MicroVision Inc

NASDAQ:MVIS

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to the MicroVision Third Quarter 2023 Financial and Operating Results Conference Call. [Operator Instructions] Please note this event is being recorded.I would now like to turn the conference over to Drew Markham. Please go ahead.

[Drew Markham, executive]

Thank you, Matthew. I'm pleased to be joined today by 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 will hear in today's discussion will include forward-looking statements, including, but not limited to, statements regarding our customer and partner engagement, product development and performance, comparisons to our competitors, market opportunity, and program volume, 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 potential, believes, expects, plans, 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 quarterly report 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 G. 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 conference call will be available for audio replay on the Investor Relations section of our website at www.microvision.com.Now I would 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 third quarter 2023 results. I'm excited to be presenting today and will provide color on progress made on our 2023 objectives of securing multiple nominations for lidar products. I will keep my update concise to allow for more time for questions today.I'm happy to report that we remained on course on our main 2023 objectives of securing multiple design wins with nominations from OEMs. We remained the only lidar company that offers multiple technology nodes with highest resolutions; smallest form factor lidar with our MEMS-based long-range MAVIN as well as small form factor short-range sequential flash-based MOVIA lidar product lines. We continue developing our revenue streams from strategic and other channels and I'm satisfied with the progress so far.The biggest opportunity for the company remains in strategic partnerships with automotive OEMs for our lidar products. Establishing a predictable level of direct sales from nonautomotive customers is also very important for all lidar companies to be successful. I would like to start by updating you on our progress on multiple opportunities for lidar nominations, target launch timelines and the magnitude of deals we're looking at.Our teams remained engaged with multiple OEMs looking to identify their next lidar partner for expanded ADAS safety for their passenger vehicles and commercial trucking product lines to be nominated in 2023 and being ready for start of production as early as 2027. The combined lifetime volume of all the programs up for nomination in 2023 are for millions of units with accumulated revenues of between $1.2 billion and $950 million over the life of production.We believe these first nominations would have a lifetime of up to 7 years with multiple passenger vehicle models added incrementally to their fleet. These are predominantly for vehicles with internal combustion engine powertrains.Based on these engagements, we remained confident in the timeline to sustainable revenues from strategic sales opportunities. In addition to the current nomination cycles that we worked diligently to close, we are starting to see additional opportunities for 2024 nominations with a new potential list of OEMs. These new opportunities would require limited modifications for additional customers that would be covered by NREs in potential future projects.This is an important step since this allows us to establish stable product lines that can address multiple OEMs with shared core development costs instead of individual projects for OEMs. We remain very excited about where we are in the nomination process.As I've mentioned before, after a successful OEM design win, we expect 2 phases for each engagement. In the first phase, we expect to customize our core technology to the specifics for the OEMs needed under the development agreement while maintaining our investments in core engineering. In the second phase, we expect to supply parts as the ADAS Tier 1 with our contract manufacturing partner under a master supply agreement with the OEM.As I mentioned before, the continued strength of our balance sheet and capital to fund operations until the start of production is a requirement in all possible nominations. Management has articulated this to our investors and the broader market, as you may recall.I would like to repeat what I mentioned at our last earnings call. I believe we are well positioned for this item being a publicly traded company on the NASDAQ Exchange with no debt, control of our expenses and a clear understanding of how to grow proportionately to meet the needs of multiple potential customers.We are also confident in our long-term product outlook that will continue fueling customer engagements. In our product strategy to focus on lidar products with embedded perception software is the right strategy for the lidar product lines. We are seeing this in our current and new engagements. With this strategy, we provide a stable hardware and software product to our potential customers with object-level interface possible at the lowest power and smallest form factor.Our embedded reception software will do the heavy lifting and enable our OEM customer software. This will potentially offer system cost reductions to our customers and an opportunity to reduce other sensors like radar and camera modules. I also see us making progress in establishing realistic foundations and key target customers for our direct sales.Our objective is to build a sustainable business. Unlike others in the market that are conducting direct sales at low single-digit gross margins, we are focusing on target customers in industrial space that see value in the lidar product. Partnerships with low single-digit gross margins are not the right product strategy since expenses are not even covered.We see an opportunity for our industrial segment to focus on factory and warehouse automation as well as still qualified safety sensors in the future. Our focus is building sustainable and profitable revenues while controlling our burn rate and finding a path to sustainable business as soon as possible.I want to conclude by thanking our global team for their hard work that has allowed us to be well positioned for an incredible year ahead. We continue working hard to push across finished lines on our primary objective of securing long-term sustainable revenues.I would like to now turn the call over to Anubhav to talk about our financials. Anubhav?

[Anubhav Verma, executive]

