MicroVision Inc

NASDAQ:MVIS

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, and welcome to the MicroVision Second Quarter 2024 Financial and Operating Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Drew Markham. Please go ahead.

[Drew Markham, executive]

Thank you, Tom. Good afternoon. I'm here today with our CEO, Sumit Sharma; and our CFO, Anubhav Verma. Following their prepared remarks, we will open the call to questions. Please note that some of the information you'll hear today will include forward-looking statements, including, but not limited to, statements regarding our customer and partner engagement, market landscape, opportunity and program volume and timing, product development and performance, comparisons to our competitors, product sales and future demand, business and strategic opportunities, projections of future operations and financial results; availability of funds as well as statements containing words like intend, believe, expect, plan and other similar expressions.



These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. We encourage you to review our SEC filings, including our most recently filed annual report on Form 10-K and our quarterly reports on Form 10-Q. These filings describe risk factors that could cause our actual results to differ materially from those implied or expressed in our forward-looking statements.



All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC's Regulation [indiscernible].



For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure as well as for all the financial data presented on this call, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com under the SEC Filings tab.



This call will be available for audio replay on the Investor Relations section of our website. Now I'd like to turn the call over to our CEO, Sumit Sharma. Sumit?

[Sumit Sharma, executive]

Thank you, Drew, and welcome, everyone, to this review of our second quarter 2024 results. I would like to start by updating you on our automotive OEM engagement for RFQs and new potential customer development explorations. Second, I will update you on our progress and sales opportunities for industrial segments. And finally, I will update you on the market outlook on what we're seeing ahead of us.



Let's dive in. The best long-term opportunity for our technology in our company remains with the automotive OEMs focusing on ADAS Level 3 and Level 2+ features for passenger vehicles. We remain engaged in 7 RFQs with automotive OEM for passenger vehicles. Mavin and Movia are engaged in all conversations. The pace for reviews and decisions remain with the OEMs. Starter production for these high-volume programs are targeted towards the end of this decade, so decisions are pushing out into later this year. We are cautiously optimistic about these targets to decisions but remain aggressively engaged.



A new area of engagement has opened up with multiple OEMs across Europe and U.S. OEMs are engaging with us to investigate the opportunity for a more strategic hardware and software exploration in developing a more customized Mavin and Movia S-design for L3 products. We are actively working on this as it represents near-term revenue opportunities as well as delivering a more custom sensor for their B-sample needs for RFQs. We are working on exploring integration of Mavin behind [ Windshield ] as well as a new 180-degree field of view Movia sensor that would integrate into a car body with small bumps resuming the current camera module pumps.



These are exciting opportunities, and I see them as potentially a faster path to RFQ decisions. Some of these engagements are for RFQs that are targeted for 2025. I'm sure investors are wondering why we continue to stay in the race and what evidence do we have that we will win.



I will offer this. Our products are exactly what OEMs are looking for. We are a couple of years behind -- we were a couple of years behind to get to the valuation point because we did not have the capital to invest heavily early. But with our acquisition journey, we are all caught up. The Movia products series was developed by our Germany team for a German OEM after they delivered the [ ScholarOne ] sensor to this OEM.



Our Mavin sensor was developed on our MEMS technology based on all the specifications audience required and to be at cost targets. We are aggressively working with OEMs on adoption. We are in a cycle where OEMs have slowed down in their programs. We are at the same evaluation level as our competition. In the meantime, our competition has really faltered. One of them is focused on 1550 nanometer, which is inherently the most expensive high-power technology and is taking billions to get to this point and will cost billions to get the cost down to OEM targets. None of their partnerships have materialized to volume production.



Our other main competition in 95-nanometer launched, a first-generation product that ended up costing the Tier 1 more than $240 million in losses to bring to market and has been abandoned and they're starting with a new technology node for second generation are no further along. Combined, these companies have spent billions of dollars to capture the market, and they're not dominant because they did not deliver any product or have the technology. This is our competition. There is demand from OEM and it may look like we are behind in the race, but we're not.



In EU and North American markets, we have no competition from the Chinese later companies since Western Lidar are not being adopted in China and Chinese lidars are not being adopted in the West due to the closed software background. So, I totally understand the frustration, but we need to be focused and patient as things are clearing up, but inferior products, spend billions and marketing should not be the reason to fall out of the race. Best products will always win.



We are spending moderately compared to all our competition and remain competitive as they further falter. We will be there as a stable company with the technology to deliver. We are in a race and may not be first yet, but have the strongest team and product portfolio. We must be resilient and see the rate through. Meaningful partnerships are up for grabs in the very near future, but revenues from these partnerships are still 4 years away as OEM production cycles are long. The solution to their revenue problem lies to their industrial strategy.



Now let's move to update our industrial sales opportunities and progress we've made there. Sales in the Industrial segment are important as we expect they may bridge the gap for our -- from now till automotive OEM revenues come alive later in this decade. We have made good progress on this in identifying segments that will support these opportunities. We have been working on developing partnerships in the heavy industrial market segment that has the potential for sale of an estimated 10,000 to 30,000 units per year starting next year. This segment would leverage our currently available Movia L sensor and include a modified version of our perception software for this specific segment.



Again, our product is well suited for the space in which humans work in proximity with heavy equipment operated by humans. These machines are now planned to integrate ADAS features developed for automotive in their industrial environment. Our advantage here is speed to market with an automotive qualified product for the industrial market with a big library of software to enable our potential customers. The mature software we have to offer integration and the small solid-state 3D Lidar is exciting for the industry. We are going aggressively after this market segment. We are forecasting meaningful revenues from this segment starting 2025.



Again, I'm sure investors are wondering why we continue to stay in the race with industrial and whatever is do we have as we will win. I will offer you this. The grandfather in the industrial Lidar market is [ FICA ]. No one has come close to their annual revenue stream. They do this with effectively aligned scanner with up to 4 lines. Today, we have a 3D sensor with much higher resolution and better cost in addition to perception software we will offer to our customers. We can disrupt this market and take a sizable chunk, which we intend to.



