View, Inc. (NASDAQ:VIEW) Q1 2022 Earnings Conference Call June 23, 2022 11:00 AM ET
Company Participants
Samuel Meehan – Head, IR
Rao Mulpuri – CEO
Amy Reeves – CFO
Conference Call Participants
Pavel Molchanov – Raymond James
Operator
Greetings, and welcome to View Inc.’s First Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure introduce your host, Samuel Meehan, Head of Investor Relations at View. Thank you. You may begin.
Samuel Meehan
Good morning, everyone, and welcome to View’s Q1 2022 Earnings Call. I’m Samuel Meehan, 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 ahead of the market open today, View issued a press release announcing its Q1 2022 financial results. You may access this press release 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. I would also 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.
Rao, over to you.
Rao Mulpuri
Thank you, Samuel, and thank you all for joining us for View’s earnings call this morning.
A couple of weeks ago, we reported our full year 2021 financial results, which included strong year-over-year revenue growth of 125%. On that earnings call, we mentioned that we would conclude the company’s financial restatement with the completion of our filings.
I’m pleased to say that the financial restatement is done, and that chapter is closed. When we file our Q1 2022 10-Q following today’s earnings release, we will be current with our financials and View will regain compliance with NASDAQ listing requirements.
For Q1 2022, we’re pleased to report revenues of $17 million, which represents more than 70% year-over-year growth. I’m extremely proud of our team and their focus on continuing to build the business over the past year.
This team’s ability to execute is demonstrated by 125% year-over-year growth in 2021 followed by more than 70% year-over-year growth in Q1 2022. What’s more notable is not just the growth in revenue, but the customers and the type of market-making projects that we’ve acquired.
Let me cover a few notable examples. Sorrento Gateway, a San Diego Lifesciences project under development by Healthpeak Properties in conjunction with Project Management Advisers. This is our third life science development with Healthpeak Properties, following campus-wide installations at the Boardwalk and upcoming installations at Callan Ridge in Torrey Pines.
View was also selected to be featured in The Eight, a 25-story commercial office tower in Bellevue, Washington. The Eight is being built and developed by Skanska, a global construction and development firm committed to sustainable buildings.
In the quarter, we announced a second major win in Bellevue, Washington with View smart windows being selected for The Artise, a 600,000 square foot office building that has been pre-leased to Amazon. The Artise is a Schnitzer West third project with View following Denver’s the current River North and Civica Cherry Creek.
In Multifamily, we announced a partnership with Nabr and View was selected to be installed in their first building, SoFA One in San Jose. Nabr is a consumer-first housing company cofounded by world-renowned architect, Bjarke Ingels. All Nabr homes will feature View smart Windows and the Nabr developments will utilize View’s cloud connected smart building network.
Finally, in Multifamily, we completed the installation of View smart windows at Sven, a 67-story luxury skyscraper in Long Island City by The Durst Organization. Sven is the tallest residential building in North America to feature smart windows.
To summarize, Q1 2022 was a great quarter with strong top line growth, notable new wins, including major buildings with repeat customers and some notable wins for the first time with new customers.
With that, I’ll hand it over to Amy to cover the financials Amy, over to you.
Amy Reeves
Thank you, Rao, and good morning, everyone.
I’m Amy Reeves, and I will cover the financial results for Q1 2022. As Rao mentioned, we are pleased to have completed our financial restatement with the filings of our 2021 annual report and 10-Q.
This was a process in which we dedicated a significant amount of time and attention including the use of outside resources to review our prior period financial statements in order to be confident in the accuracy of our financial reports. Upon the filing of our Q1 2022 10-Q, which we expect will be done in the coming days, we will be current with our financials and regain compliance with NASDAQ’s listing requirements.
Now let’s turn to our Q1 2022 results, which demonstrated continued momentum following our strong top line growth in 2021. We reported revenues of $17 million, representing 74% year-over-year growth. This growth was primarily driven by a shift to our new Smart Building Platform offering that was introduced in the second quarter of 2021 and sales of our new Smart Building Technologies product.
As we explained in the last call, the Smart Building Platform is a full solution that incorporates smart glass as a component. Growth in the quarter is primarily driven by our ability to have our customers adopt the Smart Building Platform offering, which provides end-to-end design and deployment services and also enables next-generation Smart Building Technologies.
Total cost of revenues of $41 million represents a 12% year-over-year increase from Q1 2021. We grew revenues more than 5x faster than our cost of revenues grew. And as a result, gross margin as a percent of sales significantly improved year-over-year.
