View, Inc. (NASDAQ:VIEW) Q1 2023 Earnings Call Transcript

View, Inc. (NASDAQ:VIEW) Q1 2023 Earnings Call Transcript May 9, 2023

Operator: Good day, and thank you for standing by. Welcome to the Views First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Samuel Meehan, Head of Investor Relations. Have a great day.

Samuel Meehan: Good afternoon, everyone, and welcome to Views’ First Quarter 2023 Earnings Call. I’m Samuel Mean, Head of Investor Relations at View. I’m here with Dr. Rao Mulpuri, our CEO; and Amy Reeves, our CFO. Before we begin, I’d like to remind you that after market closed today, you issued a press release announcing its first quarter 2023 financial results. You may access this press release in the Investor Relations section of 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 Views performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the press release. Now I will turn the call over to our CEO, Dr. Rao Mulpuri, over to you.

Rao Mulpuri: Thank you, Samuel, and thank you all for joining us this afternoon. In our prepared remarks, I’ll address important developments since our last call, and Amy will go into details on the financial performance of the business. I’ll cover the macro environment and the real estate industry dynamics as they relate to view in terms of challenges and our opportunities. Then I’ll cover how we’re navigating this environment, specifically our strategy to reach profitability, including our go-forward cost structure and enhanced go-to-market approach. First, on the macro. The real estate industry is going through significant changes and our customers are contending with two main issues: One, the office sector has been under stress in every market; and two, higher interest rates and the lack of availability of credit.

But given View is leading a secular trend, and we’re at a very low market share at the moment, Views journey is less about the macro, but more about the underlying dynamics that drive the adoption of smart windows. Despite these challenges, there’s plenty of opportunity in the market for view, and we expect to continue to gain market share through the cycle. Now turning to the office segment. While the overall demand for office is bad, tenants that are renewing leases are moving to new spaces are demanding that the offices be top back and highly amenitized [ph] in order to make it attractive for their employees to come into the office and do their best work. Class A office is doing better and Class B and C offices are suffering the worst. This flight to quality drives adoption of ViewSmart windows since they provide a superior occupant experience.

Building owners are also under pressure to comply with regulations around climate change and view provides the perfect combination of a better building for the occupants and a better building for the planet. Now regarding other real estate verticals. As we have noted in the prior calls, it’s a well-known fact that there continues to be a shortage of housing across the U.S., and we have a significant pipeline of projects in the multifamily sector now. As you know, we are in a number of notable U.S. airports and continue to grow with repeat business in both renovations and terminal expansions in existing airports as well as additional new airports. We also have significant installations in hospitals and medical office buildings across North America.

Both of these institutional segments are much more resilient in the cycle compared to commercial real estate. Now let me describe our go-forward strategy and path to profitability. As we announced on our last earnings call, we took actions that we expect will reduce our annual structural fixed costs by approximately $50 million. We completed these actions in the first quarter of 2023. It’s important to note that these savings start to become effective in Q2 2023 and are above and beyond the year-over-year improvements to be realized in our first quarter 2023 financial results. I’d like to provide more details into the realigned cost structure of the business and our go-forward strategy. First, regarding our factory fixed cost. As you know, we’ve had to create a very unique supply chain moving from an ordinary vendor to a high-tech connected smart skin for the building.

That required us to make substantial investments in capacity and years of iterative process improvement. Through the hard work and dedication of our team, our manufacturing process has now matured when our factory is performing well with high quality and on-time delivery for our customers. In the first quarter of 2023, we adjusted our supply chain, process capacity and overhead costs and rationalize them to reflect our improved operational performance, resulting in higher efficiency and lower fixed costs. Also in Q1, we made significant strides in transitioning from our Smartclass product to being more vertically integrated with the smart building platform, which allows us to optimize for the overall system performance rather than just the components.

This change is significant in that it removes inefficiencies across manufacturing and supply chains and allows us to deliver more efficiently for our customers while also reducing our cost of delivery per project. Putting it all together, we believe the current factory and delivery infrastructure we have already built will allow the company to scale to profitability. Second, on to R&D. As we have mentioned on prior calls, we are now in our fourth generation product. That transition was completed last year and has been met with terrific feedback from customers on neutral color, aesthetics and visual quality. We also recently completed R&D of our next-generation network that is more secure, lower cost and easier to install. This is an area that effectively tracks Moore’s Law in taking advantage of the benefits of continued cost reductions in semiconductors and circuit design.

The completion of both of these initiatives allowed us to reduce R&D expenses substantially. Gen 4 is now our mainstream product, and we intend to get to profitability of this product. Now let me talk about sales and marketing. First, regarding marketing. Our customers are the best promoters of our product. With major installations in each of the key U.S. markets, awareness of our product has gone up significantly in the last year. This allows us to be more efficient with our marketing spend going forward. Next, on to the sales effort. While we spent the last few years getting reference installations and building awareness in key markets, we’re now focused on what we call platform accounts. These are customers who have large portfolios of buildings and are constantly building and renovating.

Instead of treating each building as a separate decision, our customers are increasingly choosing view as a design standard across their portfolios. These market-leading customers also tend to be more sustainability focused and equally importantly, have the ability to invest in upmarkets and down markets. Once we penetrate these accounts, we also enjoy significant repeat business. This makes the selling effort a lot more efficient, effectively reducing our customer acquisition costs. So putting it all together, the maturation of our manufacturing processes and ramp-up, combined with a product that is fully developed and ready for the mainstream and a sales effort that’s focused on platform customers gives us a more efficient cost structure.