Thanks, Sumit. Before I dive into the Q3 results, let me first discuss what our first few potential RFQ wins could look like and how they might impact our financial results, especially in 2024 and soon after.We expect any near-term RFQ wins to translate into the following 2 revenue streams. Number one, NRE or nonrecurring engineering revenue from OEMs related to the customization of our sensors. This revenue would likely be payable upon us hitting agreed milestones. Number two, revenue related to the sales of lidar sensors as the volumes ramp up at possibly multiple locations in EU and Asia from the customers in line with their expected production schedule.Later in 2024, we would work towards potentially securing additional customers for similar products with minimal customization to achieve economies of scale. In this case, the lidar sensor, once it achieves maturity and has gone through the PPAP process, we would then be scaling similar products with multiple customers.Now let's talk about modeling the expenses. With design wins, we would expect our revenue mix to include both NRE revenue and serial production revenue from OEMs at a blended gross margin of 30% to 40%. We think all successful lidar companies will trend towards this blended rate as OEM volumes ramp and economies of scale begin to be achieved. We believe we are well positioned to be a successful lidar business and are on our way to achieve these goals.Upon reaching this point, we would plan to further improve gross margins by offering our perception software to OEM customers along with our hardware.Now let's talk about production. From a business model standpoint, we have always stated that partnering with an established contract manufacturing partner will be most capital efficient and importantly, will be required by OEMs. As we navigate the final rounds of RFQs with OEMs, customary visits and quality audits at production facilities have been important for customer confidence. In our experience, OEMs want to see multiple manufacturing locations around the globe, including in the EU, Asia and North America. Of course, key points in RFQ negotiations center on the allocation of liability and product warranties.In terms of operating expenses, including R&D, MicroVision has a meaningful strategic advantage when it comes to quickly and efficiently scaling up operations. Scaling operations with multiple customer wins will not require us to add proportional headcount to our engineering teams. We do not believe that we will need to add more hardware engineers as we expect to just need more dedicated project managers, along with quality and operations team to manage multiple relationships as we increase volumes and enjoy the resulting economies of scale.We have the ability to add such resources at OEMs preferred locations in North America and Germany. We see no need to double or triple headcount to support potential revenue growth.That said, in the event of increasing volumes, we would anticipate the need to continue to add software engineers to work alongside our dedicated hardware engineering team to advance our product road map. The resulting economies of scale would be expected to add significantly more revenue with limited addition to R&D expense, thereby translating into faster growing operating profits.Our customers and potential partners appreciate MicroVision's strong and deep IP portfolio with the industry experience, financial discipline of managing expenses and technical knowledge, all of which are key differentiators for us.I think both Sumit and I covered strategic sales in quite a bit of detail. Let me now talk about our focus on direct sales as well, which will be over and above the strategic sales. These direct sales channel include the sale of MOVIA to nonautomotive customers and MOSAIK software to automotive customers.While revenue from direct sales is not necessarily recurring, the associated revenue stream tends to have shorter sales cycle as compared to strategic sales that have longer sales cycles. In the near term, we expect the revenue contribution from the direct sales channel to be meaningful and drive high contribution margins, especially in the initial few quarters. In fact, in this third quarter alone, we saw adjusted gross margins of 80%.While we are expecting the revenue from direct sales to have consistent growth year-over-year in the near to midterm, potential revenue from strategic sales would be significantly higher than direct sales revenue once OEMs serial production volumes have ramped up.Now let's dive into our Q3 results and discuss them in more detail. For the third quarter, we recorded revenue of $1 million. As we have previously indicated, revenue in 2023 and for a good part of 2024 will primarily come from the sale of software and MOVIA sensors to nonautomotive customers. The majority of this third quarter revenue is related to our MOSAIK software product and is from a leading OEM.We expect continued momentum in revenue in the fourth quarter and expect sequential growth to hit our updated 2023 revenue targets of $6.5 million to $8 million. Now this revenue is slightly below our previously announced range of $10 million to $15 million. The reduction in our revenue expectations is primarily related to direct sales with some revenue opportunities appearing to have moved into 2024.In connection with the integration with Ibeo, we have tightened our forecasting processes with some smaller legacy Ibeo customers to better estimate their sales cycle and predict revenue from the sale of hardware and software. These are smaller dollar opportunities. We're beginning to have better visibility into the sales funnel as we integrate the 2 companies, bringing together our sales force and coleasing them around common platforms and processes.To further support momentum in direct sales, we also placed in order to build new MOVIA inventory with ZF Autocruise to help satisfy demand from nonautomotive customers and drive revenue in 2024 and beyond. We expect the strategic investment in building our inventory to drive revenue growth in near term and beyond.Coming back to this quarter. The split of this quarter's revenue was 80% software and about 20% hardware. The gross margin profile this quarter resembled that of a typical software business as demonstrated by an 80% gross margin, primarily by MOSAIK.While we expect these high gross margins to continue in the next few quarters, we expect the blended gross margins to normalize as the revenue scales up and the mix changes to more strategic sales, including NREs.Expenses. In terms of expenses, we had approximately $24 million of R&D and SG&A, which includes $4.7 million of noncash stock-based compensation and $2.1 million of noncash depreciation and amortization. For the second quarter, $20.4 million cash was used in operating activities, which included a $3.1 million payment to build up the MOVIA inventory to support the near-term momentum in direct sales.Removing these onetime items, our cash burn for the quarter is around $17 million, which is in line with previously communicated expectations. To remind our investors, we continue to show financial discipline with our cash burn being within our expectations and on a healthy trajectory. As expected, CapEx in the second quarter of 2023 was $0.5 million, in line with our expectation.Now let's talk about our balance sheet. As of September 30, 2023, we have made most of the payments associated with the Ibeo acquisition. A liability of EUR 2.7 million remained on our balance sheet as the final expected payment related to this acquisition. We expect to pay this amount to the seller later this year once we and Ibeo reconcile and agree to the amounts.Our total liquidity was $78 million as of September 30, including cash and cash equivalents. We have one of the cleanest capital structures amongst our peers. In these times of uncertainty and weaker macroeconomic conditions, MicroVision stood out and beat competitors in terms of maintaining one of the lowest cash burn rates in the industry with a highly talented pool of engineers in both the U.S. and Germany and a strong balance sheet.We have a $35 million ATM on file to strategically raise capital as and when needed. To date, we have only raised approximately $4 million under this facility that leaves about $31 million available on this ATM facility. Both these facts are indicators of financial stability to our potential customers and important attributes in the due diligence reviews conducted by OEMs as part of the RFQ processes.The ability to strategically and opportunistically raise money via ATMs positions MicroVision very favorably as compared to our peers, some of which have had to resort to structured finance transactions to raise capital at significant discounts to their stock price.We believe that with our current cash on hand and our ATM facility, we're well situated to deliver to the OEMs. Based on our current operating plan, we anticipate that we have sufficient cash and liquidity to fund our operations through at least the end of 2024. As described earlier, with the relationship between revenue and operating expenses that we have modeled out, we expect to see reduced needs for additional capital as the company grows and focuses on achieving economies of scale.To summarize, we're really excited about 2024 and beyond. With our first commercial wins within reach and key focus on winning nominations, we're strongly marching towards proving to the market our value proposition as a unique, well-positioned lidar company in large and growing automotive and nonautomotive markets.With this, Operator, I would now like to open the line for questions.

[Operator]

[Operator Instructions] Your first question is coming from Andres Sheppard.

[Sumit Sharma, executive]

Let's move to the next question, please.

[Operator]

Certainly. I'll now turn the call back to Anubhav Verma to read questions submitted to the webcast.

[Anubhav Verma, executive]

Thank you, Matthew. I guess the first question we're getting is why are you confident that your provision in secure in automotive in Q4 2023?

