Good day, and welcome to the MicroVision Second Quarter 2020 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. At the end of today's presentation, there will be an opportunity to ask questions via a chat line. Please note this event is being recorded. I would now like to turn the conference over to Drew Markham. Please, go ahead.

Thank you, Matt. 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'll hear today will include forward-looking statements, such as, but not limited to, statements regarding our product development, testing and performance, comparisons to our competitors, market opportunity, potential product sales and future demand, business and strategic opportunities, customer and partner engagement, projections of future operations and financial results, availability of funds, as well as statements containing words like potential, believe, 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 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 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’d like to turn the call over to Sumit Sharma. Sumit?

Thank you, Drew. Good afternoon, everyone, and welcome to our update on progress made during Q2 and into July. I would like to cover this in three areas. First, I will discuss all that we accomplished through the second quarter and into July. Second, an update on how our progress is being received by OEMs and Tier 1s. And finally, I will talk about what our 2023 may look like. Let's dive right in. This quarter was one of the most eventful in our company's history. Our team completed our MAVIN dynamic range LiDAR product, delivered automated line pilot line that would support serial production in the future and supported OEM engagements. In our design, not only were we able to successfully include all of our target features, but we were also able to incorporate additional enhanced features tailored to the specific needs of OEM. This last point is an important one, as it allows OEMs to tailor our base product for their specific use case. Furthermore, this level of flexibility was previously viewed by OEMs as unachievable based on the limitations of competitor solutions. This is a big win for MicroVision. The hard work of our team has put the company in a great place, as our potential customer engagements start heating up. Our dynamic range LiDAR, MAVIN DR, is a game changer. It allows high resolution at all ranges and delivers this at low latency. Prospective customers have given us feedback that this represents significantly higher performance than the current LiDAR solutions OEMs have been working with. I will elaborate a bit more about this later in my remarks. Our team also achieved success in completing automation for our pilot production line. This paves the way for supporting serial production in the future. This is an important achievement. While some agreements for LiDAR hardware have been announced by other manufacturers over the past three to four years, they have still not arrived in the market. This is because OEMs are being forced to choose between low-quality products that can be produced at scale and low production volumes. With our automation and pilot line being set up for 2023, OEMs are providing very positive feedback on our strategy to position MicroVision as a leader, not only in design but also in our capability to deliver production orders in the future. With these important points in place, our team remains on track to meet our second half objectives of achieving Class 1 certification and starting sample sales by Q4. This again puts us in line with OEM expectations on timing. We have a product that exceeds OEM expectations, combined with the best company pedigree to complete individual OEM customizations and a solid history of demonstrated reliability. We remain on track to complete our fifth generation ASICs and have automation that will go from pilot line to serial production. The second area I would like to provide an update on is the feedback we're receiving from OEMs. Throughout the last quarter, we have continued to invest time and resources in helping OEMs understand the strength of our technology and how it can be customized to meet their individual program needs. These OEMs have indicated they are pleased with the maturity and capability of our solution. We have received positive feedback, including a comment that MAVIN is, and I quote, 'the best LiDAR product they have seen to date.' As anticipated, OEMs are responding to the quality of the point cloud data that we provided and they witnessed during live demos. The basic opportunity it provides to build new high-speed safety features on their domain controllers. They are also very interested in our future software solution that could seamlessly enable their L3 features. OEMs are also complementing the low-profile design that enables more flexible deployment options, such as behind the windshield, behind the grill, or beyond. This speaks to our business model and strategy of partnering with OEMs, not just selling to them. Looking ahead to the back half of 2022, we are on track to achieve Class 1 certification. Given our 20-plus years of expertise developing products centered on laser beam scanning technology, the Class 1 certification process is not new to the MicroVision team. We have navigated this process before. We developed our LiDAR sensor with safety in mind, incorporating our proprietary technologies like virtual protective housing to ensure safe operation to Class 1 standards. For the third quarter, we are focused on meeting the requirements of OEMs and Tier 1s to support sample sales. We believe this objective is well in hand. We've also started sample sales in Q3 to OEMs and Tier 1s for Q4 deliveries. Our engineering pilot line in Redmond will support sales to OEMs and Tier 1s. I am excited about what MAVIN DR means for our future. Once implemented in serial production with a strong intellectual property supporting it, I expect this product could be the centerpiece of ADAS L3 and L2 solutions for more than a decade. I am very excited about where we are and how we're positioned for the future. As we move into 2023, we will continue to invest in product execution and innovation. We intend to demonstrate a drive-by-wire demo system based on our LiDAR hardware and our high-speed highway pilot ADAS software. We expect this will fully integrate up to two MicroVision LiDAR sensors, radar, camera, and ultrasonics on the MicroVision Edge computing platform, together with our proprietary software running on our demo car. Finally, I would like to summarize how we are positioning MicroVision as a high-tech, high-growth company. LiDAR technology will be the therapy sensor required to enable ADAS safety and autonomous driving for decades to come. The limitations of camera module and radar technology are apparent in current products, and mass adoption of LiDAR is expected. With my meetings with OEMs, I feel confident in this future. We are far ahead of the competition with our LiDAR hardware showcased in the videos we're publishing. With the help of our advanced LiDAR technology, we expect to expand our software offerings to enable ADAS safety and autonomous driving. Our 2023 demonstrations will expand our company to a full software and hardware solutions company. Before I invite Anubhav to review the second quarter results and projections, I want to acknowledge and thank the MicroVision team for their hard work. We continue to set and achieve aggressive objectives on the path towards OEM partnerships. I'm proud of the progress we continue to make, and I'm excited about what is next in 2022 and 2023. Thank you. Over to you, Anubhav.

