Innoviz Technologies Ltd

NASDAQ:INVZ

Earnings Call Transcript 2023-Q2

[Operator]

Good morning. This is Rob Moffatt, Vice President of Corporate Development and Investor Relations at Innoviz. And I want to welcome you to our earnings conference call.

Joining us today are Omer 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.innoviz.tech.

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

Forward-looking statements made today speak only to our expectations as of today and we undertake no obligation to publicly update or revise them. For discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the Risk Factors section of our 20-F filed with the SEC on March 09, 2023.

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

[Omer Keilaf, Co-Founder and Chief Executive Officer]

Thank you Rob, and good morning everyone and thank you for joining us. 2Q was a really, really big quarter for Innoviz. While the quarter itself was only 90 days long, you could say it was actually five years in the making. This quarter we delivered on what was easily the biggest milestone in our company’s history. We shipped our first production units ever. They are on their way to our customer and close partner BMW and will be installed in the grille of the beautiful 7 Series, which will include our InnovizOne LiDAR sensor and AI-enabled perception software package.

I know many of you saw this already, but BMW Blog did a wonderful article and video summarizing BMW Group’s plans for the Level 3 7-Series. If you haven’t watched it yet, I encourage you to go to BMWblog.com or search for it on YouTube

In the video, you can see the 7 Series driving seamlessly through a variety of scenarios and hear more about BMW’s plans and timeline for deploying the technology. We have been saying for a while now that the platform was expected to SOP in the back half of 2023, so to get the first production units out in the earlier part of the third quarter feels like a nice win. While there is always going to be some level of uncertainty in the LiDAR industry, we are building a track record of credibility that includes delivering on our goals.

With the 7 Series SOP now underway, we are turning our attention to additional models and markets. While the 7 Series was planned to be our initial flagship launch for the InnovizOne, we have said in the past that our technology was certified on several models and variants within the BMW Group, and we are pursuing integration with additional models. This includes supporting their recently announced localized development efforts of Level 3 autonomous driving including within China.

While all of the news about the first generation InnovizOne platform is obviously exciting, the bigger news today is around this morning’s announcement that that we are entering an all-new development phase of a second-generation LiDAR platform for the BMW Group that is built around the InnovizTwo sensor and our AI-enabled perception software stack, as an opportunity for a second platform with BMW.

Our first-generation program included selling InnovizOne components and perception software to BMW. The LiDAR components were shipped to Magna, the Tier 1 on the program and then manufactured into a finished LiDAR and shipped to BMW. But the second-generation platform that we are developing is remarkably different.

First of all, we are quoting the program now as a Tier 1. This means that instead of selling LiDAR components and only getting part of the economics, we could have the opportunity to sell the entire package, including the LiDAR and AI compute module, directly to the customer.

And since this new platform is being developed around the much more advanced InnovizTwo LiDAR sensor, and it is planned to run on our newest custom ASIC, which I will talk about shortly, it is expected to be able to offer a much more robust perception software package, including several new AI-enabled features.

Without going into too much detail, this stronger version of our perception software is designed to do much more than earlier versions. One of the best examples of that is the new minimum risk manoeuvre or MRM - software that we plan on developing with BMW. And we plan for this more robust software to sit on a dedicated AI compute module, offering more compute power than we’ve ever had before. I will go into this in more detail in the coming slides.

The BMW Group has been an amazing partner for us. They operate with some of the highest engineering and design standards in the industry. We have set a high bar together with the 7 Series launch and I believe we are both excited to continue that work on developing a next generation platform.

As part of this process, BMW is making a meaningful investment in terms of time and resources and is embedding a dedicated team of engineers with Innoviz so that we can move quickly on this next phase of development.

This second-generation program is planned to target a much broader range of models than the first generation program and with higher install rates that should result in larger volumes. We believe that LiDAR technology and Level 3 driving is going to become much more common over the next decade as it trickles down from cutting edge EV’s and ultra-luxury models and more into mainstream vehicles. This opportunity for Innoviz doesn’t exist just at BMW and Volkswagen, but across the entire industry.

We can see the level of opportunity that is out there in our RFI and RFQ pipeline. Level 3 vehicles are increasingly going to become a reality. Next, I want to introduce you to the InnovizCore, our new AI compute module. This is the dedicated compute module that I mentioned earlier as part of the solution that is being developed for BMW.