[Sumit Sharma, executive]

Yes, I think that's a good question. I think the process everybody that would be in it, right, by this time has been informed if there the last phases of it because now you're in the middle of the commercial discussion. So typically, the processes we go through the technical engagement early, the alignment happens. It continues, right? But at some point, or technically, you're aligned. You have solutions. They've seen the samples. They have seen simulation data. All that work is on the technical work, dominant part is done. You've given them your binding offers several rounds that had happened.And at this phase, get into the final phases when they go line item by line item, understanding the viability of the company but also really are they getting a fair deal. And the discussions are deep. As you can imagine for the magnitude of the contracts vis-a-vis, these are binding offers for those periods of times. So it's pretty detailed.And the non-engagement, visiting factories, coming in and seeing our quality processes, all these kind of things take a lot of resources for OEMs, so they're very selective of who's in the final round. There's no certification, other things. I don't know, there's lots of the other terms that people are introducing, right? There's no certification. Those things are we're already qualified as a supplier. They do quality reviews of you. And it just gets down to the money, right? How much is it going to be for NRE, what's custom versus what's core, what you believe is fair, what you believe is there. So as you get this deep, you kind of know when you are in the deal, right? You're negotiating the final items. So the confidence comes from that exactly we're in the process.Anubhav, you wanted to add something?

[Anubhav Verma, executive]

Yes, if I can add on the financial side. Obviously, financial due diligence is one of the key criteria that the OEMs are undergoing. And this requires building detailed financial models of how will we support them in cases of multiple RFQ wins. And I think what's required from our side is to lay out a detailed plan of where will the resources be located and how will the production and operations team work in tandem with the engineering team to ensure that the production and the supply chains are secured and intact because that's something that they cannot absolutely falter on.So just by the nature of the financial due diligence, I also feel very good about where we stand in the RFQ process with these customers.All right. Moving on to the next question. What gives MicroVision confidence that they will secure a design win as it seems like most lidar companies have all been saying the same thing about capturing a design win? And if previous lidar companies already have wins, are they better positioned to win future contracts?

[Sumit Sharma, executive]

Yes, I think I'll take this one. That's a good question. Yes, all the larger companies are looking for liability. Somebody is going to win it and he's going to win a lot, right? But let's take a step back. And before you get into this question about, well, there's some incumbents out there, how do you position yourself? Let me just make it clear.Somebody recently asking the same thing in kind of a more casual environment and this is the answer that you have to think about. Before there was the iPhone, there was Nokia and Blackberry. Do you even hear about those companies anymore? So the right products will always win, okay? And you don't have to believe me on what the right product is. If you're a consumer and you have ever bought a car, you know what the right product is. Is it going to be low power, it's going to not increase the cost of the car by thousands of dollars. It's going to give you the safety, it blends away. The technology blends away and makes the vehicles more secure.What we do know from all these companies saying simultaneously -- there is all these OEMs out there looking for lidar solution that lidar is a product that they need, the technology that they need to achieve what the goals they have. And their production starts in 2027. They will take many years to qualify. But the choices that they're making now are going to last for a very long period of time. So they value it very deeply, all right? If the incumbents had such a big advantage, right, if you all done, if you just announce it, and let's move on, but that's not the case.And I can clearly tell you that is not the case. Because you have technology solutions that people have out there, and they were early to market. But if you look at that as a product, it's too big, too bulky, too expensive. I mean, if people are saying that they're going to drive up the price for customers to $1,000 and that often go even higher, if you know anything about the OEMs, and I know a little bit about it, I can tell you that is actually not going to land well, okay? They're always going to look for an option where the technology can be delivered, highest-end technology can delivered at something that's going to go to millions of units. And that's not going to be thousands of dollars in the vehicle, right? That level of value added, right, takes a significant amount of compute power.So I'm pretty confident in what we're saying. I mean clearly, like it's not just -- if we wake up and we start saying. These things are vetted. Everybody in the company is involved. The Board is involved. Everybody looks at it. So we're pretty confident in what we're seeing. And I think like folks that wonder about this, you have to take a step back and it's all playing out as you know. We're not backing what we're saying. I mean I have not seen anything come across that clearly says that the decisions are getting delayed. For us, it is still on track. We have to deliver samples. If any kind of nomination happens, right, some of the samples have to get delivered in first half of next year, early first half. They have to make a decision as fast as possible because their launch timelines are not changing.And so we have a very detailed understanding of what are the steps involved to get them and get our technology qualified and the engagement is pretty deep. So I feel pretty comfortable that better technology is always going to win, better products are always going to win. And it has to be small-sized, low power, cost competitive. All of these things and a secure company that they can trust is going to be around for the 7 years of the contract to deliver on what they're about to sign. And if you think about the magnitude of the volume and the ASP like the dollar value that I described in today's call, these are big numbers. These are big numbers that take some serious consideration and discussion.

[Anubhav Verma, executive]

Thanks, Sumit. Let's go to the next question. It doesn't seem like the industrial market overall has been doing well for companies in general. Would love to get management's outlook and how they view the industrial market over the next few quarters?

[Sumit Sharma, executive]

I think I'll start with this and Anubhav perhaps you can add a little bit more to this. For the industrial market, as we looked at it, we had our guidance. The more we look at the market, I think there's something there. So I still believe that direct sales is a tier of revenue that is very important for a lidar company. You need to work on this. You'll have to solve it. Any lidar company that does not have this, you're not going to be able to stand on some legs in the future. OEM wins are there. Yes, you'll get NREs, but it does not cover your core engineering. Plus on top of that, you have significant long contracts that once they materialize, there's going to be a ramp-up period, okay?Direct sales are important because if you have actually developed something that goes into the OEM market, like our MOVIA sensor which is ready and you can start addressing sales there, you want to ramp it up and you want to actually make a dent into that market, that's been stagnant. There's hundreds of millions of dollar worth of revenue to be made there, right? But you also cannot have a product that you give away for free at single-digit gross margins. So as we look at it, right, I remain very confident about this thing. I think this is important. This has to be a substantial layer of revenue year-by-year, they can count on it.But you're saying you're getting an installed base outside automotive, right? So you have a multi-market strategy. But you can't be -- people should not be promising hundreds of million dollars' worth of revenue because the growth in those markets is slow, but it's stable and predictable. And you learn a lot more about your product and features if you can be a dominant player in this space, right? So I still believe that this is an important thing. And I think -- yes, I think the numbers right now, everybody is going to get on the earnings call and talk about the economic headwinds and all these things, right?And I know like investors kind of sometimes roll their eyes and they don't understand this, right, because they just want results. I just want results. All of us just want results. But the reality is that industrial markets take a little bit longer. We have a great team. I trust the team. They have a plan. It's just a slow-moving behemoth. But there are ways to make significant revenues in that market and I'm excited about it. Anubhav?