The Lidar world is general facing headwinds, but it is a race for the more established and reliable markets in EU and North America. We must have resilience to make it through. We have the best products by far with our near IR technologies. I'm going to keep my prepared remarks brief today as we have received a large list of questions from our shareholders, and I would like to address that as the main narrative. I would like to now turn over the call to Anubhav to talk about our financials. Anubhav?

[Anubhav Verma, executive]

Thanks, Amit. Auto OEMs, Tier 1s and ADAS companies in the U.S. and EU continue to experience some market pressure, driven primarily by [ sift ] competition in terms of both technological innovation as well as cost from Chinese players. Second, not being able to generate return on investments made in the last several years due to weaker than originally anticipated demand for EV and slower adoption of autonomy levels.



The OEMs in U.S. and EU continue to be under pressure to produce vehicles with advanced ADAS features powered by multimodal sensors, including vision, Lidar and radar-based systems to improve safety and [ phatonomy ] in order to compete with their counterparts. But given the cost pressure and macroeconomic climate, OEMs are expecting downstream Lidar suppliers to, a, bear the cost in the initial years, even when the volumes are low at the start of the production; and secondly, have diversified revenue streams from nonautomotive to sustain the company during the multiyear ramp-up phase for automotive OEMs.



This is primarily the reason why Lidar companies are under pressure from investors and markets, especially Lidar companies that have announced nomination wins or serial production awards from OEMs. The current business challenge for all Lidar players is to accept low volume, low revenue projects from auto customers in the near term and tap into other industries for the revenue needed to sustain these initial years to emerge as one of the few standing Lidar companies.



We believe that some of our peers have untenable capital structure as well as unsustainable business model, coupled with excessive OpEx run rate of over $300 million a year. There is a huge demand for Lidar in the second half of this decade, which is being driven by the global competition and marketplace. However, only a few companies who are fiscally disciplined will be able to withstand this low point in the cycle and come out the other side. We believe MicroVision is very well positioned to capture this demand and remain one of the few standing Lidar companies due to the following 4 factors: -- number one, as Sumit described, we have the most relevant and strategic product portfolio with products able to solve the complex technological problems at attractive price points for customers.



Number two, we're focused on our efforts on big volume passenger car projects from OEMs, making the right selection is very important for us. We want to commit resources for large-volume OEM projects as that will be the best use of our capital. Number three, we have extended our runway and further streamlined our cash burn. We reduced our OpEx in Q2 to now focus on Mavin and Movia with perception software inside. This was a strategic move to conserve resources for these products and terminate all expenses and projects related to Mosaic and sensor fusion.



And number four, in the short to medium term, we have to pursue significant revenue streams and partnerships from nonautomotive industrial channels with shorter sales cycles, such as the heavy equipment vertical to reduce the dependence on low volumes in the automotive in the initial years. This is very essential as all [ seal ] production revenue will be material only with the economies of scale, which won't happen until later this decade.



Now let's review our Q2 financial performance. For the second quarter, we recorded revenue of $1.9 million, slightly ahead of expectations. Revenue in the second quarter was primarily attributable to the sale of our sensors to a leading agricultural equipment company for industrial applications. Most of the revenue in Q2 was from nonautomotive customers. This is in line with our strategy to focus on revenue streams from nonautomotive customers, while revenue from automotive customers ramps up.



From a gross margin profile standpoint, on an adjusted basis after adding back the amortization of the acquired intangibles, the gross margin was approximately 39%. We continue to differentiate ourselves significantly from our peers who either have upside down negative gross margins or near zero margins. This demonstrates our unique business model, and we believe this will further entrench us as one of the last standing American Lidar company focused on the U.S. and EU markets.



Now let's talk about our expenses. Our expenses have trended down since Q1, primarily due to the reductions in force, we implemented to focus the company on Mavin and Movia driven by perception software offerings and away from Mosaic and sensor fusion. We had approximately $22 million of R&D and SG&A expenses in the second quarter.



Now this includes, number one, $3.2 million of onetime nonrecurring restructuring charges, including severance, et cetera. Number two, $3.4 million of noncash charges related to stock-based compensation expense; and number three, $1.4 million of noncash charges related to D&A.



After normalizing for these charges, our new OpEx run rate, including R&D and SG&A is now $55 million to $60 million per year. These actions were taken in line with our business strategy to focus on near-term and long-term revenue-generating opportunities, which are in the auto and industrial markets.



For the second quarter, $18.6 million cash was used in operating activities, which is in line with our previously communicated expectations. We expect this number to come down by 20% to 25% on a run rate basis once all the restructuring charges have been paid out in the third quarter.



In second quarter, we incurred a noncash impairment charge on our Mosaic software asset acquired as part of the [ IBM ] acquisition. Please keep in mind this is a onetime noncash charge to impair the carrying value of the software asset acquired from Ibeo. We impaired this asset as we decided to strategically conserve the cash to focus on perception software-driven products, which are Mavin and Movia, for the auto and industrial customers.



The perception software asset, which has the highest carrying value remains a key differentiator and has significant competitive advantage for our products, both Mavin and Movia. To remind our investors, we continue to show financial discipline with our cash burn being within our expectations and on a healthy trajectory, including extended runway. As expected, second quarter CapEx was $0.2 million.



Our balance sheet as of June 30, 2024, we have made all payments including the last payment for the ivo acquisition. Our total liquidity was $179 million as of June 30, including $57 million of cash and cash equivalents and investment securities and $123 million availability under the current ATM facility with Deutsche Bank, Misuho and Craig Hallum.