We’ve also been very thoughtful about the go-forward structure of the business. And today, we believe we have the infrastructure in place to achieve profitable scale. Specifically, we plan on holding our fixed costs at this level until we achieve profitability. In total, these reductions represent a significantly lower fixed cost structure to the business and set up lower breakeven points for both gross margin positive and EBITDA positive. Turning to the revenue side of the business. Last year, we did $100 million in revenue, which was a significant milestone for the company. It’s worth pointing out that this was achieved prior to the investment tax credit being enacted. Historically, our customers paid a significant premium for smart windows.

Going forward, the tax credit removes that premium, making the smart window about the same cost as a traditional window. As a result, the smart window can now be incorporated cost effectively across a bigger spectrum of our customers’ portfolios. We’re seeing a significant uptick in customer interest, and we anticipate this momentum will drive our demand growth going forward. As we mentioned on our last call, we have a committed backlog for 2023 that already exceeds 2022 revenues. Today, we are guiding our 2023 revenue outlook to be in the range of $125 million to $150 million or a growth of 36% at the midpoint of the range. Now on to some details about the investment tax credit. ITC for Smart Windows was enacted on January 1. And today, customers are able to get a vastly superior window for around the same cost as a traditional window.

At the same time, Vu is able to capture higher value and better profit margins per project. This quarter, we made substantial progress educating the industry on ITC and putting key operational building blocks in place for our customers. View established an insurance program to support our customers and enable the guarantee of the tax credit for qualifying projects. We believe with these building blocks in place for the investment tax credit, we will see a rapid acceleration of customers benefiting from the smart window ITC. Finally, today, we announced that we’re pursuing $150 million financing. As you know, we closed the $200 million financing last year that was led by RXR and other strategic real estate investors. We’re currently in discussions with our existing noteholders and shareholders regarding today’s announced financing.

Given the progress we made this quarter in lowering our structural fixed costs and lower breakeven point, our strategy is that with this financing, we give the company to profitability. With that, I’ll hand it over to Amy to cover the financials. Amy, over to you.

Amy Reeves: Thank you, Raul, and good afternoon, everyone. I will be covering the financial results for the first quarter of 2023. As we get started, please note that unless otherwise stated, my comments refer 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 $18 million, which represents an 8% year-over-year increase from Q1 2022, primarily due to growth in our smart building platform products as we continue our momentum to strategically shift to this line of business. We expect to continue to see this shift throughout 2023 as we focus on the development of relationships with high-quality customers and our differentiated approach to supporting their projects.

Our Q1 2023 non-GAAP cost of revenues decreased 1% year-over-year, reflecting the benefit of cost savings initiatives put in place in our factory during 2022 and lower levels of inventory impairment, which more than offset the increased cost of delivery of our smart building platform product associated with the higher revenues. Cost of revenues continue to improve as a percentage of revenue, reflecting the benefit of growing revenues over the company’s fixed manufacturing costs and the favorable mix shift to our smart building platform products. We expect to see continued leverage in our gross margin as we grow our revenues, improve our operational efficiencies and realize the impact of our lower structural fixed costs through the additional measures that Ron discussed earlier.

As a result, we expect that gross margin as a percentage of revenues will continue to improve during 2023, both as compared to 2022 and sequentially each quarter this year. Turning to operating expenses. We incurred $12 million in non-GAAP research and development expense in Q1 2023, a year-over-year decrease of 40%. This decrease was primarily driven by the completion of certain R&D projects as well as the realization of cost savings initiatives that we put in place in late 2022. We incurred $6 million in non-GAAP SG&A expenses in Q1 2023, which decreased 39% year-over-year, reflecting lower spend on accounting and legal fees following the completion of our restatement in the second half of 2022 as well as lower — as well as lower sales and marketing expenses following our cost savings initiatives that we put in place in late 2022.

We expect to see even lower quarterly R&D and SG&A expense beginning in the second quarter of 2023 as we further realize the cost savings that we put in place in March, which Ray discussed earlier. For the first quarter of 2023, we reported an adjusted EBITDA loss of $43 million compared to $63 million in Q1 2022, reflecting the impact of our lower expenses. We expect to see continued improvement of our adjusted EBITDA loss this year. Now turning to cash. Cash used in operations for the first quarter of 2023 was $60 million, an $11 million improvement compared to $71 million in the first quarter of last year. We anticipate that our cash burn will continue to improve over the course of 2023, driven by leverage from higher revenues with our lower fixed cost structure following our recent cost savings initiatives that were put in place.

As we previously mentioned, we expect that these actions will result in annualized savings of approximately $50 million. We anticipate sequential improvement to our cash burn each quarter this year. Due to the cash impact of the restructuring in the second quarter, we will fully realize the impact to our cash burn beginning in the third quarter. We ended the quarter with $130 million of cash, cash equivalents and short-term investments compared to $198 million as of the end of — as of December 31, 2022. We believe our cash and short-term investments on hand should be sufficient to fund our currently anticipated operating and capital requirements into but not through the third quarter of 2023. In light of this cash need, and as Ron mentioned earlier on the call, we are actively pursuing a $150 million financing to strengthen our balance sheet and support us as we progress on our path to profitability.

With that, operator, we’ll open for questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of .

Operator: Great. And this concludes the Q&A section of the call. Rob, I’ll hand it back to you.

Rao Mulpuri: Thank you all for joining the call today. Vu has made a lot of progress to start the year. We took actions to reduce our cost structure and lowered our breakeven point for profitability. We expect to continue to grow our revenue using our focused sales approach. We intend to raise $150 million of financing, and our strategy is that with this financing, we get the company to profitability. With that, I look forward to speaking with you all again on our Q2 2023 earnings call. Thank you.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.