[Anubhav Verma, executive]

Right. And I think one thing that I would like to specifically add to while pursuing revenue is obviously in the industrial markets is a strategy. But I want to make sure our focus on gross margin is extremely important, right? Because I think we're out of the growth at all cost era, where money was free and everybody was growing by just adding cost to the system. And I think industrial market is just exactly that pitfall and we have to very carefully tread it. What I mean by that is, I think what you saw in the Q3 margins as well, we want to pursue opportunities, which translate into a positive gross margin story because I don't think there's any value of transferring wealth from our investors to these direct sales customers where we have seen companies which did that and are doing that actually who are focused on industrial markets.Yes, they have very good revenue numbers. But again, their margins are really either even in the negative for some of them. So I don't think that's something a business model that the markets and the investors will reward in the long run. And I think this is pretty evident from just some of our peers who are focused on this market and their valuations because investors want companies to focus on growth that translate into gross margins and ultimately lead to a path to breakeven.And I think, as Sumit you mentioned, it's really hard to achieve economies of scale because all these direct sales revenue are nonrecurring in nature. And you have to spend a lot to get the same quantum of revenue. So meanwhile having that said, it is extremely important aspect because this is also something that the OEMs are looking at us because what it does is the focus on this revenue at good margins essentially alleviates the need for -- or reduces the need for additional capital to grow the business.And I think that's sort of why what I mentioned, the financial discipline is a very important attribute in some of these financial due diligence, because like I mentioned, as we are modeling out the next 5 to 7 years with these OEMs, this is also part of the revenue stream, which they understand is dropping to the bottom line as well.Moving to the next question. Regarding lidar, what will OEMs deliver to excite people to buy a new car? Is it safety to prevent collisions with cars and bicycles around the vehicle, save life injuries and prevent costs?

[Sumit Sharma, executive]

Yes, that's a very good question. I think you think about as you get a new vehicle in the future, whatever the powertrain is. I think most likely it's going to start with the internal combustion engine because those are still dominant for a while. Passive safety and active safety is a very big part of it. So certainly, so many meters, 15, 20 meters around the car having a safety cocoons, so you want to see 360 that can add like the MOVIA sensors that goes around it. And of course, also active safety and driving highway speed conditions. So it's all about safety.The first entry to this market is going to be -- I think like there's lots of articles recently that were published about that the first commercial applications are in trucking. Yes, they're going to make a lot of investments they're going to go forward. But as you can imagine, penetrating the trucking market with high volumes, right, is again, it's going to take a long period of time. It's a very, very conservative market. But yes, its sustainable revenues, sustainable volumes there.But passenger vehicles are significantly more. A number of them are launched every year. These OEMs are in a very competitive market with each other. Regardless of where the interest rates are, you have to be selling vehicles, right? And for them, they have to sell more value and can just buy another vehicle with 7 more airbags and feel safe. There is a definite push to having more ADAS features that kind of blend away that create this active and passive safety cocoon around the vehicle.So yes, I do believe that safety is going to be a key differentiator for not just premium OEMs, all OEMs as they look towards what are they offering their customers and how soon can they bring this technology from their premium segment to some of the other higher volume segments within their fleet.

[Anubhav Verma, executive]

Thanks, Sumit. And I think, I guess, a related question. What do you see on the regulatory side that maybe gives you more or less long-term optimism about lidar being just there as a safety piece of content required maybe 1 day for many, if not, all cars?

[Sumit Sharma, executive]

This is actually a good question. So as you can see, OEMs are qualifying the new technology they ship, they take the liability and they are able to, through the end cap process, deliver right now. The regulatory part you're talking about is, if ever there's a body of data that shows that cars that ship with these features were significantly more safe compared to everything else. At that time, regulation will move in and mandate like they did back in the '90s that every car has to have a airbag. Well, someday in the future, I expect that these ADAS features are going to be the dominant safety features. They will definitely deliver a huge amount of factors of safety to vehicles. And what everybody expects is that you're going to get a regulatory move towards this sometime in the future. Is that going to be in the next couple of years? Probably not, because you need a body of data.So none of the lidar companies that had announced anything, right, have shifted anything in volume. They're just kind of cranking it up slowly, right? And they don't talk about any of their volumes yet. What we're doing is we're telling you that OEMs must have enough data to now start putting forward these next set of RFQs for 2023 that have these kind of volumes, but that is still only scratching the surface.I mean 100 million vehicles, if you take away China, there's still a significant amount of vehicles that are shipping to get penetrated into their fleet. That changeover is coming over pretty soon to start delivering that. And soon after that is, of course, regulation will step in, if you can see a significant advantage to safety.

[Anubhav Verma, executive]

Thanks, Sumit. The next question is what's the sequence with the automotive companies for an RFI? Is it RFI the first phase or RFP the second? And what is sort of the -- if you could just walk us through the process of design win?

[Sumit Sharma, executive]

Sure, sure. RFI is a phase where they're solicit they have a need. And they solicit a wide -- cast a wide net, they reach out to all the lidar companies that are known entities. And they did their requirements, some loose requirements. And they try to get where is your state-of-the-art technology right now? Where are you, right? What's your production capabilities? What's the maturity level? What's your liability? They want to know what product would you be proposing for that.Then typically from that, it would be a down select. But it will still be a handful of companies that get into the RFQ, the first on RFQ. And then there is a deeper dive into the various concepts of your technology. They want to know how our technology works. They want to get in the middle of it. They want to see data. They want to understand all the different things. But they also want to disclose to you about what they want to do with it, what their unique needs are. We're not selling screws and glue. These are not commodity parts. How your customers are going to use your technology is slightly different every time. And we, of course, work with them to accommodate them.But that's where a huge amount of technical alignment starts happening. In parallel, of course, we start making some nonbinding and binding depending on the OEM, commercial proposals of really where we were going to be. From that phase of the RFP, you go to another phase where they even down select even further, they do an even deeper dive. And then, of course, they get -- I mean you can go on forever. But essentially it starts converging down to like 1 or 2 companies, which is the last one. And you have like binding offers and detailed understanding of what the thing is going to cost. And they want to know breakdowns and understand like what the future would be if they were to pick you.So -- and then after that is they nominate somebody. And the good point that I see so far is that right now, for the volumes that we're talking about, they're looking for a sole supplier. So they really want to understand the quality and manufacturing capabilities and partnerships, your supply chain, and understanding that how are you going to be able to -- like if they pick a sole partner, how are you going to be able to supply the volume in all the regions that they may want to expand in the future.So this entire thing has to be put together. So it's not a -- you can imagine that the technical part is very detailed. But I would say the commercial package and the financial due diligence is probably significantly more involved than even the technical. We have very fortunate, we have great engineers. And they can walk people through. They can get the excitement. They have mastered what they've created. So we can get the confidence in the technical side.But the commercial side, they need to believe that the company has a plan to be sustainable for a long period of time. We can get to start of production and beyond that and what our strategy would be made to make sure that the prices we're giving right now are affordable for them but also is sustainable for us. So I think that's kind of a general process how you get to a nomination or design win.