The increase in cost of revenues was impacted by the following factors: increased factory operating costs as we scaled our factory capacity in the second half of 2021; costs associated with the delivery of our Smart Building Platform and inventory provisions.
These factors were partially offset by declines in post-installation support costs and the release of a portion of the contract loss accrual previously recorded with progression of our Smart Building Platform project.
Now turning to operating expenses. View incurred $20 million in research and development costs in Q1 2022, an increase of $3 million or 19% from Q1 2021. This increase is attributable to our continued investment in our smart window products, including the panel and industrial network as well as our next-generation smart building technology to accelerate the digital transformation of buildings.
We incurred $43 million in selling, general and administrative expenses, an increase of $21 million or 98% from Q1 2021. This increase is primarily attributable to an incremental $8 million of noncash stock-based compensation as a result of grants that were provided in connection with these business combination completed in March 2021.
The SG&A increase was also driven by consulting, legal and accounting expenses associated with the financial restatement and related work. This accumulates to a Q1 2022 GAAP loss from operations of $86 million compared to a loss of $65 million in Q1 2021. Our GAAP net and comprehensive loss in Q1 2022 was $82 million, our current shares outstanding at 219 million shares.
Net cash used in operating activities of $71 million compared to $70 million in Q1 2021, reflecting higher costs associated with expanded product offering and increased factory capacity as well as expenses incurred as a result of the financial restatement and related work, offset by favorable working capital net cash outflows as compared to Q1 2021.
With that, I’ll turn the call back to Rao.
Rao Mulpuri
Thank you, Amy.
We’re pleased to report continued strong year-over-year growth in the first quarter of this year. This puts us on track with our plan to achieve our full year 2022 revenue guidance of $100 million to $110 million. Looking ahead, we have four pillars of growth that propel our business. First, we have market-leading and transformative products.
We have 1,250 patents issued and applied and are now on our fourth generation panel. We’ve deployed our converged secure network infrastructure, and we are continuously rolling out new Smart Building Technologies on top of that platform. Second, our customers love our products and are excited about the future we’re creating for the built environment. Our products are deployed with market-leading customers, and we continue to win strong repeat business in addition to new customers.
Third, our operations are in place and ready to scale. With over $400 million invested in capital equipment in the factory, we are well positioned to handle growing demand and scale to $1 billion in annual revenues within the existing footprint. We’ve also built sales, customer service and field support in all of the major markets we operate in.
Finally, let’s talk about capital. We reported $200 million of cash on the balance sheet at the end of Q1 2022 with no substantial debt. While we did not pursue raising additional capital during the restatement period, we intend to begin that process now, and we look forward to showing up our balance sheet in the coming months. As we discussed, we have the products, committed customer base and the operational footprint to continue to drive strong growth. We have an exciting journey ahead, and we look forward to getting back in front of you shortly with a midyear update.
Operator, we’re happy to open up the call and take any questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.
Pavel Molchanov
Thank you for taking the questions. Let me start with the cash burn. You mentioned $200 million at the end of March, down $80 million during the quarter. Do you have a sense of how much the cash the usage should be reduced between now and the end of the year. In other words, $80 million is the baseline. Will it be 60, 40? How much can you narrow that down?
Rao Mulpuri
Yes. Pavel, thanks for the question, and thanks for joining. We’re not disclosing the exact amounts of bond reduction. But we did say that we do see a substantial reduction in the second half of this year based on primarily two factors. For our business, with the fixed cost in place, the bad news is we have all the fixed costs.
The good news is every incremental revenue dollar we bring in is accretive and we are able to amortize that fixed cost over more units. So with the volume increase in the second half of the year, we do anticipate that net burn going down. And the second factor is we are just completing our restatement.
And so we had a significant increase in SG&A expense related to the restatement expenses, and that will go away in the second half. So between those two, it will be a substantial reduction. I think today, we’re not prepared to talk about the exact numbers.
Pavel Molchanov
Yes. Of the SG&A on a GAAP basis that was recorded in the March quarter, how much was specifically attributable to the restatement process.
Amy Reeves
Pavel, this is Amy. I can take that question. We had about $6 million that was attributable to the restatement process amongst the accounting and legal costs that we incurred.
Pavel Molchanov
Okay. Okay. That’s very helpful. Last time —
Amy Reeves
Sorry, Pavel. Just to clarify, Q1 expenses that we incurred that much for.
