View, Inc. (NASDAQ:VIEW) Q2 2023 Earnings Conference Call August 10, 2023 5:00 PM ET
Samuel Meehan – Head, IR
Rao Mulpuri – CEO
Amy Reeves – CFO
Conference Call Participants
Pavel Molchanov – Raymond James
Greetings, and welcome to View Inc.s Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Samuel Meehan, Head of Investor Relations at View. Thank you, Samuel, you may begin.
Good afternoon, everyone. And welcome to View’s second quarter 2023 earnings call. I’m Samuel Meehan, head of Investor Relations at View. I’m here with Dr. Raul Rao Mulpuri, our CEO, Amy Reeves, our CFO.
Before we begin, I’d like to remind you that after market closed today, View issued a press release announcing its first quarter 2023 financial results and supplemental materials. You may access this press release and supplemental materials in the Investor Relations section of view.com.
As today’s discussion includes forward-looking statements, please refer to our press release for a discussion of factors that could cause the company’s actual performance to differ materially from those forward-looking statements. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after our call.
For a more detailed description of certain factors that could cause actual results to differ, please refer to our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings, including quarterly reports on Form 10-Q.
I’d like to remind you that during the call, we will discuss certain non-GAAP measures related to View’s performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the press release. Unless otherwise stated, our comments during the call refer to non-GAAP results of operations.
Now I will turn the call over to our CEO, Dr. Rao Mulpuri. Rao, over to you.
Thank you, Samuel, and thank you all for joining us this afternoon. A quick recap of the key announcements we make today. First, we had an excellent second quarter and the results demonstrate our focused execution towards profitability. Second, we reaffirmed our full year revenue guidance of 36% year-over-year growth at the midpoint.
Third, we’re forecasting to reach gross margin positive in the third quarter of 2023. This will be the first time the company achieves a positive gross margin, which represents a critical inflection point for our business. Finally, we executed a term sheet for $150 million financing with a lead investor, the $150 million of additional capital is expected to enable the company to get to three positive cash flow with our current strategy.
Let’s spend a minute and talk about our mission. For the last 15 years, we’ve been hard at work at view to build a full-stack products that transform societal infrastructure for the better. While many of us recognize the long-term impacts of climate change, society is now waking up to the harsh realities of the acute short term effects that are impacting everyone right now.
Just in the last few months, we witnessed wildfires, warming oceans, floods and extreme heat events that impacted large populations. Many of these large communities are unprepared for this new reality. The world needs urgent solutions to address these issues while also providing better quality of life for future generations.
It is this mission that gets me and everyone at View fired up to fight the fight every single day in order to bring our technology to scale and make the world a better place.
Now let’s discuss the second quarter in more detail. We recorded revenue growth of 72% year-over-year. As I mentioned in the last call, we completed our pivot from majority of our business in office to majority multifamily residential sector, a sector that has been more resilient in the current cycle compared to commercial real estate. In addition, the tax credit has provided tailwinds for our expansion in this vertical. We are in the early stages of executing several multifamily projects with key platform accounts. And that gives us the line of sight these projects will help drive our top-line growth throughout the remainder of the year.
With that visibility into Q3 and Q4. We have the confidence to reaffirm our revenue guidance for the full year.
On earnings call, we detailed the actions we took to reduce our fixed cost structure. The second quarter is an important proof point that these efforts are paying off. Our gross margin improved significantly from minus 140% in Q2 2022 to minus 48% in Q2 2023. Total operating expenses improved 48% year-over-year and reflects a more efficient go-to-market strategy, lower G&A spend, and lower R&D Spend following the release of our mainstream Gen 4 product and our multifamily offering.
I’ve been quite vocal on our past earnings calls about how our business model has significant leverage with scale. We built our company from the start to be ready to scale and that required a sizable manufacturing footprint and customer support operations across the country. As the business scales there’s an inflection point when those upfront investments create tailwinds make it easier to scale efficiently. And the business recognizes the benefits of this leverage. This dynamic is common to vertically integrated hardware technology companies. View is now hitting that inflection point.