Thanks, Sumit. As Sumit discussed earlier, we are really pleased with what we accomplished in the second quarter of 2022. The launch of MAVIN brings together our products that have short, medium, and long-range sensors, all combined into one to provide a dynamic view of the road ahead. The 905-nanometer LiDAR optimizes power output while ensuring safety at all times. The low latency point cloud at 30 hertz enables the OEM ADAS systems to make split-second decisions and take actions at high speeds. We believe that this product offers OEMs the following two key advantages: first, with the improved sound profile, MicroVision LiDAR enables flexible deployment options for OEMs to place it inside the cabin behind the windshield; second, built with materials known to OEM supply chains, MicroVision hardware is scalable, sourceable, and inevitably has a lower cost structure. We are very excited about the meetings and the positive feedback received for the demo cars fitted with our product. Additionally, we completed testing for some more complicated highway driving scenarios as well. We remain on track to achieve Class 1 certification and also expanded our R&D and production infrastructure as we ramp up our pilot production lines to start some sample sales in the second half of this year, as we outlined. Now, before I jump into the next section to discuss the financial performance of the company, I would like to recap that our go-to-market strategy remains the same. We continue to market our product, primarily to the OEMs to suit their needs and price points, and we work with them. Using the estimated number of cars to be produced through 2030, we believe the revenue opportunity for MicroVision could still be between $2 billion to $4 billion with a corresponding cumulative EBITDA profile of $1 billion to $2 billion once we're able to secure the series production partnerships with the Tier 1s and OEMs for our sensor units to be included in their fleets. Now let's discuss the current quarterly performance update. We recognized $314,000 in royalty revenue from Microsoft in the second quarter of 2022. As a reminder, this revenue is attributable to the contract executed in April 2017 with Microsoft for using our technology in their AR display product. This recognition of revenue is directly tied to the number of units produced by Microsoft. Please note that no cash was received for this revenue in 2022 as we received an upfront payment of $10 million at the contract signing in 2017. As of June 30, 2022, we have an unapplied $4.6 million left on the contract liability. Based on Q2 shipments provided by Microsoft, we have reduced our expectations for the remainder of the year. As a result, we now expect to recognize approximately $1.5 million in revenue for the year 2022 against this contract liability with Microsoft. To reiterate, please note that the lower revenue recognized from Microsoft in the second quarter has no impact on our cash position or operations as all of the cash related to the revenue payment was received upfront in 2017. Now coming back to automotive LiDAR revenue, as we discussed, we plan to sell a limited number of LiDAR sensors for strategic sales to OEMs and Tier 1s during the second half of this year. At the moment, we do not expect significant revenue from the sale of these LiDAR sensors. In terms of expenses, R&D expenses totaled $7.7 million in the second quarter compared to $7.4 million in the same period last year. Backing out the non-cash stock-based compensation expense of $2.02 million and $2.2 million respectively, cash R&D expense was $5.7 million in the second quarter compared to $5.2 million in the second quarter of last year. 2022 R&D expenses included lower stock-based compensation as compared to last year due to higher stock prices last year. The higher cash R&D expense is driven by higher salary and benefits due to increased headcount, inflation-based salary adjustments for all non-executive employees in the US, and higher non-direct labor expenses. SG&A expense totaled $6.3 million in the second quarter this year as compared to $8.4 million in the same period last year. Backing out the non-cash stock-based compensation expense of $2.1 million and $5.7 million, respectively, cash SG&A expense was $4.2 million in this quarter, compared to $2.7 million last