I want you to think about the Core as a new base for us to grow our suite of AI and machine learning powered software. It offers decentralized compute power dedicated entirely to the LiDAR and LiDAR-based software solutions.

By leveraging the Core, we can reduce the total compute load of the central ECU. This can reduce the cost of the central ECU to the OEM and free up compute resources for other applications, all while creating a dedicated ECU for the LiDAR and other LiDAR-based solutions. This is a critical component of the BMW solution that we are developing due to the more robust perception software and the entirely new applications built off it, such as the new MRM software.

Having a second compute resource should allow for more total processing power, which can unlock analysis at higher resolutions and increased frame rates, and with that, reduce the overall bandwidth and simplify the system architecture. It also separates the hardware from the central ECU, adding a layer of redundancy that is critical for a Level 3 or higher system.

The InnovizCore is designed to be connected to the vehicle’s operating system. This can enable a number of functions, including over the air updates, data sharing and high-definition 3D mapping. It also enables connectivity through dedicated ports to other sensors, such as the cameras or radar. While we are not integrating camera or radar data into our software offerings today, with the InnovizCore as a platform, it should be possible to begin working on solutions that can integrate this functionality in the future.

This gives us a path for on-going future software product development and extensions. I want to revisit our MRM solution. Last quarter we introduced the concept of the MRM to you, and this quarter we announced that we have begun development of the solution with BMW as a part of our offering.

As a quick reminder, the MRM system is software that is designed to sit on top of the InnovizCore AI compute module within a vehicle and operates as a backup system. In the event of a complication with the primary system, the MRM could take over control of the vehicle, offering a transition period for the driver to re-take control of the vehicle and offer the ability to safely pull the vehicle to the side of the road if the driver does not re-take control within a specific timeframe.

MRM systems are not new, they have been around for several years, but historically they have been camera-based. We believe that operating a LiDAR-based system should offer key structural advantages over camera systems, including a true 3-D image, along with reduced risk in low-light and extreme-sun situations as well as environmental considerations like rain or snow.

Customers have told us that in order to be able to drive at increasingly faster highway speeds, the MRM system likely needs to be based on a high-resolution 3-D sensing modality, replacing the 2D image solutions being used today.

The Innoviz MRM solution is developed to fuse AI, deep learning, and classic computer processing for object detection and classification, landmark and lane marking detection, ego-motion estimation, path planning, and manoeuvring. A dedicated parallel processing pipeline is expected to ensure fail-safe execution of any needed risk manoeuvres.

Successfully building out this product category would be a natural extension of the success we have already demonstrated in perception software and would help us move further up the stack, potentially offering additional incremental opportunities down the road.

The benefits of having a larger software offering are clear. First, they can build upon and further expand the value that our LIDAR sensor technology brings to the table. And second, the gross margin profile on the software is much higher than hardware. In the automotive end market where you have more than 90 million units of volume per year, you can generate meaningful leverage and strong returns on invested capital from a growing software suite.

As we are talking about the intersection between hardware and software, I wanted to talk a little bit about our second-generation custom ASIC, which was taped out a few months ago and is now in our labs.

An ASIC is an application specific integrated circuit. At a very high level, it is a custom-built chip designed specifically for one use. And for us, it’s a 16-nanometer chip, mixed-signal, automotive-process device that has nearly 50 processors with multiple dedicated proprietary DSP’s to process dozens of pixels simultaneously at the speed of light.

Our first-generation ASIC was taped out in 2019. That chip has clearly served its purpose, having won multiple series production awards since then and building a substantial RFI and RFQ pipeline for us. This is the chip that is going into SOP vehicles this year. But we believe this second-generation chip is going to take our performance to the next level, leveraging several additional years of learning and R&D.

There are two key benefits to this second-generation ASIC. The first, is that it unlocks much more range, taking our maximum detection range to over 450 meters, up from 300 meters before. And the second is to have better resolution. The more powerful chip enables us to produce millions of more points. In fact, we were able to nearly double the total number of points that we can process per second. This can power a higher density point cloud with even better resolution than before.

Together, this dramatically higher range and resolution translates into more points of data. And that data is what fuels our AI tools, including the neural networks that are a critical part of our software development. Faster neural network training translates into better perception software and better perception software can unlock new features like enabling vehicles to travel at higher speed or operate in more complex environments.

Moving faster than competitors and unlocking features like these can drive higher series production win rates for our sensors and higher dollar values for our software packages, all while deepening our embedded relationships with customers.