With the new ongoing OpEx run rate of $55 million to $60 million, we believe we have sufficient liquidity, along with our ATM facility to have an adequate runway. MicroVision continues to stand out and beat competitors in terms of maintaining a clean capital structure and one of the lowest cash burns in the industry with a highly talented pool of approximately 160 engineers in the U.S. and Germany. We sold approximately 5 million shares for net proceeds of $5 million under the current ATM facility in the second quarter. With a new cash burn rate and given our cash on hand, we are well situated to deliver to our customers. For the rest of 2024, we believe we're on track for $8 million to $10 million revenue from the following revenue streams.



Number one, revenue related to the sales of Lidar sensors to both automotive OEM and nonautomotive customers; number two, direct sales channels that include sale of our hardware and software to nonautomotive customers that include forklifts, warehouse automation, robots, agricultural and mining equipment companies; number three, NRE or onetime development fee for customization projects for customers in both automotive and industrial.



From a cash burn standpoint, our new annual OpEx, including R&D and SG&A is expected to be between $55 million to $60 million per year. We believe we have all the necessary engineering resources to deliver on our existing and anticipated customer projects. To summarize, we're really excited about 2024 and beyond. Operator, I would now like to open the question -- open the line for questions.

[Operator]

Thank you. At this time, we are conducting a question-and-answer session. [Operator Instructions] And our first question is from Andres Sheppard from Cantor Fitzgerald. Andres...

[Anand Balaji, analyst]

This is Anand on for Andres. -- quarter was wondering, is there may be some sort of time line you might be able to give us on an OEM win? I know this was talked about? And is there something we could think about maybe for the second half of this year? Or is there something for next year? I mean, none of us have a good foresight into this, but any color would help?

[Sumit Sharma, executive]

I think -- thank you for the question. And if I was to just go by what the OEM shared with us, it's a second half decision. But as I said, right, we're cautiously optimistic because, as you know, their launch cycles are in SOP startup production in 2028. So, delays could happen. And so far, there's lots of things changing within the OEMs themselves and their strategies. And most of the delays are not related to us. So, we're hopeful and cautious about what they're saying, and that's what we're sharing that second half of this year is what they have indicated.

[Anand Balaji, analyst]

Got you. And I guess with respect to the 7 RFQs, is there -- are there any of them that you wanted to highlight that you're excited about or if there's something that you could potentially highlight to investors as a catalyst for the company maybe this year or early next year?

[Sumit Sharma, executive]

I think the -- what I find interesting is all of them, first of all, are for passenger vehicles. If I think about 7 of them, right, are we -- would I say that there are to or 4 of them that are -- that we cover. Yes, it's the ones that are the highest volume and where the integration gives Mavin, which has got the lowest profile, the biggest advantage. So of course, those we care about. So, if you're going to spend this much, and you have to wait for more years for big revenues, they should be big enough. That's great.



Out of the 7, some of them are for models that are smaller, they have integrated in a headline, and it's kind of like a small volume part of it. So, they're all equal, right? I think we want to win all of them, right? But there are certain of them that are high volume that, of course, we put a lot of effort into.

[Anand Balaji, analyst]

Got you. Got you. Appreciate the color. And I guess switching gears, maybe a question for Anubhav, a little bit on liquidity. I think you had on your presentation about $60 million in cash and you've got the ATM as well. I was wondering how you're thinking about your cash burn and your runway for the next -- for the rest of the year?

[Anubhav Verma, executive]

Yes. Thanks, Anand. So, the way I think the reductions that we did in the second quarter are actually very strategic because they have brought down our OpEx. And as I mentioned, right now, our run rate OpEx, including R&D and SG&A is between $55 million and $60 million. So, as it is, we already have a year worth of cash. And obviously, we have the ATM on top of that to tap into accordingly as the market opportunity presents itself. So, we feel pretty comfortable in terms of having the resources to meet our capital needs for the next 12 to 18 months.

[Anand Balaji, analyst]

Got you. Sounds good. That's very helpful. Appreciate the color. -- rating on the quarter. That's it for me. I'm happy to pass it on.

[Operator]

I will now turn this call back over to Anubhav Verma to read questions submitted through the webcast. Thank you.

[Anubhav Verma, executive]

Thanks, Don. All right. So ,the first question is, I'm a newish investor and started following the company and Lidar space only recently a few years ago. I'm still confused by what everybody says about the 95-nanometer product versus the 1550. Help me understand why you're going to win, and I should stay invested in the stock.

[Sumit Sharma, executive]

I'll take that one. Thank you for the question. It's actually a very, very good question. It's about the right time to talk about it because a lot of things are coming to a head. So just a little bit of context, just your newish in the space or perhaps you've done this research, but I'm just going to repeat it for some that may not.



So, if you think about this whole purpose of 95-nanometer 1550, what benefits in one versus the other, right, depending on the audience, they'll say different things. But here are the facts. The only automotive lidar that a shift in volume was by [ Velasco ], everybody knows this. Scale was done about the [ Ibague ] here in Hamburg and SCALE-2 was following by them. It's the only thing that's shipping volume. Let's be clear about that. That's 9 5-nanometer. -- fully qualified with the laser that the automotive customers know the cost structure, they know the performance, they know everything about it.



What they care about is the steering mechanism, which is where we come with MEMS, where we can do a wide field of view and far into low resolution, whereas others spend a piece of glass called a Prism, right? 15, 50-nanometer certainly can do a lot. You can do a continuous wave Lidar with that. You can get a velocity. You can do that kind of flight ladder with that, like somebody else does, right? And there are other reasons to do it because they want to have higher sensitivity on the detector. But the overall system is much more expensive. So, if you think about the structure that we have, the architecture that we have with our 905-nanometer laser and our MEMS and electronics, it is the lowest cost, lowest form factor system and low power, whereas the 1550 is significantly more power regardless of what people say.