year. The increase was primarily due to higher headcount and higher business insurance costs due to increased market cap as compared to last year. We continue to invest and accelerate our business development and marketing efforts. As we march towards achieving the objectives we laid out for 2022, we continue to use stock-based performance awards to incentivize our employees, which is an important component as we invest in our talent pipeline and motivate our employees to share the upside in the growth of the company. Cash used in operating activities for the second quarter of 2022 was $9.7 million. We are very pleased with this number, as it came right along our expectations, as I outlined last quarter. Sequentially, our cash burn was reduced by 11%, backed by strong financial discipline. Amid volatile global macroeconomic conditions, we believe our cash burn remains one of the lowest in the industry as we steadily build the business. CapEx in the second quarter of 2022 was $0.2 million, which is sequentially 72% down. Q1 was higher, and it was primarily driven by one-time investments required in retrofitting our test cars to support track testing of our LiDAR sensor and development of the pilot production line. We expect cash used in operating activities for the second half of 2022 to be approximately between $18 million and $20 million as we continue to exercise the discipline of prudent investing and using non-cash stock-based compensation to incentivize employees. We do not expect any significant CapEx in the second half of 2022. We expect that tenant improvements for our new locations in Redmond will primarily be financed by incentives to leave our existing premises. While there may be some timing differences between the amount spent and cash received, we do not expect this to be a significant cash burden on the company. We finished the quarter with cash and cash equivalents of $93 million, including investment securities, which gives us a sufficient liquidity position at the end of the quarter. As interest rates have ticked up in the year-to-date period, we have shifted our liquidity position to be in the form of one-year treasury bills to capture some yield from the market. Hence, the investment securities with maturities within 12 months have gone from $33 million at the end of December 2021 to $56 million at the end of June 2022. As a company, we have always sought to be very disciplined about using cash to execute our strategic objectives. Based on the current 2022 outlook, our cash burn rate, and our current liquidity, I feel we are very well positioned compared to our peers whose burn rate ranges from 3x to 5x our cash burn, especially given the macroeconomic environment. Now let me give you an update on our ATM facility. The company remains very strategic and focused on shareholder value creation. In 2021, the ATM program was mainly used in the first half of the year when the company raised $68 million of net proceeds issuing 4 million shares, taking advantage of the strong equity markets, and strengthening the balance sheet. During the second half of 2021 as well as the first half of 2022, there were no sales under the ATM program as the broader LiDAR markets, including most of our peers, experienced weakness in stock prices. We expect to use this ATM facility as a flexible tool to fund our growth plans, especially a drive-by-wire that we are planning in 2023. Given our current liquidity levels, we believe that we are well positioned to invest in the growth initiatives that Sumit and I have talked about. Let me summarize the themes from this business call for our investors. First, we're confident in our technology and look forward to further testing to help us work towards commercialization of our solution and continued demonstration to OEMs and Tier 1s, so that they may see the superior capabilities and benefits of the MicroVision hardware and software. Secondly, we're very excited about the business model that we are working towards. The strategic partnerships that we're looking to execute could help us build a $1 billion to $2 billion cumulative EBITDA business through 2030 with a high growth profile. And lastly, our current liquidity position and 2022 cash burn outlook positions us well when compared to our peers. With this, I would like to open the line for questions.