While we are on the topic of resolution, I want to take you through a quick trip through our company’s history. On the right hand side of the slide, you can see the progression of our point cloud over time. As I mentioned earlier, we didn’t have the first-generation custom ASIC until 2019.

And as you can see in 2020, with the addition of our first custom ASIC coupled with our improvements in the optics, hardware and software we took a big step forward. In 2022, we had another big leap forward with the development of the InnovizTwo. We didn’t stop there. The video you see on the screen is one of the latest point clouds from the InnovizTwo with the first-generation ASIC. You can see it has continued to improve since last year and it is at a point where we are approaching high-definition camera-like resolution, with the added benefits of a true 3D point cloud.

I am confident that once we get this second-generation ASIC fully integrated; we will take another major step forward and broaden the gap between us and our competitors. In terms of our timeline, we expect the first samples with this new chip to ship this fall to our customers including Volkswagen and BMW, including our recently announced new light commercial vehicle program partner, and we are beginning automotive qualification of the part, which should be ready for mass production by mid to late-2024.

And while we are on the topic, I just want to make one more point and that’s that there are a number of other players out there in the LiDAR industry that are still using FPGAs instead of a custom ASIC. While it’s true that you can build a LiDAR with FPGA’s, at Innoviz we strongly believe that you won’t be able to scale a LiDAR company that way.

If we tried to produce the InnovizTwo with FPGA’s it would take somewhere between four to six very expensive FPGA’s, adding hundreds of dollars of cost to the finished product. It would be heavier, take up more space, produce more heat, and consume more power all while not matching our current performance since only a custom ASIC allows for the parallel processing of dozens of channels of data, which is the source of the higher pixel rate and improved resolution. I believe that our first-generation custom ASIC has been a major source of the competitive advantage that we have demonstrated thus far, and this next chip is going to take our lead to the next level.

One of the other benefits of our custom ASIC that I wanted to touch on is its ability to support multiple LiDAR configurations with just one architecture. We designed our chip to have the flexibility to be able to offer a wide array of configurations across all different types of ranges, resolutions, field of views and frame rates. We can tweak the product with only minor changes that can mostly be done through the software.

As a result, we can create an end-to-end solution for a variety of use cases, from long-haul commercial trucks that need ultra-long range for highway speeds all the way down to a wide field of view static smart city application.

With this benefit we can go to market with one architecture built around our already cost-advantaged 905 nanometer based single-laser single-detector solution and fulfill almost any use case across automotive, trucking, robotaxi, buses, shuttles, smart cities and more – all with the same optics, the same hardware and the same ASIC. This should enable us to run much higher volumes through the same components, rapidly lowering our cost per unit, driving attractive unit cost economics, and delivering a potentially meaningful structural cost advantage.

Next, I wanted to give a quick update on the new light commercial vehicle program that we announced last quarter. As you will recall, we said that this is program where we are moving on a faster than normal timeline due to the fact that we are displacing a development stage competitor, mid-project. I am happy to share that we have already begun shipping sample units to the customer, with the first units being sent towards the end of the second quarter, with additional shipments expected to ramp through the back half of the year. With those units now in the customer’s hands, we expect that you will be able to see new test vehicles on the roads in the coming months with our LiDAR, offering additional tangible evidence of Innoviz’s on-going commercial momentum.

Moving on to our pipeline, even with two of the platforms moving from our pipeline to our awards and programs category year-to-date we are still solidly in the middle of the 10 to 15 range for programs in an official RFI or RFQ process and we still have roughly half in the more advanced RFQ stage. And while the first half of the year has been defined by success primarily with existing customers, we believe that the back half of the year, and the fourth quarter in particular, could be defined by new customers.

One interesting insight that I have to offer from some of our RFQ work this quarter is that one customer has indicated that they are only considering 905 nanometer solutions, and another has decided to short list only 905 solutions. For both, this follows their previous experiences with other solutions and the challenges they faced with power consumption and resolution.

As we have disclosed in the past, we are working on more than five active RFQ’s in parallel, which is the highest level of activity in the company’s history. There appears to be a very robust level of activity all targeting the 2025 to 2028. OEM’s want to compete on technology, and we believe the next big differentiating factor is going to be Level 3 driving, exactly like what BMW is bringing to the roads now.