In the second quarter, our revenues grew by $12 million year-over-year, and our gross loss improved by $9 million. Going forward, we expect to continue to benefit from this leverage as we grow our revenues.
Now looking ahead to the third quarter, I’m excited to announce that we expect to be gross margin positive. This is a significant milestone for the company and a testament to the relentless focus by the View team on achieving the path to profitability. The key elements for View achieving gross margin positive are: first, our enhanced go-to-market strategy. We’ve been targeting high quality revenue opportunities where our products add the most value.
We’re also focused on serving and growing our strategic platform accounts. These are leaders in the industry that are driving transformation in real estate, and believe that modern buildings should be more sustainable, experiential, healthier and more tech enabled.
We’re also seeing an uplift in interest from the recently enacted Investment Tax Credit, which benefits both the customers’ affordability as well as our margins. Today, ITC is enabling us to deliver View Smart Windows at cost parity to conventional windows and still capture a healthy margin.
The second critical driver of gross margin comes from lower fixed costs, which enable a lower revenue breakeven point. This includes a more efficient operation at the factory, and reductions in overhead. The factory team has worked tirelessly to perfect our manufacturing process over the past 10 years. And today our factory is delivering well and large projects across the country. It is important to note that we expect to get to profitability with the footprint we have in place today.
Finally, on the products, we’re seeing the benefit of improved execution and lower costs due to improvements we completed over the last year. We recently completed an upgrade of View Net, our next generation controls and network infrastructure. This work significantly reduced unit costs while improving product industrialization.
We’re starting to see the initial financial impact as we roll out the improved architecture on new projects. We also continue to recognize cost benefits in our vertically integrated Smart Building Platform. And we’re working closely with our customers to optimize design, cost, production and delivery of their buildings. This is a continuous learning cycle, and we believe there is still room for additional value capture.
To close out my prepared remarks, we’ve made significant progress scaling the business towards profitability. The second quarter results are proof points that the plan is working. And we expect to achieve gross margin positive in the third quarter. We’ve significantly reduced the structural fixed costs of the business and plan on holding our fixed costs at these current levels until we achieve profitability.
With that I’ll hand it over to Amy to cover the financials. Amy, over to you.
Thank you, Rao and good afternoon everyone. I will be covering the financial results for the second quarter of 2023. As we get started, please note that unless otherwise stated my comments referred to non-GAAP results of operations, as described by Samuel at the beginning of the call. Please refer to the non-GAAP reconciliations in our press release.
For the quarter we reported revenue of $28 million, which represents a 72% year-over-year increase from Q2 2022, primarily due to the growth in our Smart Building Platform product as we continue our momentum to strategically ship to this line of business. We also saw a nice year over year growth in our smart glass business driven by product mix within that offering.
Smart Building platform is our fully integrated Smart Window Platform. And given the customer reception and inherent advantages to this product offering, we expect this to be our primary product offering on a go forward basis. Our Q2 2023 non-GAAP cost of revenues increased 6% year over year from Q2 2022, significantly less than revenue growth of 72% for the same period.
This leverage reflects the benefit of our lower fixed costs in the factory and the field and the favorable mix shift in our Smart Glass product offering. We reduced our fixed cost of revenues year over year driven by our cost savings initiatives put in place during 2022 and the first half of 2023. These were offset by the increased cost of delivery of our Smart Building Platform product associated with higher revenues.
We are now forecasting to reach gross margin positive in the third quarter of 2023, reflecting the benefit of growing revenues over our fixed manufacturing costs. A favorable mix shift in a remaining smart glass business, lower product costs and improved efficiencies in the delivery of our Smart Building Platform product.
Turning to operating expenses, View incurred $9 million in non-GAAP research and development expense in Q2 2023, a decrease of 25% from Q3 2022. This decrease was primarily driven by the completion of certain R&D projects that Rao mentioned earlier, as well as the realization of cost savings initiatives we put in place in late ’22 and early-2023.