[Anubhav Verma, executive]

Thanks, Sumit. I think the next question is probably I'll take. It's about what our OEMs most important requirements, including financial due diligence for these nominations?So I think I touched based on this, but let me elaborate that. So I think what OEMs are looking to do is extensively model how the business and the revenue streams will evolve in case of multiple wins over the next several years. And this also includes the direct sales channel that we talked about earlier. They want us to project the headcount by geography and the predictability into how the cost will fluctuate in terms of the volume ranges that they have given us.This also involves who will maintain the inventory and where will the locations be and how even the shipping will happen to the different production plants across the globe, because as I discussed in my prepared remarks. We are required to have manufacturing capabilities or production facilities in Asia as well as to supply to the Asian business of these OEMs. And I think most importantly, modeling how will the company be capitalizing and most importantly, lowering the cost of capital, right, because as you can imagine, as the company starts to generate traction, we will be reducing our cost of capital and moving on from equity to debt financing.And as the company generates cash flow, a lot of other options open. So I think what the OEMs are looking for is a clear path as to how the company becomes a more traditional company as the entire lidar business and the lidar industry becomes more mature and the company has moved towards a traditional company with lower cost of capital than just equity.The next question is are there any automotive requirements that only MicroVision can provide and none of the other competitors?

[Sumit Sharma, executive]

I think the way to think about it is that OEMs put together what they need. For example, this question actually comes up often, right, about the dynamic of lidar. Let me just describe. For example, they'll give you a field of view and they'll give you reasons of interest of what resolutions they want at what ranges, all right? So if you think about it, what they're actually describing, there's a dynamic lidar, right? I mean that's exactly how technology works that to maintain these high resolutions and these narrow fields of view in flight, we accumulate all the data and we pump it out.So from my vantage point, I'm going to look at a teardown of anybody, any of our competitors' technology, right? I'm sure they've done ours as well. When I look what's inside, they're just running a static view, right? I mean they have 4 channels or some number of channels that are pointing in different directions, okay, statically taking in whatever noise that they have and the field of view is fixed. So therefore, the resolution of the far range is much harder for them to achieve. They have aperture and they have names there are in the smaller aperture size, so they're not even able to reach those kinds of ranges. So everybody technically says the same thing.But if I look at it from my vantage point, a lot of these things have been written with dynamic view lidar in mind. If you think about MOVIA, it's a 2D sensor. It's got -- it's a VCSEL and a PAT array, no technology, but customized by our team in Hamburg to actually create something very unique about it, right, which gives a cost advantage long term. So it's what they want. But if I have to say is one requirement, what is one requirement that they want somebody to provide, it's actually cost. It's something that is small and low power. You got to meet it, right? So you can see the size of our product. We're talking about the SRL. We'll talk about more MOVIA. These are small. They'd be low power with their ASICs in there, right? It's actually the cost is to say are you scalable? Can you put a production line in that's not going to cost us $40 million, $50 million, and you're trying to amortize that, right?A reasonable production line that can go at high volumes at very high quality and deliver that because no OEM wants a product that is going to be $800 or $1,000 per unit and somebody is trying to drive their price up not getting the economy scales. We are pricing it aggressively. And the reason is because we can achieve economy scales a lot easier because the products are truly running on a semiconductor or active aligned automated line. These kinds of automations exist. So that's like the core benefit we have.So I would say if there is like a real advantage our technology has, all the specs, I can talk about it all day. I love it. But it's the real commercial proposal we're making. We can start hitting price targets that they have dreamed about and nobody has achieved them yet. And we're going to do that at profitable gains for the company after so much R&D invested to get to this point. So that's what I'm more excited about that that is an automotive requirement. But it is really a commercial agreement that they feel like is sustainable.

[Anubhav Verma, executive]

Thanks, Sumit. I think this next one probably I should address. It's like on the revenue guidance for Q4 2023, which markets and products will contribute the most? And how much will be software versus hardware.So Q4 2023, we do expect a significant step-up in revenue from Q3 levels to hit our range of $6.5 million to $8 million for the full year 2023. And as I mentioned earlier, we expect this revenue to come from direct sales. And this is the high contribution revenue primarily from software.So we are expecting similar levels of gross profit as well next quarter on these revenues as well. And I think maybe this is the right time to also talk about what 2024 could potentially look like. Obviously, we will be providing detailed guidance and details at our annual Q4 call next year. But 2024, as I had mentioned earlier, it would be a combination of NRE from OEMs and also direct sales of MOSAIK and MOVIA to some of the nonautomotive customers.And direct sales are shorter sales cycle revenue. And I think like I mentioned, we want to make sure the focus to increase the direct sales revenue channel is only done at high gross margins to help drive cash flow and reduce need for additional capital as the company grows and focuses on achieving economies of scale on the strategic sales aspect of it. So I almost think of this as a dance in tandem between direct and strategic sales where direct sales are uplifting the strategic sales revenue channel for the company.The next question is do the current RFQs cover OEMs complete automobile offerings or are they limited to specific models. And along the same lines, are the OEM RFQs projected to cover multiple year models and do the RFQs tied OEM to the selected lidar company for multiple years?