And between the programs we’ve already announced and the 10-15 in the RFI and RFQ pipeline, we either have already won business or are actively quoting new awards with eight out of the TOP 10 global automakers. We ultimately believe that this is likely going to be a winner takes most kind of market. The technology is safety critical, there are very high levels of tech differentiation, and the player that wins the most business is ultimately going to have a scale and cost leadership advantage that is likely going to be difficult to match.

Given the fact that most of these programs will be on the road for 8-10 years, we believe that a major portion of the industry’s market share is going to be determined in the next 12 to 18 months.

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

[Eldar Cegla, Chief Financial Officer]

Thank you, Omer, and good morning, everyone. Starting with cash, we ended Q2 2023 with approximately $130 million in cash, bank deposits, marketable securities, and short-term restricted cash on the balance sheet. With our cost structure being largely mature, our operating cash outlays remained mostly stable during the quarter, with cash operating expense roughly flat quarter-over-quarter, and in-line with our 2023 budget.

Moving to the income statement, revenues in Q2 2023 came in at $1.5 million compared to Q1 2023 revenues of $1 million, delivering a 45% quarter-over-quarter increase. On a year-over-year basis, it compared to Q2 2022 revenues of $1.8 million and was impacted by our 2023 pivot towards SOP with BMW, which weighed on the first half of the year as we transitioned from selling LiDAR sample units to selling just the components to Magna, who is theTier 1 for the BMW program. That step-down was most evident in Q1 2023, and since then our quarter-over-quarter revenue cadence has accelerated nicely with sequential revenue growth of 45% in the second quarter, supported by a 47% quarter-over-quarter increase in total units shipped.

As we think about the revenue cadence for the year, we expect revenues in the third quarter to approximately double versus the second quarter, driven by a combination of high NRE service revenues coupled with additional unit volume growth. In fact, we have already secured orders for the third quarter surpassing the revenues in Q2 and we are only in the five weeks into the quarter.

And looking forward to the fourth quarter, we expect an even more meaningful step-up in sequential revenues, with tailwinds from improving production volumes, revenue-based NRE’s and increased samples shipments to new programs.

Moving further down the income statement. On the cost side, operating expenses for Q2 2023 were $30.4 million, an increase from $28.8 million in Q2 2022. Q2 2023 operating expenses included $5 million of share-based compensation compared to $4.4 million in Q2 2022. The increase in the quarterly operating expenses compared to last year Q2 operating expenses was primarily due to higher R&D expenses mainly on InnovizTwo costs, a general increase in head count associated share-based compensation and facilities cost.

Research and development expenses for Q2 2023 were $23.8 million, an increase from $21.9 million in Q2 2022. The quarter included $3.4 million attributable to share-based compensation compared to $2.7 million in Q2 2022.

In conclusion, we are delivering on the growth cadence that we outlaid coming into the year. Q1 2023 was the trough; we delivered 45% quarter-over-quarter growth in Q2 and have a line of sight to approximately 100% quarter-over-quarter growth in Q3 and a very strong Q4.

Importantly, we are delivering on the milestones that we have set for the company. We kicked off SOP with BMW and the shuttle program is around the corner. We just kicked off the B-Sample phase of a second-generation LiDAR development program with BMW, and we are diligently going after all of the programs in our robust pipeline. We expect to finish the year on a very strong note, with continued momentum for 2024 and beyond.

And with that, I will turn the call back to Omer.

[Omer Keilaf, Co-Founder and Chief Executive Officer]

Thanks Eldar. I wanted to wrap up with some more good news, which is our guidance. As Eldar noted, we delivered 45% quarter-over-quarter growth in the second quarter, and we have line of sight to double our revenues sequentially in the third quarter and deliver even stronger results in the fourth.

And with that kind of a trajectory in mind, we are taking our revenue forecast higher, raising it from $12 million $15 million to $15 million to $20 million. This is driven by both volumes and NRE’s. Our unit volumes are accelerating from the first quarter trough fueled by two drivers, our BMW and shuttle SOP launches, and shipments to our new secured programs, including the new light commercial vehicle program.

Additionally, as a result of increased activity in our RFQ program and program expansions, and increased confidence levels in our likelihood to convert some of these programs based on the progress that we have made year-to-date, we are also raising the mid-point of our New NRE Bookings guidance range as well, increasing it from $20 million to $40 million to $20 million to $70 million, this year.

The wider range represents the wide variety of outcomes that is out there and the sheer scope of some of the NRE awards. If we add the NRE quotes that we are asking for on the RFQ’s and other program extensions from existing customers where they have indicated that decisions should come this year, we can get to the number that is over double the high end of the range. But these awards are very lumpy, with a typical range of $20 million to $40 million each, with some as large as $60 million.

