Innoviz Technologies Ltd. Ordinary shares 2026 Q2 Earnings Call

I would like to welcome you to the Innoviz Technologies second quarter 2026 earnings conference call. Joining us today are Omer Keilaf, Chief Executive Officer, and Eldar Cegla, Chief Financial Officer. 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 a discussion of some 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 on March 4th, 2026. Omer, please go ahead. Thank you, Ada, good morning to everyone joining us for our second quarter earnings call.

The recent months have been transformative for Innoviz as we enter the defense and homeland security markets. For the past decade, we built our lidars to the toughest bar in the industry, automotive functional safety and automotive qualification. That work established a strong technological moat and a leading position in lidars for the auto market, a high-volume, long-term business. Those same capabilities now let us take our proven lidar platform into defense and homeland security, which is a market with faster growth and much higher margins. Governments are allocating $tens of billions in Israel, the U.S., Europe, and elsewhere to counter emerging threats, establishing what could be a multibillion-dollar TAM.

We are serving this market under a dedicated new brand, Perciz, with our existing sensors expected to be going into counter-UAS, perimeter security, and unmanned ground vehicle, UGV, applications. We've also appointed retired Major General Yoav Har-Even, the former president and CEO of Rafael, to our board of directors to advance our efforts in this market. So far, 6 companies have publicly announced that they are engaging with us to adopt LiDARs in defense and security applications, and we are in active conversations with dozens more. We've received our first multimillion-dollar defense order for counter-UAS and perimeter security, and our LiDAR solutions have been installed and are fully operational in several locations. We believe the defense and security business will be complementary to our automotive business, driving revenue growth and gross margin improvement with ASPs that are an order of magnitude higher than in the auto space.

In automotive, growth continues. We announced the development of a LiDAR-based perception stack with a top 10 global OEM for highway driving. Mobileye announced its own robotaxi on the Drive platform with nine Innoviz LiDARs in every vehicle. The same platform powers the ID. Buzz, soon to be operating in six cities. More SOPs are on track to follow, including VW's level 3 and Daimler Truck's level 4 platform. Combined, our automotive programs and our new security and defense wins drove all-time record revenues of $18.1 million in the quarter. We also strengthened our balance sheet through our recent registered direct offering with a participation from well-known institutional investors, including Neuberger, which grew its existing position. Other investors included some of the largest funds in the world.

We believe that the transaction will enhance long-term value and allow us to unlock large defense agreements while supporting our automotive ramp ahead of upcoming SOPs. Looking ahead, we expect non-automotive sales to grow from 1% of revenues in 2025 to 10% in 2026 and to 20%-30% in 2027, expanding further after that. Including the counter-UAS orders we just received, our defense and security backlog for 2026 is approximately halfway to our 2026 target. For 2027 and beyond, we believe that the automotive end market will drive substantial revenue growth through unit scale and multiple programs are likely to ramp quickly, starting late next year. We expect NREs to remain at their current levels. The defense and security end market will drive gross margin uplift, aided by shorter cycle times with ASPs that are an order of magnitude higher than in the auto space.

Together, we believe they can create a flywheel effect, which strengthening the other and adding the potential for additional end market expansion. Let's jump into the details. The security threat landscape around the world is changing profoundly. Traditional sensing and security architectures can't keep up with autonomous systems and asymmetric tactics. Our LiDAR-based solutions change the equation in three specific areas: counter-UAS, perimeter security, and unmanned ground vehicle and robotics. Drone warfare has become one of the most pressing security challenges facing the world today, from Ukraine to Israel and beyond. The FBI Deputy Director, Chris Wray, recently said that it's only a matter of time before battlefield-style drone attacks reach the U.S. Small drones fly below radar, and fiber optic or autonomous control defeat jamming and RF-based detection. Swarms and erratic flight paths overwhelm tracking systems, while birds and vegetation drive false positives.