On top of that, the material physics that's over there and 1550 requires billions of dollars investment to bring it down to the level what a laser diode cost us right now. So, you can imagine you're going into an industry that wants to sell them the millions and they're not known for paying premiums. They pay premiums on software, they don't get premium on hardware. So, you're best off listening to the OEM seeing where they're going, and there is a very nice laser that's been qualified, that's already there. So, we chose to build our architecture around it because we know a lot about that laser. And so does the OEM base and the only competitor that's ever shipped anything.



So I think that's the key thing to walk away on a Lidar system with a 905-nanometer laser can be made ISA. I mean this is -- there's a whole body that does a testing for that, right? There's standards written for that. There's no doubt. And the only company that's ever shipped Lidar in volume into automotive is 9 -- so I think in general, I believe 905-nanometer is the right choice for the automotive space for high-volume production long term. You have to run this product for a decade. So, you want to have the most stable system that does not keep requiring hundreds of millions dollars of investment to have new laser sources to be developed, new sensing to developed and new age to be developed. So that's what we believe, that's where we've invested. And clearly, if you look at what the OEMs respond to is that 95-nanometer technology node.

[Anubhav Verma, executive]

Thanks, Amit. Let's take a second question. So, I understand that no deals that OEMs have been announced unlike some of the competition. I am a believer in the company and management and trust that they walked away from some deals as they were not high volume. I also understand the focus to bring in near-term revenue from the industrial markets. What has the management done since April 1, 2024, to increase the adoption of Lidar? How can I evaluate the progress that's being made in this direction?

[Sumit Sharma, executive]

I'll take that. That's a good question, and I'll answer it in 2 sections. One is going to be, of course, our industrial space. The other is going to be on the automotive side. So, on the industrial space, -- what we've done, we've been doing consistently, right? But since you're saying April first, we're focusing on key accounts, meaning that we have identified a market segment. We know the top people in there in that space, I would say that represent 70% of the market share for their product in that space, and we're engaged with them directly. So, we aggressively work with them on key strategic accounts.



So instead of thinking about industrial sales is sounding like onesies here and there like some other what competitors do. That requires a huge OpEx. We're focusing our treasure on our engineers and a very small effective sales team that targets these key customers. And for them, we are customizing our products, so to speak, with the software to demonstrate to them how we can really solve the problem. So, we're not really selling them on Lidar. We're selling them a solution. And software discussion, I can tell you this because I've been to all the key customers myself with my team.



They are pretty deep into it. Like what really compels them to move forward is the software. Imagine you are in a heavy industry space where you have humans operating machines that can hurt other humans, slow speeds moving around. And volumes in the annual range or something somewhere between 10,000 to 30,000, if you can imagine, because they would be able to put them into new products going forward, but also retrofit it to other equipment they've sold over the years because some of the requistments last more than a decade. So they have an installed base. So when you think about these volumes, it's pretty compelling. And somebody actually told me this statistic recently that about 100 people, actually going by board members told me this, about 100 people die here in this space. So, think about it.



A person dies in this space once every 3 days. This is a problem they want to solve. This is our die and of course, we can think about injury as well. So, this is a real problem to solve. And what compels them is not just the lidar, lidar, lidar, lidar. That's there. Absolutely, that's the piece of hardware. But it's the software that was created for the automotive OEM, which we call the perception software and features like automatic emergency braking or ACC and others, right, free space, that allows them to do things in their field of view automatically from our Lidar. So, they don't have to write a huge months code or spend a lot of money developing code on top of the light that could take years. I think some of the videos that we have published recently about this, we've been very active about that.



Our team works on it. We collect some videos. Those are actually part from real demonstrations that we published there. But it kind of shows you the kind of environment you're working in. And I imagine that's happening a 20-hour shift per day, 7 days a week, just in America by itself, right? -- and then imagine it America and parts of Europe and parts of Asia. So, it's a big market. There's a big problem, and that's we're focused on. And the way we're turning that over is focusing on key accounts, not instead of casting a wide net.



On the automotive OEMs, after what happened in Q1, it really was not a surprise, but we'll talk a little bit more about it if we have to. But just in general, right, we chose to engage more directly, we personally also with the OEMs that we are in the RFQs and trying to figure out from them or their executive teams of where this is all headed. So, we're more intimately connected. What's come out of this is that RFQs are kind of like generic, right? That's how you think about like it's an RFQ. But what they're really looking for is something a little bit deeper. And I mean the best way to describe it is what they're looking for is a more of a deeper collaboration with somebody special. -- in more of a white box approach.



So effectively, we would work in a collaborative manner because there's things that we can do in our hardware that would enable them and give them an advantage, reducing the cost of their system and it would not be that incredibly expensive to develop. But on top of that is the perception software we have that allows them to have an advantage. Now this is kind of a tricky thing, right? That's IP, but we want to make sure that we actually control our IP going forward and the value that it creates for investors, but we also need a partnership.



So, I think you have to look deeper. You have to -- when they open up and say, you know what, we want to explore a white box approach with you. And of course, this has just happened in the last quarter. We're involved in that to make sure that we support them as they need to explore what their product would be. Software is such a big deal now that no one team can develop all the software. If you think about in an ICE engine, edition control. That's not done by on. They probably go to Bosch or somebody else that does the ignition control. So, all that software is their IP. So ultimately, the space is going to go back to that. So, our perception software is valid. It's very, very valuable. The hardware installed base is what this perception is going to enable, and OEMs starting to look at it as a more customizable feature that suited for them. I think that's what we're focusing ourselves and that's what we're giving ourselves confidence that we are really competitive, still competitive in this space.

[Anubhav Verma, executive]

Thanks, Amit. Next question is seeing the [ Hassai ] news this week has started to feel worried. [ SI ]is announcing new design wins with GM, Ford and prominent European automotive brand and announcing that it has secured design wins with 18 OEMs and Tier 1 suppliers globally covering approximately 70 vehicle models as of Q1. The company also holds mass production agreements with 6 of the top 10 Fortune 500 automakers. We know that Summit has never said that he's targeting the Chinese market, but it leaves us concern as to what the future holds for MicroVision if we do not get a similar announcement.

