Innoviz: Countdown To Dilution, Downgraded To Sell (NASDAQ:INVZ)

When Innoviz (NASDAQ:INVZ) released its Q4 results, the Israeli company pleasantly surprised investors by reporting record-breaking revenue of $15M for the quarter, the highest ever achieved. Additionally, it recorded the lowest operating cash flow consumption at $14M. With a solid start to the year with $152M, Luminar seemed poised to continue its trajectory of improved savings, including headcount reductions and a refocus on the core business of advancing the InnovizTwo sensor beyond the B sample status, and maximizing sales of the InnovizOne sensor whenever possible.

In contrast, the Q1 results were mixed, leaving a somewhat negative impression and revealing less-than-positive insights. The company’s $22M spending on operations was 10% higher than anticipated, reducing cash by $25M, ending it at $128.5M. Revenue reached $7.1M, including non-recurring engineering (NRE) income and sensor sales, but the breakdown was not provided; the company stated that mainly NRE contributed to this figure. Although significantly higher than Q1 2023, this result did not inspire confidence in a sequential sales pickup, indicating that I7 revenues do not have a stable growth trajectory.

The Q2 estimate of $4 to $5M suggests, particularly regarding the BMW (OTCPK:BMWYY) partnership, being tempered by reality. There is now a permanently missing order book reference, and the created space has been filled with a description of the 2030 demand for LiDAR, along with new regulations from NHTSA for 2029. Furthermore, there is no clarity on whether Innoviz secured an extension nomination with BMW for the InnovizTwo; it was certainly omitted from the news release’s discussion of RFQs.

The Q1 updates echoed much of what was said about Q4. There was little discussion on I7 deliveries. Once again, the BMW 5 Series was referenced as a future commercial launch. Still, specifics regarding this launch and the revenue stream for Innoviz remained unclear, despite the need for clarity on the sales of Innoviz LiDAR in the Chinese market.

Moving on to other updates, Innoviz discussed opportunities with nearly every OEM through RFQ-level negotiations. They maintained an expectation, unchanged for the last six months, to win 2 or 3 nominations, though the timeline has now been extended to late 2024.

Additionally, Innoviz mentioned collaborations with Mobileye (MBLY), Qualcomm (QCOM) platforms, and NVIDIA (NVDA). These collaborations highlight the company’s efforts to become the premier choice for LiDAR sensors and integrate seamlessly within the broader sensor fusion landscape.

In Q1, there was no discussion about unveiling the slim version of InnovizTwo, which occurred in Q4. However, a product rendering was featured in the presentation. Other prototype devices, such as Innoviz360, a solution for a spinning LIDAR format, or InnovizCore, promptly disappeared, aligning with Innoviz’s focus adjustment and shifting to its core goals. In contrast to its competitor, Luminar (LAZR), which awesomely secured a $100M nomination for a similar-looking sensor, the Halo, available only in 2026, Innoviz only mentioned interest in the new device without any concrete developments.

Innoviz successfully implemented nearly all the initiatives of the realignment plan, focusing on the InnovizTwo sensor and software platform to reduce planned cash outlays. However, as I mentioned earlier regarding the operating cash flow (OCF), spending was 10% higher, indicating that more work is required.

According to the Seeking Alpha database on earnings expectations, Innoviz is expected to generate $39M in revenue based on pooled analysis from four analysts. This figure is somewhat lower than the company anticipated, considering it could see as much as $70M in NRE income at the top end of the range. However, the range has a $50M gap, starting from $20M, indicating the unpredictability of these predictions.

What does this mean for the company’s financial condition? The impact would be significant, especially if we consider that perhaps half of the expected NRE, or $35M, is included in the revenue estimate of $39M. This scenario would make the revenue from InnovizOne seem pretty modest compared to what had previously been communicated to the investor community about 2024.

With $128M in cash and $21M spent on operations, Innoviz faces a challenging financial outlook. With a gross loss of about $5M and a negative gross margin of 16%, Innoviz is projected to have only $56M in cash left by the end of this year and could run out of cash by 2025.

In contrast, Luminar recently filed an ATM of $150M on May 3rd, while Innoviz filed a shelf offering in 2022 for $200M. Considering that Innoviz offered $60M in a public offering just last year, I assume it is likely that up to $140M can be utilized as an ATM without an update. It is worth noting that no equity was sold in Q1, according to the cash flow inspection.

Given these financial constraints and the company’s expectation of no significant revenue influx in the near term as it continues to work on winning nominations, the path to financial success is very challenging. While there are opportunities, the ability to convert them into revenue remains uncertain, given the existing cash runway.

Therefore, I downgrade the company to a “sell.” I anticipate Innoviz will sell equity close to the remaining shelf amount, approximately $140M, within the next 12 months, likely driving the share price below $1. While I acknowledge the potential for Innoviz to secure nominations, whether new or extensions of existing relationships with companies like Volkswagen, I do not foresee any significant improvement in its financial performance. Moreover, I anticipate at least one more offering in the 2026 timeframe.

Although the stock may experience positive fluctuations based on RFQs and the potential for expected wins to turn into nominations, the prospect of significant dilution is a major deterrent to owning shares in the company.