Pavel Molchanov
Yes. Very clear. Last time you hosted a call, I guess, it was about four weeks ago. You talked about getting to gross margin positive in the second half of 2023. What revenue run rate does that assume? In other words, when you talk about getting to positive margins, there’s presumably some level of capacity utilization that you are modeling within that. So how much higher from today’s levels?
Rao Mulpuri
Yes. Without getting into 2023 guidance and precision there, Pavel, it definitely assumes a continued growth in our business. That’s not a surprise. And we did plan our business to be able to grow somewhere around 100% annually. And that’s really a rate at which we can responsibly bring capacity.
As you know, the world that we operate in and the markets we serve are vast, right? We’re not even 1% market share in any segment we participate in today. And we’re continuing to get traction in new segments like Multifamily.
So given the vast market, given the secular trends, we think the growth rate for this company is limited by — in the long term, our ability to bring capacity. But in the short term, it’s our customers’ absorption by way of awareness and adopting our change into their portfolios.
We’ve announced a number of these key customers, as you can see, they’re what we call market-making customers and the big trends favor us. So yes, it involves continued growth. And the other thing I want to share with you is that can be done within the capital equipment we already have running in the factory, right? There’s some tweaking here and there an improvement, but that first plasma quarter we have online will get us to gross margin positive in the second half of next year.
Pavel Molchanov
And maybe I’ll conclude with kind of a higher level question. I think everybody sees the headlines about recessionary headwinds. And in that context, how much visibility do you have, for example, into the second half of this year? If we were to go into a recession, in the United States, are those revenues to get to your guidance already locked in at this point?
Rao Mulpuri
Yes. I mean let me first talk about recession relative to infrastructure and specifically real estate and construction I think the biggest drop the industry has experienced in the last 100 years, and that was in the last — the ’08 downturn, I believe, was a 50% reduction, right? So think about that. Given what a secular trend, low market share products that are secular trends blow right through recessions in their growth rates.
And remember, if you’re not building new buildings and offices, if you look at the trend, biotech or life sciences is picking up some of that slack the footprint of bioscience — biotech buildings is expected to double in the next 7 to 10 years.
Renovations are picking up quite a bit. When you’re adding capacity and you’ve got an empty or a near empty building, you’re forced to renovate to bring it up to the market so you can have a chance of getting it leased. And then, of course, infrastructure spending you’ve got Multifamily that continues to build several hundred thousand units a year. So we’re well positioned from a vertical diversity, geographic diversity and of course, single customer logo concentration risks as well.
So with that as a backdrop on overall talking about the recession, the second half of 2022 is much easier to talk about for View because as you can imagine, we’re already almost halfway into the year. And a lot of these projects are already well underway, broken ground or being renovated with contracts in place. So the rest of this year, we feel very, very comfortable with our projections.
And as we look into next year, we have a very strong pipeline, strong bottom-up relationships and a significant repeat business. So independent of the macro, we feel very good about our secular trends. Just to remind you and everyone on the call, the big secular trends in real estate, right, that are going to be not just one or two years, but the next five to 10 years and beyond are sustainability, number one, you can’t build a renovated building today without paying attention to the near-term energy performance. And if you’re a big portfolio owner, you can’t not pay attention to net zero coming up very quickly.
The second is user experience. In addition to buildings being monuments, there’s a very, very strong focus around the user, be it the office, be it a home and certainly be it places like airports and hospitals, where today, there’s a lot more emphasis on passenger experience, patient experience and of course, employee experience.
The third big trend is health. This is a big emerging area in real estate, where people are learning that the quality of space you consume really matters to your long-term health by way of physiology, biochemistry and psychology.
And then finally, digital transformation. I mean, this is an industry that set out all these decades of change that happened in other industries, and there’s a huge opportunity to improve buildings to be smart and connected. So with those trends in place, the macro is really not the big relevant factor for us. The key is about awareness and adoption, and we feel very, very good about our position with our customers.
Pavel Molchanov
Got it. Thank you very much.
Rao Mulpuri
Thank you.
Operator
Thank you. There are no further questions in the queue. I’d like to hand the call back to management for closing remarks.
Rao Mulpuri
All right. Thank you all very much for joining us. With the restatement behind us, with the products, the customer base and operations in place, we’re very excited to continue to build our company in the public markets and look forward to speaking with you at our second quarter call. Thank you.
Operator
Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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