[Sumit Sharma, executive]

Let me take this question and give you a financial perspective on this. I think we have seen Chinese later companies clocking almost over $250 million in annual revenue, selling over 220,000 Lidars every year. Yet the U.S. markets and the investors do not give them any credit. They are trading just barely over their cash value, which I think is a very important testament and a telling sign that the U.S. markets and investors do not have the confidence or the comfort in their business model. And remember, this is not the first time that this has happened. This is a very important area because governments are getting involved, and all the U.S. and EU OEMs are in the middle of it. As we said, we are a few days ago, the U.S. Commerce Department came out with an article to propose to [ bar ] Chinese software and autonomous vehicles in the U.S.



Now that is a very significant shift for everybody who had been using Chinese Lidar in the U.S. and EU or so far. So, data privacy is a very -- clearly, a very important concern. And I feel that this is why there's going to be a barrier between the U.S. and Chinese where obviously we cannot go sell in China and the Chinese l[indiscernible] will not be able to be successful in the U.S. market, just given the transparency and given where the political climate is. Now having said all that, I think it is becoming beyond clear doubt that there is a Lidar market here in the U.S. and EU, and that demand can only be fulfilled by American Lidar companies which are headquartered in the U.S.

[Anubhav Verma, executive]

I understand that the company is trying to capture market share in the industrial space where Ulster is deeply entrenched. How does MicroVision plan to capture market share...

[Sumit Sharma, executive]

Let me take that. All right. I think you think about the industrial space, I think you have to cast your vision bigger. There's a much bigger market than one Lidar company whose revenues people follow. And I think I mentioned names today, if you think about -- if you really want to understand the market, think about [ Sick Ag ], that one company by itself is the majority of the Lidar market in the industrial space. They sell a line sensor, right? And effectively, it's not a 3D sense, it's like an effectively 2D sensor and one version as got 4 lines and maybe a 8-line version.



Whereas our smallest product that we make right in our Movia L they've got like 80 lines. And that Mavin product, we've got like 500 lines. So, these are vertical lines of scans. So, you can imagine the amount of resolution we can get. So, in the Movia sensor, Movia ready now. But the real differentiator is, if you think about an integrator, somebody in the industrial space, they got a Lidar, but what do they do with it? They had to write a bunch of code for the point cloud to enable them. In the case of stake, they have these like zone detection that they can get them warning and the vehicle has to take some action. That's not real perception. That's just some zones just trickling off yellow green light.



But what we can do is we can provide them all the software to the level where we can actually instruct the heavy industrial vehicles to stop or to slow down or to -- like, for example, 2 of them are going to one in front is carrying a heavier loan and is moving slower. The one behind is coming at a higher speed and the operator does not notice instead of we're ending or slamming on the brakes and their taylload goes and hurt somebody else that the vehicle automatically starts following the speed of the one in front. I think about that. That's no different than ACC, adaptive cruise control that some of the cars that most of us cars have ACC nowadays.



So, you can imagine that in the industrial space, you have somebody that, by their own vision that their expectation is like EUR 850 million a year of revenue from the Lidar space, okay? So, it's a big market and that's just one player, and there's others actually. And they have actually a much bigger market that they're planning to go after, okay?



For us, that is it to focus on that market, take some of the key segments, places that we have an advantage, where our software is a differentiator where we can get a partner up and running quicker. We would license the software to them. They would have to buy the hardware. And through that deal, we enable them to actually have content because we may have been an industry where there's a wall that China market is different. The U.S. and European market is different where Chinese will not be coming in, but they compete in the space, the vehicles, the heavy industrial vehicles that they make, they compete sign the Chinese. And so therefore, and the Chinese vehicles are cheaper. But if they give a higher level of safety as part of their product, they'll be able to compete.



And again, this is not something that I read in to market before I've actually visited the customers and talk to the leadership and this is the biggest concern. And I asked them, one of the 3 problems you wanted to solve for you as soon as possible, so we can partner. And the number one is, can you actually give us something like enable them with our software in kind of some intimate partnership.



So again, that's how we're looking at it. That's how we intend to capture the market, which is we have an asset. It is not impinging upon our capability to go after the really big market called automotive Lidar and software in the future. But if you can enable a partner right now and get embedded and we can bridge the gap from today until that revenue starts, then we should leverage what we have.

[Anubhav Verma, executive]

Thanks, Amit. We do have a question from the [ Leyland ] line right now from Kevin Garrigan of WestPark Capital. Kevin, your line is live. Please go ahead.

[Kevin Garrigan, analyst]

Ask a couple of questions. I hope on late, I apologize if you may have answered some of these already. But we've started to see robotaxis or 4 vehicles kind of make a comeback over the last few months. I'd say you have Tesla talking about it, at Uber making their fleet. The 7 RFQs that you're in. Are any of those for L4 -- are they all kind of geared more towards [ LTsL3 ]?

[Sumit Sharma, executive]

All the RFPs we're in are for L3 and L2s.

[Kevin Garrigan, analyst]

Okay. Perfect. And then, Sumit, you kind of answered this a little bit on -- as part of the last question, but I know you're not looking to go into the Chinese market. But just with the recent talks of the U.S. looking at [ ban ] Chinese automotive software, have you seen an increase in engagements with Chinese OEMs, where they're looking to just use all non-Chinese suppliers for the European or U.S. markets?