Thank you, Anubhav. Our first question will come from Andres Sheppard with Cantor Fitzgerald. Please go ahead.

Hi. Good afternoon. Can you hear me okay?

Yes, we can.

Wonderful. Thank you. Good afternoon, and congratulations on all of the accomplishments this past quarter. I'd like to maybe start with a couple of macro questions. Given the rising interest rate environment, what impact, if any, do you anticipate that to have on the business?

So let me take this question, Andres. So obviously, at this time, if anything, it gives us an extra yield on some of the investment securities that we have shifted our liquidity position to. So we are fairly confident based on our cash burn rates and our balance sheet strength, we are very well positioned to navigate the next four to six quarters.

Got it. Okay. That's very helpful. And maybe following up with the continued supply shortages and bottlenecks, do you anticipate that to have any sort of impact?

Not right now because, obviously, we do not have any direct impact from some of these supply chain shortages. We feel confident about where we are with our engagement with the OEMs. Hence, that's why we do not expect any effects from these supply chains.

Got it. That's great to hear. And maybe regarding the ATM program, would you be able to give us any kind of sense on timing or how do you anticipate to use it? As you know, the market to raise capital right now is not the best, and so I'm just wondering any thoughts around that anything that you could share?

Yes. So, like I said, I think ATM programs just offer us flexibility, given where we are. And maybe I can just tie it up with some of the numbers here, right? So approximately second quarter was $9.7 million used in cash and operating activities. And given we have $93 million, this gives us a very comfortable position. We use ATM programs as more of a tool or a flexibility, which is offered to us compared to some of the peers who raised significant amounts of capital during their IPOs. So we believe this tool should only be used strategically as and when the market offers opportunity. And I think that's sort of what is illustrated in the last 12 months. We didn't use this ATM facility because we didn't have the strategic need to do this. So hopefully that gives you a perspective of how we view the ATM program and where the balance sheet strength stands today for the company.

Yes. No, absolutely. That's very insightful. Thank you. And maybe one last question for me is, I think it's great you're starting to sell the strategic examples this year. Is the expectation for revenues still to begin ramping up in 2024 or is there maybe an opportunity to ramp those up a little bit sooner or maybe in 2023, perhaps even pursuing some non-automotive verticals? Thank you.

Yes, let me answer this one. So I think…

Go ahead.

So, Andres, I think we talked about this before. I think we purchased this pilot line, and that's going to turn into a steel production line. Our intention, of course, is once we have these sample sales this year, starting next year, of course, we're going to fulfill the needs for any potential OEM or Tier 1 development requirements. But also, since we're going to have extra capacity on the line, we are looking at different options to sell devices in other industrial and other markets, and we are developing those channels and pipelines as we speak.

Got it. Thank you very much. That's all I have. Congrats again on the quarter, I'll pass it on. Thank you.

Thanks.

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

Thanks, Matt. I guess we have another question about what are the normal levels of cash you feel are necessary to support the business and plans for the ATM? So probably I'm just going to reiterate some of the points. We used $9.7 million in cash from operating activities, which was a sequential 11% decline from Q1, again, driven by continued financial discipline. With around $93 million of cash and cash equivalents, we feel comfortable given our burn rate is one of the lowest in the industry with our competitors having three times to five times our annual burn rate. We pride ourselves in being a traditional public company with over two decades of operating in conservative public markets that have successfully navigated quite a few economic cycles unlike our peers. And addressing the second part of the question about the ATM, our SPAC peers raised significant amounts of capital at their respective IPOs. Our remaining $70 million ATM program gives us ample flexibility to raise capital as and when needed in response to all our publicly listed peers. The company has not executed in the past one year as broader weakness in the LiDAR sectors has caused all other SPAC companies in the LiDAR sector to see a significant drop in their market valuations from their all-time IPO highs. The next question is, how do you think Microsoft MicroVision is going to be impacted by the chips bill? MicroVision works on a fabless model. Hence, we're not directly affected by the chips bill as the chips bill is fundamentally focused towards fabs and other chip providers. However, if the chips bill does get passed in the house and signed into law, it will certainly boost the semiconductor chip production and reduce the stress in the supply chain. I think this should bode well for all the players in the automotive ecosystem, including OEMs, Tier 1s, and us. Sumit, this one's for you. You said that you're on track to achieve Class I certification in the third quarter. Is Class I certification needed to use LiDAR in public or with potential customers?