We incurred $14 million in non-GAAP SG&A expenses in Q2 2023, which decreased 42%, compared to Q2 2022, reflecting lower spend on accounting and legal fees following the completion of our restatement in the first half of 2022, as well as lower sales and marketing expenses following our cost saving initiatives.
For the second quarter of 2023, we reported an adjusted EBITDA loss of $31 million, compared to $61 million in Q2 2022, reflecting the impact of higher revenues, improving gross margins and lower operating expenses. We expect to continue to see improvement in adjusted EBITDA led by the forecast at achievement of gross margin positive in the third quarter.
As we expect to hold our fixed operating cost structure at current levels until we achieve profitability as a company, this will continue to drive improvement in adjusted EBITDA as our revenues and gross margin growth.
Now turning to cash. Cash used in operations for the second quarter of 2023 was $47 million, a $35 million improvement compared to the second quarter of 2022 and a sequential improvement of $13 million from the first quarter of 2023. Our Q2, 2023 cash used and operations included a cash use of $3 million relating to restructuring costs. We anticipate that cash burn will continue to improve in the second half of 2023, driven by leverage from higher revenues with the lower fixed cost structure following our recent cost saving initiatives.
We ended the quarter with $80 million of cash cash equivalents and short term investments compared to $130 million as of March 31, 2023. We believe cash on hand should be sufficient to fund our currently anticipated operating and capital requirements into but not through September 2023. In light of this cash need, and as Rao mentioned earlier in the call, we are actively pursuing a $150 million financing to support us as we progress on our path to profitability.
With that operator, we will turn it over for questions.
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Pavel Molchanov with Raymond James. Please proceed.
Nice. Thanks for taking the question. Let me start off with the $150 million non-binding term sheet. So first of all, can you clarify, is this convertible or is it straight debt?
So Pavel, as we announced today, it’s a senior secured debt facility. And, obviously we’re focused on closing that in the coming weeks. But we continue to be open to all sources of financing, but this facility is a debt facility.
Understood, okay. So good to see that revenue guidance was maintained. And as you talked about getting to gross margin positive in Q3. Is that gross margin positive, inclusive of depreciation, or solely on a cash basis?
Yeah, includes depreciation.
Okay. What drives the shift towards positive gross margin? In other words, so revenue is going to be ramping, presumably some economies of scale and manufacturing, but are there kind of input cost drivers et cetera pricing? Can you talk about that?
Yeah, Pavel, as you can imagine, in our business, we have many components that drive margin. And this is a major inflection point for us. Because when we went public, we were a little over negative 250% gross margin. And in the presentation, that’s posted on our website, you’ll see a progression from there to coming up to zero in this quarter.
The components are many. As you point out, one of the most important is the top-line, which is not only volume, but the quality of that revenue. Clearly, we’re hitting the tax credit is helping focus on the right projects, the right scale, at the right price points where it’s affordable for our customers, but also allows us to capture value.
The Smart Building Platform is allowing us to reduce eliminate inefficiencies in the delivery of our product. So clearly, not only how we make the components, but how they are installed and how they come together without mistakes on job sites. So that helps us capture value, reduced cost.
In manufacturing, obviously, key components like yield and throughput were firing on all cylinders making continuous improvements. As you know, we’ve been doing this now for coming up 10 years. So that team has been hard at work improving all the key metrics of a processing manufacturing operation.
Overhead is significant. As you point out, you know, depreciation is a significant number. But even beyond depreciation, we have significant fixed costs that are still very under absorbed, but we’ve gotten better at managing those costs.
And then on the product side, we’ve made improvements, especially to the electronics, all the window controllers, the cabling, the connectors, the sensors. Many of them follow Moore’s law. It’s the industry I came from so clearly, you’re able to double the capability of these chips in short periods of time for the same cost. So we’re able to source those more efficiently and pass them through. But also how they’re installed on job sites. And so all of those are coming together for us to achieve this point of gross margin positive.
But it didn’t happen in one day. If you go look at the progression over the last 10 or 12 quarters, you’ll see that we’ve been marching towards this point. The beauty of this is at this point, I tell our team, the factory is paying its own bills, rest of us have to pay our bills, which means continued growth in top-line will enable us to now chopping away at the OpEx by way of the margins we generate. And that provides the path to profitability.