[Sumit Sharma, executive]

I think I'll answer the last one first, right? Any contract you signed, I think you've come to an agreement. They're going to invest a lot of engineering on their time to get the product they need, get it qualified. We'll invest a lot of time. So I think the way you think about are they committed to us and they committed to the contract as long as we perform for the contract, we deliver that, you're going to be a great partner. And I believe where others may have failed in the past of delivering on time, that's not an issue with us because we have a higher level of maturity.Certainly, that's a really big advantage that we have. As long as like is it going to go across, I think the question is let me rephrase that, I think, the way I understand it, like is it going to go across the entire fleet, right? I think the way to think about it is that you have multiple model years that they pick. They will have something that will introduce. They have a marketing strategy that goes with it. But the volumes that you're talking about, right, that would be across multiple bottom lines. When we start getting to million units, it's going to be across multiple model lines.So yes, we can say with absolute confidence that this will be across multiple model lines and depends on how they deliver the product, how they market it, what the uptake would be because you're going to create this whole environment for them to be able to get access to the technology at a certain price point. They would have qualified it. It's like a qualified part and it has to go into production for them. And you got to deliver on time. If they have a production timeline for 2027, they want you to be ready on a significant amount of time. You can't be the one that ever caused the delay. And if anybody did, that would be pretty bad. That would delay any kind of launches for an OEM, and that's very, very bad.But for us, I feel like that we're probably well positioned with our Tier 1 strategy. And of course, the supply agreements we tend to sign with a contract manufacturer that the OEMs have already looked at and qualified and feel very comfortable with. So I feel confident that once we are tied together, contract is still -- I mean it's a pretty significant commitment that we would make on their behalf. And of course, they would have to make by picking us as a technology partner.

[Operator]

And we do have a question from Andres Sheppard.

[Sumit Sharma, executive]

I think Andres is having some problem, Mike. Let's continue and let's see if we can it through somehow.

[Anubhav Verma, executive]

Right. I think the next question is from the outside, MicroVision is hiring and it can look promising and indicate a company ramping up. But without execution wins in the third quarter, will this look fiscally irresponsible?Actually, let me take that question. Look, I think we think of this company, not just quarter-to-quarter but a long-term business, right? And to build a business, you need to have the right building blocks. And for that, not just engineering, we need to build our operations and our supply chain, which is absolutely very critical to these OEMs, as I mentioned as part of their due diligence too.So recently, we brought on senior executive for building our operations and supply chain and product engineering capabilities as well because these are very critical in any of these discussions with OEMs because they help us lay out a complete road map from where we are today and how do we scale the product in terms of the units, which are millions of units as Sumit described. And to achieve that kind of pricing, which is sustainable, we need to have a very solid plan in place to be able to deliver those prices that we are offering to our potential customers, which will essentially help us get a competitive edge over the competition. So yes, so I think that's sort of why the hiring -- the recent hiring initiative that my provision have been focused on for the company.And like I mentioned, for scaling, it is going to be all about scaling similar products. So that's when you achieve the economies of scale. So at that point, we would not need to add more hardware engineers. But that would more be project managers, which will be dedicated resources, managing the particular OEM relationship that will be tasked. We're delivering that production schedule to make sure any recalls or any associated production nuances that the customer and we have to deal with are taken care of. So that would be the growth in the headcount related to that. And then on top of that, obviously, the software engineering team as we integrate more software into our products down the road.All right. So the next question is, at the Investor Day, you stated that all the in-flight RFQs required MicroVision's Dynamic View lidar capability and no other vendor has that capability. Is there still an accurate statement? You said no one can catch us. And that will have multiple deals this year and refer to the potential take of 80% to 90% of the market share and which the shorts could like. If this is still an accurate statement?

[Sumit Sharma, executive]

Yes. It's sort of an accurate statement. Everybody is using some sort of spinning prism or a static -- electrostatic mirror that you cannot change the field of view of the MEMS mirror dynamically or GALBO. So ultimately, firing off multiple pulses with a slow-moving mirror, you can only collect. So if you think about this dynamic view at the resolution, the way to do it is a dynamic lidar. So that statement is still valid from everything I've seen so far.

[Anubhav Verma, executive]

Right. We still have yet to hear any lidar supply agreements from OEMs. Are timelines still as management had imagined and some investors have lost faith since the lidar market has been quiet? And if no decisions are made before the end of 2023, that won't help the cause although, obviously, we know that there is not much lidar suppliers can do as it is up to the OEMs. So any specific demand environment or delays that we're seeing?

[Sumit Sharma, executive]

Yes. I think if you look at the magnitude of the contract, anybody would be entertaining at this point. These are big numbers. That will take some time. But they have to nominate somebody so we can start going by assigning resources because their timelines -- I mean one of the things is in the early part of the RFQ as they vet out, are you able to deliver to the time when they need? And if not, it doesn't matter to the best technology, you're out, okay? So that's important to them.Now again, different people will have different reactions to the 2027. But that's realistic. That's where OEMs are right now. Their software will take a while to develop, even though you're ready with your hardware. But again, those are not like significantly like into the next decade or anything, right? They're all within contained within a typical OEM engagement for these kinds of technologies to be incorporated into their vehicle, all right?So as you can imagine that timelines, they have specific dates, they have to build their fleet, they have to collect data, we have to deliver reliability, they want to see a control build, they want to see reliability data, they want to see the fully automated line. This whole development is a multiyear development. And you want to not do it like thousands of engineers. You have to do a concerted effort. So I get it, I'm a shareholder, right? I mean, I bought shares in the company on my own as well. It can't go fast enough for all of us. And I get that and I live it every day. And even if like nobody is applying pressure on me or anybody in the company can assure you a flat pressure on myself and everybody in the company feels that anxiety. I get it and I promise you, we get it.But OEMs are OEMs. I feel confident because the way things are moving, this is how people, they're about to make big decisions talk. Nobody's going to get rushed especially somebody who's going to sign up to something big now. My provision in our history has done some big contracts, right, but nothing this big, never ever anything as big as they were across us, right? And to have multiple of them simultaneously, this is a big moment for us. I want to make sure that we sign agreements that are sustainable, that they appreciate what we bring and what risk they want us to take.And I think a term I like that Anubhav used, we don't want to transfer wealth from our investors to our customers to win a project. And you can't just throw in your towels and just go home because they're asking something tough. I just feel like very confidently we can talk to them. We can describe to them the situation. We can show them the details. And they're getting a pretty good deal. Somebody that is actually going to give them a commercial proposal that says, "You know what, I can give you in the hundreds of dollars." Here you go. But here's the economy of scales that need from you.And if you don't achieve the economy of scales, what the price is going to be. And somebody could -- and OEM could say, "Yes, I want a flat price from day 1." Well, from day 1, if the first-year volume is low, and I'm running a negative gross margin, my investor is not going to be happy that, right? So we have to find a balanced approach. And what I can clearly say is they listen, they talk, they're engaged. They understand. They all understand because if the tables were turned, they acknowledge, right, yes, I understand what you're putting together, right?And so it's like any deal. When you have big numbers involved, you got to go through it. I wish I could give you a lot more flare about it. And maybe that's going to get people understanding the process. But there is just a lot of money and you got to have a cool head and just get through the process. You can't have any hyperbole to investors, to the market, to your employees or to the customers.

