components we are working on are primarily aimed at future product generations, meaning that both upcoming InnovizTwo and Innoviz360 versions do not depend on these components to meet performance and timeline goals. However, they will be able to benefit from these advancements in future iterations. Therefore, there may be updates to InnovizTwo and Innoviz360 with enhanced performances down the line, but we aren’t relying on them in the immediate future.

Omer Keilaf, CEO

It is directly linked to the design freeze for particular platform components. Once we hit that point, we won't be able to make changes to meaningful components. We achieved this milestone with the BMW program about a year ago. Post that stage, we only need to ensure that we validate and confirm that nothing else must change. The timing of each program launch and the flexibility afforded by the customer will dictate the inclusion of these chips. Specifically for the programs we are actively offering for a launch in '24, we don’t assume those require immediate revisions. However, for non-automotive applications, those can leverage these advantages more promptly. I hope that clarifies your question.

Michael Pilato, Analyst

Yes. Understood. One more on the software since you addressed it today. Are you just developing perception software that processes the raw LiDAR point cloud data, or are you offering a holistic perception stack for Tier 1s or OEMs? You've mentioned licensing that software too; is that included in the $500 ASP you refer to for InnovizTwo, or is it over and above that? What would the software licensing opportunity be?

Omer Keilaf, CEO

Certainly, that is priced on top of the LiDAR. For instance, if there are two LiDARs in a vehicle, you would factor in correspondingly based on the application. Our software adds a layer of value. We are not creating driving decisions—those are relied upon by our customers. What we provide is perception software that allows our customers seamless integration of object detection and classification, among other functionalities. Essentially, automakers want to ensure a platform that has comparable object detection capabilities as those offered by cameras, but without degrading the integration experience, which is crucial for safety. The output is either object detection and classification or movement detection; we price this in addition to the LiDAR cost. We believe that model aligns well with industry trends.

Michael Pilato, Analyst

Can you quantify the software opportunity, such as dollar value or terms of take rate?

Omer Keilaf, CEO

Around $50. Our expectations are based on similar business models to companies like Mobileye, where the value lies more within the perception software rather than the sensor itself.

Michael Pilato, Analyst

So, are you assuming that OEMs will adopt that software?

Omer Keilaf, CEO

Most of our customers are relying on our perception software offering.

Michael Pilato, Analyst

Understood. Thank you, guys.

Omer Keilaf, CEO

You're welcome.

Operator, Operator

Our final question for today comes from the line of Kevin Cassidy from Rosenblatt Securities. Please go ahead.

Kevin Cassidy, Analyst

Thank you, and congratulations on the progress. Maybe just to expand on the perception software: will you be opening it up for third-party software developers to write their software for your LiDAR?

Oren Buskila, Chief R&D

Yes, our customers have the option to utilize our perception software or their own, or third-party solutions. Some customers in sectors like robotaxis prefer their own or third-party integrations, we’re not blocking anyone from using our point cloud or raw data, and we actually encourage open development. However, many OEMs tend to prefer receiving a comprehensive package solution that includes our software.

Omer Keilaf, CEO

Let me add that in automotive, the implementation of software demands a very rigorous validation process. Therefore, it is ultimately imperative to manage this aspect responsibly, and carmakers are generally more conservative in this domain. Thus, while we may allow third-party contributions to our centralized data processing, the primary responsibility for coding resides with us, ensuring higher degrees of safety and reliability. We provide the embedded perception software in InnovizTwo. We are also integrating algorithms with platforms, like the collaboration we announced with Nvidia, for our algorithms to process data from our chip while on their platforms. We’re open to supporting various architectures.

Kevin Cassidy, Analyst

That's a good answer. To understand the magnitude of this, what percentage of your engineering or software team is working specifically on this?

Oren Buskila, Chief R&D

About a third to a fourth of our R&D headcount is dedicated to software engineering.

Omer Keilaf, CEO

It’s interesting to note that Innoviz is often associated with LiDAR, but in reality, we foresee significant growth from our software capabilities. We have a strong team dedicated to software development. While showcasing our LiDAR is easier, the perception software is more complex to illustrate, which might explain why it remains less visible. However, there's considerable work happening here, and I believe that in three to four years, our company will become more software-oriented than merely hardware-based. This will play a key role in our innovation.

Oren Buskila, Chief R&D

Our strategic goal has been clear since the company's inception. We recognized the importance of perception from our first day. In our founding team, we included a perception software engineer, and we've only expanded that over time. Therefore, we are probably the LiDAR company that possesses the most extensive experience in perception engineering in the industry.

Omer Keilaf, CEO

We are proud of the leadership position we've established in perception software capabilities and are excited about the future impact on our growth.

Kevin Cassidy, Analyst

That's encouraging. To return to cash usage and consider your recent hiring efforts, do you plan on hiring as many or more staff this year compared to last year?

Oren Buskila, Chief R&D

We've managed to hire 35 people last quarter, which is a significant achievement. Innoviz has seen steady growth over the year. Whether we'll need hiring on a similar scale going forward will depend on the business we are winning. We are closely monitoring hiring within the budget and ensuring we only expand as necessary.

Omer Keilaf, CEO

To add to that, Oren's team is structured for efficiency. The engineering department is organized to support different programs optimally, without necessitating doubling in size for every new project. As Eldar indicated previously, growth will continue based on business acquisition rates.

Kevin Cassidy, Analyst

Great. Thank you. Congratulations once again.

Operator, Operator

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

Omer Keilaf, CEO

We are anticipating very exciting times ahead. We’ve observed substantial progress in both our R&D aspects and our business segments. We're looking forward to a promising year. I have tremendous faith in our operations and can take great pride in our achievements and continued efforts to grow the company successfully. Thank you very much.

Oren Buskila, Chief R&D

Thank you.