And so now that you’ve given guidance for turning gross margin positive. I guess let me ask it this way. If you’re not ready to talk about becoming EBITDA positive, what needs to happen before you can give that that outlook?
Yeah, we do anticipate hitting that within the next two years. I think we’ve set that expected in the past. And our gross margin positive, we’re executing ahead of plan. We’re also equally managing cash burn and being thoughtful about our growth. So this is a game of making sure that we’re being appropriate in our thinking around growth. But with that, our cash burn, as you know has been cut roughly in half. And that’s going to continue to go down as we ramp revenues.
To answer your question that the most important antidote right now for us for burn is growth. We have the right product in place, we have the right operations in place. We’re building the right customer base into the right segments. And you saw in our narrative today, we moved from majority office where we were doing quite well in that sector, but post-pandemic, that sector is going through significant effects, but multifamily because of the shortage of housing continues to be in short supply. And there’s development happening today. So it’s a very resilient sector in addition to airports, and other institutional business like hospitals.
If our outlook now is in our pipeline, multifamily is our biggest area of pipeline. So we moved from majority office to majority multifamily and continued traction in that sector with the tax credit is going to help us get to profitability and beyond.
And maybe just last question. The corporate cost structure with R&D and SG&A that you had in the June quarter. Should we assume that stays stable going forward? Or do you anticipate room to achieve further reductions?
Yeah, you should expect that we’d be maintaining at that level until we achieve profitability. And the reason for that is let’s kind of break it down into the key components. On sales and marketing. We have the infrastructure in place to serve our platform accounts. And those are the accounts we’re going to grow with. And so we don’t need to invest more in sales and marketing.
And if anything, our marketing is becoming easier, because our existing completed buildings are our best marketing tools. As you know, View is a highly experiential product, all we need to do is bring a customer to a building nearby. And we now have practically buildings in all of the 20 key markets we play in North America.
On the sales side, we have significant repeat business from existing customers, but also our existing customers are delighted and they’re enthusiastic and promoting our product or helping promote the product. So sales and marketing has become quite simple, especially aided by the affordability of the tax credit.
In R&D, we’ve been through four generations of product development. A lot of that has been iterative over the last 10-plus years in taking the learning from the customers, issues we’ve had in the field, product improvements. Our Gen 4 product has the right colors, the right performance, the right quality, our electronics are at the right cost, and we made them easier to install as well. Our software continues to improve. We’re building our software, our apps and our AI, but the cost of that is relatively small.
And our R&D is aimed at continuing to run our factory better. So we continue to focus on yield improvement equipment improvement, managing our suppliers with the electronics. So it’s very focused on industrialization on getting to profitability, as opposed to more feature development.
And then on G&A, as you know, compared to a year ago, the biggest drop you see is related to the public company restatement that we went through with our financials. With all of that behind us, we have a significantly lower G&A as well. So when you add all those components, we’ve taken nearly 50% of the cost out of OpEx from a year ago. And we expect to maintain that going forward through profitability.
Great we fit the update.
Thank you. As there are no further questions at this time, I am turning the call back to Dr. Rao Mulpuri for closing comments. Please proceed sir.
Thank you all for joining the call today. This is an important moment for View and I’m proud of the View’s team’s dedication and perseverance to get us through this point.
Over the past 15 years we’ve developed a mainstream product that is loved by our customers. We have a manufacturing process and footprint that is ready to scale. We have a sales effort that is partnered with industry leading strategic accounts and is focused on the right verticals for growth. And we’ve taken the right actions as a company to achieve a more efficient cost structure at which we can build a profitable business.
Our second quarter results and third quarter outlook demonstrate that the plan is working and we are executing well on the path to profitability. With that, I look forward to speaking with you all again in Q3 2023 earnings call. Thank you.
Thank you. This concludes today’s teleconference. Thank you for your participation. You may now disconnect your lines.