[Operator]

We do have a question from Andres Shepard from Cantor Fitzgerald.

[Unknown Analyst]

This is Anand on for Andres. Congrats on the quarter. So I was just wondering if you could quickly walk us through what led to the revenue guidance revision and potentially related to that, how long it would take for you to materialize a potential OEM contract. And with that, what type of margins would you expect once that begins?

[Anubhav Verma, executive]

So let me take that question. So Anand, just to clarify, the reduction in the revenue guidance from 10% to 15% to 6.5% to 8% was related to direct sales. So if you'd recall, we had talked about that this year, it's going to be -- the revenue is going to be from MOSAIK and the sale of MOVIA.And the reduction is primarily attributable to some of the customers where we saw the opportunities moving into 2024. And this is primarily related to just tightening our forecasting processes with some of these, smaller legacy Ibeo customers to better estimate their sales cycle and predict revenue. Since these are smaller opportunities, we're now beginning to have better visibility into the sales funnel as we create the companies together.Now in terms of margin, obviously, Q3, we delivered 80% adjusted gross profit margins, which is again, in line with the software, our high contribution margin that we had talked about. And we expect that to continue in the fourth quarter as well. And obviously, in 2024, when we'll provide more detailed guidance, it will -- the adjusted gross profit margins would come down to become more normalized as we tend to get more NRE revenue from OEMs as well. So hopefully, that answers your question about the guidance and how to model it going forward.

[Unknown Analyst]

Appreciate it. And I guess the second part of the question is how long would you say it would potentially take to materialize an OEM contract? And how would you characterize your progress on that front?

[Anubhav Verma, executive]

Sumit, do you want to take that?

[Sumit Sharma, executive]

Yes. I think as we mentioned, as I mentioned earlier in the call, I think we stay on track towards our 2023 goals. So at this point, I think it's going to be the transcript, right? Pretty much we're in the deep phase of negotiations. And of course, the timelines for these projects have already been established and it's down to just the commercial agreement, just as we mentioned in the past.

[Unknown Analyst]

Cool. And I guess, very last question, just switching gears a little bit to the nonautomotive sector. What type of demand would you be, saying you're seeing in the MOVIA sensor for verticals such as agriculture, robotics and these have a shorter sales cycle? And we've asked this a few times that we were wondering how you're progressing with potentially securing partnerships with maybe trucking companies or related verticals?

[Sumit Sharma, executive]

I think I'm going to take this one. So if you think about strategic sales, I think trucking, let's put it over there in our strategic side. But if you think about just spot sales, if you have a segment or a market that does not see value in technology and they're thinking that you're going to finance them with single-digit gross margins, right? That's fine.Others, our competitors can take over that business and drive themselves out of business. We're going to focus on the market within that segment is a segment that really appreciate the technology, what it could do for them, right? And they understand that with high reliability, right? It's got its automotive-grade product that's already qualified.It could be a sales safety product, right, which has got hundreds of millions dollar worth of market with some people out in the world. These are real markets, right, where it's not a flash in the pan. We're choosing to focus on that because you can actually build a sustainable business, a successful, sustainable business, leveraging what's already been created on the MOVIA platform.So yes, I think as we look at our guidance, of course, it's always if you're downgrading anything, right, you never want to disappoint people. But at some point, if you take a look at it and saying is it a sustainable path that if we enter a market, some robotics, somebody talks about a -- can we put it on some robotics that's running around middle humanoid robots are running around. That's not a sustainable market.And if the only way they can make their market is by having us not make any profit on their behalf and transferring well from our investors to them. Yes, I think it's better off that we don't do it, especially in the current environment, economic environment. If interest rate is that high, it does not make the most sense for our investors, so yes, we're focused on it.But we're really looking at it, turning every rock and understanding how is the business sustainable if you engage with them. And we do want to grow, right? Growth there is important. We got to have growth to profitability. You can't have growth with negative gross margin and somehow magically turn the corner on the economy of scale issue.

[Operator]

There are no further questions in the queue.

[Anubhav Verma, executive]

So I think before I move over to the next question, I just wanted to wrap up my comment on the demand environment. So I think the way I think about this is lidar isn't a product or is a technology that is going to be needed.And at the end of the day, it's all about which company will be successful in building a business around the technology. That is going to be ubiquitous and it's going to be around for a very long time just like the airbags were. So I think it's just about investors really trying to identify because I think, look, at the end of the day, there won't be 15 lidar companies standing in this industry because, obviously, that's not an -- that's not how any industry goes. So there will be consolidation.But I think it's very important for any successful lidar companies to make sure they're building a business which is sustainable with a cost structure that is scalable, with a foundation that is easy to grow and not having to do the other way, which I think we have seen recently grew at all cost. But we are way beyond passed that era. And it's time that all companies realized that the path to good gross margins and path to breakeven for a new technology like this is extremely critical for any successful lidar company.So next question. I think we described MicroVision is operating primarily at Tier 1. Why is that? Is that something you intend to do across all customers and products? And is it to have something to do with manufacturing, et cetera? Is that accurate? And we want to make sure we understand the business model? And why MicroVision has chosen that route? And will my provision provide the recipe and utilize existing manufacturing processes by other companies to build products.