Given the fact that we can’t control the timing of the decisions by the customers, we feel the need to discount the range, but given the increase in the total amount of dollars that we are competing on since we first set the target from the beginning of the year, we felt the need to communicate the opportunity set that is in front of us.

On the customer side, our targets remain the same. We continue to expect 1-3 additional programs from existing customers and continue to target adding at least two series production awards with new customers. These are ambitious goals, but we are moving fast and making solid progress towards making them a reality in 2023.

Before turning the call over to Q&A, I wanted to offer a few final remarks. It’s always important for us to share with you the roadmap that the company is on. In 2022, we hinted at a major new OEM customer and months later we delivered Volkswagen. Coming into this year we hinted at a program expansion, and the next quarter we delivered the light commercial vehicle announcement.

Last quarter we said we were working on an MRM solution for a customer, and this quarter we announced the expanded BMW offering with MRM and our AI compute module. And for the last year we’ve been pointing to a 2023 SOP with BMW, and we just began shipping the production units a few weeks ago. We want investors to recognize that we are delivering on the things that we say we are going to do, and we consistently work very hard to make them happen. There were a lot of additional new milestones for us to deliver-on shared on today’s call, and I am confident that we can continue our track record of executing on what we say we are going to do.

With that operator, please turn it over to the Q&A

[Operator]

[Operator Instructions] Our first question today comes from the line of Mark Delaney of Goldman Sachs. Please go ahead.

[Mark Delaney, Goldman Sachs]

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

[Omer Keilaf, Co-Founder and Chief Executive Officer]

So, BMW is going to launch with the 7 Series. We are expecting additional models to follow. In terms of the volume of the 7 Series, I cannot share more information. We expect a smooth launch at the beginning and ramping up following that.

[Mark Delaney, Goldman Sachs]

Okay, I appreciate that. And then a second question was something you brought up last quarter. You mentioned you were in discussions with NVIDIA to be integrated into series production programs leveraging the Hyperion platform. Is there any update you can share on progress there?

[Omer Keilaf, Co-Founder and Chief Executive Officer]

We actually started the OEM in which this is related to. We started the audit to become their tier one, still a working process, but going well.

[Mark Delaney, Goldman Sachs]

Okay, that's helpful. Lastly for me, today you spoke about the MRM system and also developing higher value software in conjunction with BMW. Are those going to be exclusive product categories for BMW given the co-development or can NVIDIA develop those sorts of products for other OEMs? And then if so, how much of the engineering work can you potentially leverage that you're currently working on with BMW or do you need to do that from scratch? Thanks.

[Omer Keilaf, Co-Founder and Chief Executive Officer]

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

[Operator]

Mark, any further comments?

[Mark Delaney, Goldman Sachs]

No, thank you very much.

[Operator]

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

[Andres Sheppard, Cantor]

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

[Omer Keilaf, Co-Founder and Chief Executive Officer]

Yes.

[Andres Sheppard, Cantor]

Wonderful. Congratulations on the quarter and thanks for taking our question. I was wondering if perhaps you can give us a little more color on the NRE bookings. Obviously the increase in the targets there is excellent. Just wondering if you maybe have any more visibility in terms of whether this will be recognized into either revenue or contract expense. Just a little more color there. And when do you see this taking place? Is this a Q4 event or perhaps gradual through Q3 and Q4? Thank you.

[Eldar Cegla, Chief Financial Officer]

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

[Andres Sheppard, Cantor]

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

[Eldar Cegla, Chief Financial Officer]

Yes, so our run rate as you probably noted from this quarter and looking back on the previous quarter, we are not spending more money. It's actually going down, but it's roughly stable and will still stay stable. On the other side, we do expect these revenues coming in, in addition to the NREs that are supporting our cash flow. So, we think this will support us and maybe we'll see over time a better and better cash flow.

[Omer Keilaf, Co-Founder and Chief Executive Officer]

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

[Andres Sheppard, Cantor]

Okay, that's super helpful. And maybe just one last one, if I may. Any color on kind of what gross margins might look like for the second half of the year? Obviously, with the significant ramp up in revenue, is it safe to assume a big improvement around gross margins? Thank you.

[Omer Keilaf, Co-Founder and Chief Executive Officer]

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

[Andres Sheppard, Cantor]

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

[Omer Keilaf, Co-Founder and Chief Executive Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question today comes from the line of Samik Chatterjee of JPMorgan. Please go ahead.