[Sumit Sharma, executive]

I'm not really sure I can definitively or with authority say that, right? I mean you hear things, right? But I don't think it's probably appropriate for me to just talk about the rumor that I've heard for some place, right? What I can clearly tell you is I've been to OEMs, multiple OEMs, and they've said that -- these are OEMs in U.S. and Europe, have clearly said that their management decision is that moving forward, they're not going to entertain any Chinese supply chain even in your Lidar. So, they want to know, yes, great that you're an American German company, but what key components are, where they're coming from, they want to lay your value chain. So, it's to the point where we cannot even use some of the key components that go inside our Lidar to come from the Chinese supply chain.



So, I know that doesn't answer your question, but I'm telling you the gravity of what is happening right now in this space, where EV cars and the fully ADAS and autonomy for the future, these are seeing as key technological areas that European Union and American companies, they want to own North American OEMs on our own, and China has got its own firewall that they have created for themselves, right? So that's probably the better way to ask that question.

[Anubhav Verma, executive]

The next question is, I've been a long-term shareholder in the company and all I've heard is from the management that our products are best in class, and yet there have been no deals that have been announced. I've also heard the management point out the shortcomings of other Lidar players. I don't want to hear about other players. I want to understand how MicroVision will win, help me become a believer.

[Sumit Sharma, executive]

I'll take that. I think that's a fair question. To be honest with you, that's a very fair question. I'm a shareholder in the company also, by the way, right? And not just the shares that [ Nanavati drew ] right, not just the shares that the company has signed me as part of my employment, but I'm a shareholder in the company. So that's a great question. I clearly am a believer. So let me convince you why you need to be the lever. I think before you can pick upon a winner, like where you want to put your money, think about the space, think about what's happening.



There's clearly -- like if governments are getting involved, if later companies are not the source information, but the OEMs are that tells you there's a market that's developing that's going to be around for decades because there's some sort of major transformation, major disruption is happening in transportation, right? So, if you think about disruption, the industry is got to get disrupted, and it's been trying to get itself disrupted for 5 years. And it's going to take another 5 years, I guess, right? But it's big enough that there is just a lot of people involved, where governments are involved now, right? So that's -- believe it or not good news. That tells you there's an opportunity here. And the opportunity is that the current players, which is a typical Tier 1s, they do not have a leg up on anything.



So, the true value of their shares is already to where it is, this new space that it breaks up where new revenues will come in and there'll be great opportunity to sell software with higher margin is becoming open. So that's -- keep in mind, there's a market segment opening up a massive marketing segment opening up that will last for decades and there'll be players. And the current big Tier 1s that you think about, none of them have the technology, okay? And one of them that a partner with another Lidar company admit it, their admitted that lost $0.25 billion trying to industrialize that. So, there's evidence that people are playing with real money in this space and somebody is going to win, okay? Why am I believe? Yes, we're a little company, right? We don't have 1,000 employees, but that's not what you need.



Right now, we're in the phase where we need to go develop the product and get some partnerships done, all right? And those partnerships are going to be for revenue, but you know what, it's not going to be -- everybody talks to me about dilution and shareholder value, trust me. I live that every day and lose a lot of sleep over that. I can assure you that. I think about that all the time, all of us do, right? But you have this big opportunity. And on top of that, you have a company that seems to have a lot of things ready and it's saying the logical thing where it's not going to cost billions of dollars to capture the market. That's ridiculous. There's no billions of dollars as a public company that you can raise just to capture the market because the market size to recover that billions of dollars is going to take you like 3 decades. So that doesn't make any sense.



So we've done everything right. We've spent kind of trickle along least amount of what makes business sense, and we have the goods. We have the technology. Some of you have come and seen it, right? But think about just your judgment, right? I think you walk up for something, you walk through a car, they need to buy some day. Are you ever going to buy with a big [ bubonon ] the roof. It does not matter you investor. You have to buy a car for your family, you want this ADAS feature. -- you're going to want it people look nice because it's still a $50,000, $70,000 vehicle in the future.



So therefore, it's going to be important. Well, what sensor -- well, I don't think you buy the car for the sensor, you buy it because it's embedded, the software is there, and you drive the car, but has to look beautiful. Well so far, out of all the companies out there, there's only one that actually has a product that can actually do that achieved at us, which is us in the Mavin product. And we're taking the product that the team here in Germany had created the Movia product, which is the Movia L, which clearly cannot fit into the car cannot get integrated into the car in the most beautiful manner, and we're actually investing in it to miniaturize that further. Once that's done, you could actually provide Lidar hardware and your software running on if you'll have a platform where your own software runs, you have an opportunity to go into that market. S



o, you have this big opportunity that the OEMs are going after that is going to be enabled by LiDAR. I know there's one OEM out that says, no Lidar. I think that's okay. We'll find out where it all ends up. But companies, there's one company here, of course, in Germany that has actually delivered an operational L3 car. I mean it is at 37 miles per hour, right, but it is fully qualified. So that tells you that a company that has delivered all the innovation in automotive for more than 100 years, take the Lidar, and they're continuously looking for the better Lidar that goes to their next-generation product quality.



So therefore, you know the space is there. There's lots of money to be made there. There's a disruption. None of the big Tier 1s that are -- had the position that any of us investors could buy into and extract any kind of real value. They're not in it. Some of the technology companies that are there. One of these -- more than one, I guess, right, but I would say us, one of us will rise and capture it all for aggressive, we're smart about how we step-by-step plan or ascent. So, I'm clearly a believer, and I hope you are as well because think about not just the MicroVision, that's great. And I really want you to think about MicroVision. I'm glad you're investor. But I really want you to think about also is the space. What's really happening in the space and where the opportunity is. And the opportunity is MicroVision creates a product we create a solution, but the problem exists somewhere else and the problem can be verified and you can see how much money people are spending on it that kind of tells you the kind of revenues you can get in the near future. So that's really my piece as to why we should all be believers in the company.