[Sumit Sharma, executive]

Now we've raised quite a lot of money including there, MicroVision as well to develop a great technology to get to this point. And that was done on the backs of our investors, okay? The only way we can monetize that and amortize all that R&D and of course, show incredible input to the market that we created something really valuable is to sell something. You can't do the other license. So you would have no choice as to enter this space and become a Tier 1 and as is required, okay?Because the company long term, even if you had millions of units a year of volume and it was a licensing model, everybody in this market will expect you to make a handful of dollars. You cannot even sustain the company that you need to do that. On top of that, you will not be able to amortize all you have actually -- your investors have put in. They put in this for a high-growth company.Therefore, you have to sell something. And we're going to sell the lidar. And we're going to make money on that one, right, and certainly show a business. And if you think about all the lidar that are going to go inside, our objective remains the same. Do I wake up every morning to just have, like a single-digit growth, no, of course, not we want to be a dominant player in this market with a profitable business and get to like the 80%, 90% market share someday in the future.And you can only do that if you become a Tier 1. And you actually are willing to work with the partners, create supply chain, create the engineering discipline required and you can deliver them the finished lidar. It's your core technology. You've hired the people, you spent money, it's time to give some returns. And that cannot be done by licensing.So yes, we intend to stay as an ADAS Tier 1 partner to OEMs because we continue to invest in developing technology and doing R&D for what they need in our core technology area. And so therefore, we have to build a sustainable business model that allows us to be around for a long period of time to enable them.And of course, this is the highest end features that are going into new cars in the future, in the near future, right? And you have the core technology that's required. And you are the only one that's scalable and you're talking about price point ASPs that are significantly better and charming to OEMs and any of your competition.You're at the right place, at the right time and you own your entire IP and you have an extremely motivated and talented workforce. I'm pretty sure that many, many people on this call that would love to change places with me and to be managing that company because that makes your life a lot easier.So yes, but it's hard. You have to make through some tough times to get to that point where you can take a breather. And they may not come for years. But you have to get through this, but you are going to have to make your own lidar. You can't just think like, well, I'm just going to give it to somebody else.Even when you buy an iPhone, I mean just look at the public falling for company like Apple. They have a significant team that actually does that and they sell their phone, that's their most dominant product. It's not the apps only. So we are going to make our lidar. And that's where you want to be because you're going to have to invest in R&D to make the current lidar there to deliver that.But they want to see a road map because that's a single company. How are you going to need more features at lower cost or more software in the future because, of course, software is a big part of it. We are going to establish our lidar business and then, of course, the tier of software is how you really start monetizing this company because you'll have an installed base and you can sell them software that runs on the product as you sell additional lidar in the future.

[Anubhav Verma, executive]

If I can just add to that. I think the capital markets are already, they have sort of given their verdict on companies, lidar companies that took the licensing route. And their valuations are significantly lower today because I think you can't give away the farm here, because I think it's very important to have a contract manufacturing model because this is how we maintained control of technology. And obviously, the sale we share overheads.And part of it also has to do with we are going to provide the liability and the warranties associated with any product like a Tier 1 as well. So I think all these aspects are very important to even build a business because, like I said, at the end of the day, a successful lidar company will have the entire capabilities from top to nuts in terms of having the design house as well as the production and the supply chain infrastructure in place to be that successful in any way? And could you elaborate what were the reasons? And why did the customer not choose us? Yes. I think our current part is secure. But if you can imagine, like we've engaged with lots of OEMs, some of them did not choose us early part of the year.

[Sumit Sharma, executive]

And part of it is, to be honest with you, it's not technology. They all acknowledge the technology is there. It's just their timeline that they need the launch timeline. And they evaluate early on if you're going to be there at the end of it, right? Some of them acknowledge, there's another model you're coming after that, that we would be better suited for because that lines up with your timeline. But this whole manufacturing part, security, quality, confidence to suppliers, those are pretty important deals for them.And some of them just had, I guess, 2 years ago, we were deeply engaged with them. It would have been better, right? But I think -- but it hasn't shut the door, because we're still engaged with those OEMs, right? But they recognized that, hey, but your onboarding time is going to be at this point.So the technology is there. I think they're aware of us. We do -- we get onboarded for them. But it's really about, I would say -- and this is not true just about this is every company. Every company that are announcing a deal, one of the first things you're looking at is how close are you to getting things going. And not just your word, they want to take a look at it.They want to see because they believe that you have the supply chain for it. Do you have the partnership for it? Do you know what the automation would be? Like is it not invention or is it just execution? In the case of MOVIA, of course, certainly, there's a production line that's there. MOVIA SRL is a derivative of that.So of course, there's great confidence that, okay, you know how to do this one. You can certainly do another product line for them. But on the other hand, we have 200-millimeter wafers. We have single cable tools. We have automated equipment that we risk purchased early on in anticipation of these things, right?So we've done all the things that are there. And the rest is basic timelines, all these things. But I would not say it is ever technology. When it comes to technology, it's clearly that we can walk in any place, and they'll say, this is great. I'm so glad you're there, but its launch readiness is, I would say, I'm accompanying the table when I'm saying that it's launched readiness, right? And we have to be flawless in being able to readily launch the product.

[Anubhav Verma, executive]

Maybe take one last question. We're coming up on time. What strategies does MicroVision intend to employ for the rapid scaling of mass production for MAVIN and MOVIA? What will be the expected base of mass manufacturing expansion?

[Sumit Sharma, executive]

I think it's a good question. I think it's actually a really good question. If you think about it, the real benefit we have is we don't have to invent a huge amount of automation to make our products. We use semiconductor processes and wire bonder, diode bonders and other automated equipment that are available that we modify for our needs.So our path to get a production line up and running to, there's a very specific tack time that a customer would want is much more predictable, right? But getting a single line qualified, a single set of supply base qualified for the OEM takes a long time.So I don't, at this moment, expect that we're going to have 3 different factories in 3 different continents all simultaneously. We are willing to do that if a customer is willing to pay for it. We're going to have a mother factory where we're going to start, establish our line, our process, have partnerships there.And we can supply globally there, taxes and waste and everything is taken care of, logistics timeline. All the prices all baked in. Then if there's a very specific need that an OEM has where they want us to say, "Well, you know what, I want you to put a production line to support my North American operations, and I want to decouple it from Asia", absolutely happy to do it as long as you see security of understanding what the volumes would be, what investment would be, what part of tooling they can cover because clearly, I have a factory up and running.And we're also going to do it in Europe. If there's something specific that they want us to do to secure independence from any specific region that they may have in mind. We're happy to do that. But we're certainly going to start with the #1 thing, as I said to you today. They expect a very competitive price.So that competitive price comes from key partners that are in Asia, okay? Because a lot of the semiconductor equipment comes in Asia and has been deployed in Asia and the best process engineers are in the U.S., but also in Asia. Some very, very good process engineers are there. So we need to trust our partnerships, our contract manufacturing partnerships for that. So we're going to start with that. And we're going to look at expansion as and when the volumes are real.

[Anubhav Verma, executive]

Thanks, Sumit. I think that's all the questions. With this, I would really like to thank all our shareholders for joining us on this third quarter call.We look forward to sharing more updates with you in the near future. Thank you again.

[Sumit Sharma, executive]

Thank you. Bye-bye.

[Operator]

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