Samik, are you able to unmute yourself? Samik, your line is unmuted. Please go ahead. Our next question today comes from the line of Kevin Cassidy of Rosenblatt Securities. Please go ahead.

[Kevin Cassidy, Rosenblatt Securities]

Yes. Thanks for taking my question and congratulations on the SOP starting. Very interesting that the InnovizCore. Is that, is that custom ASIC inside there also, you said GPU and a CPU or are those merchant supply that you've designed for this system?

[Eldar Cegla, Chief Financial Officer]

So, the ASIC I was referring to, area on the code, is an ASIC that goes into the LiDAR into the InnovizOne or InnovizTwo. The chip that we're using in our InnovizCore is a chip that comes from a supplier which has very strong processing power about 35 tops and multiple processing accelerators. We haven't yet disclosed who the powder is.

[Kevin Cassidy, Rosenblatt Securities]

Okay, great thanks. And just that as your, your R&B spending, what's the split and what do you expect the split to be in the future hardware versus software?

[Omer Keilaf, Co-Founder and Chief Executive Officer]

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

[Eldar Cegla, Chief Financial Officer]

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

[Kevin Cassidy, Rosenblatt Securities]

Okay, great. Thanks and yes, if I can get in one more question, just the point of clarification for last quarter you mentioned the L1 program that was in late stage discussion maybe just to be clear is this a was this the announced BMW program or was that the new light vehicle program?

[Eldar Cegla, Chief Financial Officer]

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

[Kevin Cassidy, Rosenblatt Securities]

Okay, great. Thanks.

[Operator]

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

[Kevin Garrigan, WestPark Capital]

Yes, hey, good morning, Omar and Eldar, let me echo my congrats on the announcements today. As you guys kind of move up the software stack, I knew you guys are the first LiDAR company for MRM, but are you finding the conversation you're having with OEMs in this kind of area more difficult than for a LiDAR production agreement and that there's more increased competition in this kind of area.

[Eldar Cegla, Chief Financial Officer]

So again, the MRM Solution was first introduced from the side of BMW and since then we've been working with them on the definition of the product. This has been gone for the last more than six months. Other customers we are a pro we out would say introducing this solution to them. This does not yet come as a new requirement from other OEMs. This is different than the perception software which was always a part of the discussion comes up in many RFQs and I believe that this part of the education that we're doing is allowing the customers to understand the potential of using the MLM and that might lead to additional business on it.

[Kevin Garrigan, WestPark Capital]

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

[Eldar Cegla, Chief Financial Officer]

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

[Kevin Garrigan, WestPark Capital]

Okay, got it. Thanks, guys.

[Operator]

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

Samit are you able to unmute?

[Samik Chatterjee, JPMorgan]

Okay, guys, can you hear me now?

[Eldar Cegla, Chief Financial Officer]

Yes.

[Samik Chatterjee, JPMorgan]

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

[Omer Keilaf, Co-Founder and Chief Executive Officer]

So maybe just to make sure Samik the announcement we've made today is related to InnovizTwo. It's the new the new platform is going to focus on the integration and development of features around InnovizTwo not InnovizOne.

[Samik Chatterjee, JPMorgan]

Right, the additional model and variant that you announced for the first generation platform, my question was more around that as to why you extend the model vehicles with the first generation and not wait for the second one what the driver of that decision from the company.

[Eldar Cegla, Chief Financial Officer]

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

[Samik Chatterjee, JPMorgan]

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

[Eldar Cegla, Chief Financial Officer]

Yes, so in regards to the Innoviz Compute model that's actually an activity that we are working on for some time. We already have, I would say, an early version of it. In terms of the R&D effort, it's not a very extensive one. Most of the effort is [Indiscernible] into the perception software, which we already are doing. We are offering the compute model to other customer. As other customers, this is in regards to the computer vision not to the MLM so far. I mean most of the RFQs that we have do include perception software some of them require and compute models so that's very I would say beneficial also for other programs.

In regards to the MLM this is this effort is I mean obviously supported by NREs that we are collecting from the customer in order to support it and we say it is an opportunity to strengthen our R&D capabilities and hopefully to other customers.

[Samik Chatterjee, JPMorgan]

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

[Operator]

Thank you. We have no further questions, please proceed.

[Omer Keilaf, Co-Founder and Chief Executive Officer]

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