[Anubhav Verma, executive]

And Sumit, if I can add one more thing because I think -- and while we talk about our peers, I don't think we're trying to slam our peers or I think we're just trying to point out the obvious because talking about the peers is an important aspect because none of the Lidar companies have in the U.S. have steady-state revenues, right? And I think it's very important what Sumit described to have a business model that is sustainable and a capital structure that is tenable, right? How can a company burn through $80 million in a quarter with about a revenue that doesn't even match up. And again, they talk about the gaps, the gross profits widening next quarter. That tells you that this is a cash gusting business.



And I think that's why the market will be penalizing them. And I think the reason why I'm bringing this up is because all it's saying to us is the market will decimate companies, which are not being thoughtful. And I think the whole idea is if you are being careful, if you are being prudent, you're going to be one of the few guys who would be able to capture this demand because the demand clearly exists out here. And I think that's the reason why we're trying to not slam but point out the very obvious facts about the business model. And I think it's not about us tooting our phones, but really pointing out what else exists out there in the market and how a smart investor will look at investing in a Lidar company.



Let's take the next question. How many FTEs are on staff and what are they primarily spending their time doing. -- specifically, we have program managers, salespeople, operations people, engineers who are currently cost centers of the company without any meaningful revenue or partnerships to keep them occupied.

[Sumit Sharma, executive]

Let me take that question, actually. So, we have 160 engineers post the reductions that we carried out in the second quarter in both U.S. and Germany working on these products. So, you have to understand that these projects are very demanding. It's not like the work that's after the award. We have to be engaged with the customers, defining the RF, you're responding to the RFQ working with their engineers to understand their technical requirements to understand the problems they've had with previous LiDAR suppliers that they have used in the past.



So, they are getting smarter -- and I think that's why these engineers are required to be constantly working with the customers' engineers. And obviously, the work will start -- the majority of the work will start afterwards. But I think a lot of the leg work has to be done in order for the customers to overcome their business and technological problems. So, this is where we are using our resources. And that's just for automotive. The same thing is applicable for the industrial customers as so much described because we are essentially using our perception software for solving their ADAS problems and their ADAS problems, their robots or their heavy equipment moving at against speeds that are not as fast as 80 miles, but still that can cause significant damage to either human life or the things that they are carrying. So, I think that's where our resources are concentrated and focused on getting these customers.

[Anubhav Verma, executive]

Let's take the next question. Is MicroVision continuing to explore strategic options, either a takeover or strategic partnerships, dilution overhang with little revenues and cash burn appears to be restricting sustainable share price movement. What is the progress that's been made here -- let me take that question.

[Sumit Sharma, executive]

So, look, we are a public company and actually one of the cleanest public companies, we do not -- we are not a leaseback, as you can imagine, as some of these other companies falter and start disappearing off the map, our value inherently rises just because of the bad decision and the bad business model the others have created. And obviously, I cannot comment on what are some of the live discussions that are going on. But I think we would always be making strategic choices like we did with Ibeo to make sure that we are creating value.



And again, the goal is very simple, to have to have a business model that survives the uncertainty and the ability to capture the demand when it shows up later this second. So, I think it's very important to build a sound business model. And hence, that's why all the discussions around acquisitions and partnerships, we do that in -- as part of our corporate development efforts on a regular basis. But like I said, our goal is to build a company that is here to survive and thrive and actually capture the demand that exists out there.

[Anubhav Verma, executive]

Let's take the next question. What were the reasons of Sumit's contract was extended as CEO. This is not meant to be a snarky question but rather a genuine question that would allow to address the topic that is on many shareholders' minds. Why have on above Andrew also received additional performance incentive stock awards? -- but I'll let you take that.

[Sumit Sharma, executive]

Okay. Yes. Thank you for the question. I think I expected to add this one. So, listen, I think we are committed to the company. I think about our Board. It's not like we just award ourselves. This is an independent board, independent comp committee that reviewed it. I mean I'm encouraged that they believe that we are the right people to actually take the ship all the way through the tough storms and to some safe harbors. And I think we're very thankful that they acknowledge that it was important to have some retention value in the company.



Look, we're not having equity in the company. We're always -- all of us getting cash. So, I know like everybody believes as that shareholders always believe that, well, you know what, why, why, why, right? But having equity in the company actually motivates people because there's a reason to build more, and that's what we're going to continue doing it. So -- but keep in mind that this is our Board and our comp committee evaluating the situation and realizing the team that they want to go forward with because they engage with us day to day, right? They engage with us every month and every quarter, and they know what's going on within the company, how we're performing, all the things we're going through to make sure that we make the right choices at the right time and not miss a single beat. So, I think certainly want to thank them for acknowledging our contribution to the date...

[Anubhav Verma, executive]

Thanks, Sumit. Do you have any comments about the recent buyout of Cepton by Koito? And do you think more companies will consolidate directly under Tier 1s versus partnering?

[Sumit Sharma, executive]

I think that was a very unique one. I think that was kind of accounts a long time ago. I think where they've ended up, I think we'll just see in the future where Koito is able to deliver a product and how prominent they are. But I think in my experience, and I think I started in my prepared remarks, of course, I talked about one Tier 1 that lost nearly $0.25 billion. So, you can imagine they have no desire to do anything. I know for a fact as when we've spoken to them, they said, there's no appetite in the company. Any VP brings this stuff is going to get fired, okay?



So, all Tier 1s are going through like if you just read in the U.S. and in Germany, what the Tier 1s are doing, right? Even in Japan, actually, there's like -- they're shutting down programs and for the first time in decades, right? They had something like 17,000 people getting laid off in some of these companies that have hundreds of thousand employees. So, they're going through a transformation as well. If their business is going to change as the Isentia extends, but still a portion of it becomes into EV towards the end of the decade. So, I side's been long for a long time, but we all know that, but the business model is changing. So, is there going to be opportunities for things like that? I mean who knows, right? Anybody that's got capital if they see a big market and they are a believer and the share price is right, why not, right?