These inexpensive drones often require expensive and comparatively slow interceptors to neutralize them. On the perimeter security side, current detection systems based on cameras and radar have inherent technological limitations. Weather, difficult terrain, and slow or irregular movement make it hard for them to locate and identify threats. Bad actors know these weaknesses and know how to exploit them. This is the soft underbelly of perimeter defense. LiDAR-based solutions are expected to close these gaps. They can precisely localize small drones and therefore have the ability to support better protection of borders and critical infrastructures like airports and energy facilities. Finally, in UGVs or robots, we can combine all of our capabilities in one deployment, enabling a functional, safe, drone-aware, autonomous vehicle.

As governments around the world address these threats and build new capabilities, the robust, 3D perception layer we enable is gaining attention quickly here in Israel and abroad. Our new brand, Perciz, brings the sensing, perception, and AI expertise we built for autonomous driving to the defense and security market. A dedicated brand under the Innoviz name lets us offer our proven LiDAR solutions with centimeter-level 3D localization to government agencies, defense contractors, system integrators, and security technology partners. From our customers' experience, the traditional camera and radar-based solutions for counter-UAS applications will only tell you that there is a drone present. This is not sufficient to protect an area or a critical installation. Many systems are either too large or too expensive to be relevant, especially in a moving platform.

Systems supported by our LiDARs can reliably locate the threat in real time, even at low altitudes and in cluttered urban environments at close range, allowing those systems to accurately react while minimizing collateral damage. In perimeter security applications, we have the ability to support intrusion detection for critical infrastructure and border security at distances of up to one kilometer. By integrating LiDAR camera and AI, such systems will be able to detect and classify humans and vehicles in very complex environments. This includes behind trees and fences, under power lines, and in many other conditions where radar camera fusion solutions fall short. When it comes to solutions in the defense and security space, our customers are looking for four major KPIs. Outdoor performance with range and resolution, resilience to occlusions such as dirt, water, bugs, et cetera, production readiness, and geopolitically secure. Our LiDARs offer all of the above.

In particular, our resilience is a true unique proposition. As in automotive, a LiDAR in defense applications cannot be derailed by environmental factors or obstructions. The video you've been watching showcases our LiDAR ability to withstand occlusions and demonstrates our readiness to serve this market today. We believe these are significant differentiators. Our work in defense and security is already starting to pay off. Last week, we announced our first large orders from a prominent defense customer Three and a half million dollars for several hundred LiDAR units that will be deployed in counter-UAS and perimeter security. This program is in its early days, and there is potential for more significant volumes following the successful completion of the first deployment. We are in active conversations with dozens of potential customers, many of whom have already purchased LiDAR units for testing, development, and integration.

We believe that some of these programs could drive partnerships and large-scale orders. Just in the past three months, six customers have announced engagement with us. Drive Group said that they intend to integrate our LiDAR into applications such as drone localization, border security, and critical infrastructure protection. This collaboration is a foundation for potential building meaningful revenue, with Drive Group targeting $20 million sales opportunity by the end of 2027. We are also working with Regulus and Givon Defense to improve counter-UAS performance in complex operational awareness environments. We expanded our engagement with Cogniteam and are powering their new counter-UAS module for advanced security platforms. AeroNous, part of Israel Shipyards Industries Group, announced a collaboration to integrate our technology into their open architecture command and control platform for counter-UAS operations. Finally, prior our May call, Kela had announced that they will be fielding Innoviz LiDARs across their unified platform.

As defense contractors and system integrators build out real counter-UAS perimeter security and UGV capability, we believe Innoviz is well-positioned to serve these applications. Our LiDARs are already operational in several locations, supporting potentially life-saving solutions. Customers in the defense space need a sensor they can trust, and through synergies with our automotive business, we deliver a production-ready product that can support their mission. Perciz is off to a strong start as our teams focus on additional engagements in Israel and beyond. We believe that we are in the early stages of this business, and the programs and traction we see already are very encouraging as we address what we think is a multi-billion-dollar TAM. Let me now update you on our automotive business. Our programs with our existing customers are on track. The Volkswagen ID. Buzz is progressing on multiple fronts.