Our job is to execute on everything we say, create value. And if the share price reflects that, and there's a premium on that in the market, great. And that's what most investors believe in is what the company is doing, what the management is doing and what evidence they're showing. But you can imagine if somebody believes that long term there's bigger value than what the share price represents, that could happen at any time, right? So is it Tier 1? Is it somebody else? We're a public company, right? So, as you can imagine, that's always on the table.

[Anubhav Verma, executive]

Thanks, Sumit. The next question, to be broadly honest, the takeaways on the last call were that management didn't understand the business environment, questionably put all legion basket and now lacks leverage after losing that OEM deal. Ask yourself how can we square these issues with the investors and our share price has been greatly impacted by these actions.

[Sumit Sharma, executive]

Yes. I'll take that one. So, I was very intimate in that deal, right? So -- and I think I always, I think, get lots of private notes of encouragement from some of you, but also that you were not so excited about the tone at the last call and how we talked about it, right? So, let's just talk about it clarity. If we had enough cash balance, if we had alternative revenues everything was done, everything was fine. We were – [ napaband ] I were involved in this since November. It was all about the financial longevity of the company. This is the truth, right? So I think like -- I think it's a fair question, right? But I think there's some context missing because it was not that we were caught flat-footed. It's not that we were not engaged that the judgment was impaired because something that's large I can transform the company, right? It was not just me by myself with a couple of people involved.



The board was involved. Everybody was involved, everybody knew what was going on. But at some point, if somebody keeps moving the goalpost. And the goal post is we have a very good standing with them. That's -- I mean we think [ Harley ] of them, they think highly of us. I think it's all good. But it did not make the deal to not make sense, where we would have all the risks -- and if on their side, there were software delays in development, years could be added to the program. We will be sitting there idle with all this investment, making all this money and no repeat be coming in.



So, I'm not sure who posted this question, but I'm sure some of the investors on the call today, remember the April 2017 contract. Imagine that contract, but even with more significant burden, where we would have to have a massive OpEx to support their program, very little input from them and all the risks that they can delay the program unilaterally on because of their side of it, nothing to do with us, right? And we had to be cautious because if we had done that right now, today, whatever -- how were you grading our performance right now. I'm not really sure with the cash we have. We won't going to raise, what is happening in the market right now, we would be around it.



So, we have to take a critical decision. And we were very casual about it. And we parted at good terms. We just let to know that we are certainly able to do anything, but we're going to need some financial support. And if their programs cannot support that because they're concerned about their own time lines, certainly thank them for being so upfront with us is like, hey, there's some risk with that. We have to make a critical decision.



So, I would not say that we were surprised by. We put our exit basket. We were in 9 RFQs, One of them kind of just melted away because they are redoing their product strategy. So, I think the automotive OEMs will always be a big chunk of our attention because long term, that's the biggest revenue opportunity for the company, real growth and an opportunity to sell lots of software features, okay? So, I think we did okay there, but I think it was the right decision. It was the right decision because it would have handicapped us towards anything else that we could ever do. Because if you take a program like that with very little opportunity in the future, and all your people are working on that.



Every one of these calls will be boring because I cannot talk about other customers we can afford to bring another 100 to 150 engineers to work on a different program. So it was that kind of thing, right? And as I said in the call, for the right partner for the right program, let's say there was a 1 million unit order potential for that. That's a risk worth taking, right, convincing them. But the same things that we learned from there, like balance sheet, future revenues to build in the company, you can make all the right choices, they know you can be run for a decade. It's not just a promissory note that I write, they have to know it. They have to see it, they have to believe it that we're going to be run for more than a decade...

[Anubhav Verma, executive]

, Sumit. I'll take one last question. Will MicroVision provide additional videos and press releases updates outside of quarterly results conference call. It would be nice if these were provided up-to-date information and reassured between quarterly calls that we are on the right path in the future if this was happening. Being kept in the dark doesn't help one bit.

[Sumit Sharma, executive]

Let me take this question. And I think, again, this is not an attempt to slam others because -- but I think context has to be important here. I think we are trying to establish how do we run a traditional company, where the company has communicated on a regular cadence with the markets and informing the market about wins, contracts and awards that are significant to the company's future.



I think we have gone past beyond those days where people are posting selfies, people are posting trivial updates. And I think it's reflective in the stock price go. People can have giant mega media events, but -- and maybe that's what's leading up to the $80 million cash burn, which is it's, again, going back to the discipline, right? Because if you don't use the cash judiciously, clearly, that's not going to help. And clearly, that's what the markets are dictating or telling all the LiDAR companies that none of these publicities tons are going to get you anything. So,



I think that's why it's important to understand the context of why we're being -- we are setting the record for how -- and I think you probably have heard Sumit and I talked about that we had predicted this long ago that the markets will be L2 and SD and not full autonomy long ago, right? And I think we have been really right about forecasting where the nature of this industry is going to be. And I think this is yet another moment in time where we are, again, stating the same fact that you have to run, you have to have a traditional cadence, you have to run this company like a traditional business so that you are going to be one of the few guys standing when the demand comes.



And that's why we're sticking to our schedules. We are sticking to our cadence. And if and when the awards or events that are material to the company, during the quarter, we would be announcing them and having investor events. But until then, we really don't see the use of cash and our time to do these media and publicity events on social media and even in-person event because, again, I don't understand how companies can sustain this amount of cash burn in, which is what's being driven by the markets.



All right. I think we have run quite fastly hour. I again, thank everybody on the call and being patient with us. I think I'm hopeful that you've got the theme of the call and as to why we feel very confident about the future and how we believe that MicroVision is positioned to be successful -- one of the few successful Lidar companies to capture this demand. And again, I thank you all the investors for joining this call. Thank you, everyone...

[Operator]

Thank you. This concludes today's conference. All parties may disconnect and have a great day.