This is a good question. Let me just go back to my prepared remarks and elaborate a little bit from there. We have a 20-plus year history in our technology. Our team builds safety into every product from the ground up, which is a very important part of it. I'm proud of our culture in ensuring that we build everything correctly from the start. We've been doing demos for customers and all the units we demonstrate are Class I safe, which means that the features are implemented. Since we're in a demo phase, a MicroVision representative, our VP of BD or myself, are always present there, in most cases, both of us are there. I can say with confidence that our team has done a great job of implementing our virtual protective housing for Class I. The safety demos are going incredibly well, and OEMs require that the demo unit is fully conformed to Class I standards and company representatives are present when we go to these demos. So that's part of a foundational piece you have to build out. And I think the question is, was the Class I certification in Q3? Is Class I certification needed to use a LiDAR in public, right? So as I just explained, for demo, that's the gap that they've created, right, or essentially, that's what the regulation allows. When you think about full certification, as we move to sales, that's when you have to get the full certification done. FDA approval and other third-party testing have to be completed. But for that to happen, you have to have all your features locked in, everything is into the RTL, everything is locked out, and then you submit the final sample that customers will buy. Once we start selling it, it has to have full conformance, while OEMs and Tier 1s are very comfortable taking those samples; they need to be Class I certified because at that point, there's no company representative, and they will conduct their confidential testing that they will not discuss. I think to sell a product, we need to have full certification. But to demo the product, we must have all features implemented and operating in full safe mode with company representatives available. This is not just new to us; every company that has done any kind of deal in LiDAR or any sort of laser in history has to go through the same process. We’re very comfortable with this process, and I think we have this objective well in hand.

Thanks, Sumit. Now, the next few questions, I think, are all about point cloud, so I'm going to summarize them. So, let's see, is the point cloud quality posted most recently on the website coming straight from the LiDAR or is it simulated?

This is a good question. The point cloud that we just released recently, which was about the Nuremberg Drive, it is directly from the LiDAR. It is streaming. There is no post-processing to make it more beautiful or any simulated data overlay. It is just an exact drive. If you think about if a customer is sitting and witnessing that, that's what they saw. This is exactly what our point cloud does, and that's why I wanted to actually post that. There are some little bugs here and there that our team is still fixing, but I still wanted them to just post exactly what's coming out because it is very impressive, and the proof is in the pudding. It's easier to see even for people with no background in DSP or high-end mathematics to understand how much more advanced we are than anybody else. For example, detection of cyclists, which comes up quite often in pedestrian safety. I think in the video, there were some cyclists on the road in front of us, and you could clearly see them. You can see all the details. You could imagine how easy it becomes to segment that, cluster that, and actually identify things and tag them as drivable or not drivable. This is a very important feature to see how well it runs. And this isn't even the best it will be. Our team is, of course, continuing to find bugs and fix them. Many of the bugs are based on environmental conditions, based on the device, and they learn more with testing so they keep perfecting it to the point that it's pretty good. What I'm proud of is because this is raw data. There is no post-processing. What I have seen from other companies is they heavily post-process their data. So, theirs looks beautiful, but the fact that there is no noise and the certain characteristics in these data streams Let me talk about the earlier question you've asked. That's the best way I can describe it.

Thanks, Sumit. So, I think the next few questions, again, let me summarize it. I think broadly, how is MAVIN different from the prior product? And is there going to be a new data sheet with new specs?

Absolutely. If you go back to September 2021 when we were at the Munich IAA show, we announced four products, three of which were static LiDAR, and of course, the one we now call MAVIN, which is dynamic. Back then, it had much higher specifications. As we discussed, it gives us the flexibility to address different customer needs. But we've always believed that MAVIN would gain a lot more attention, and that's exactly what's happened. If a customer wants just a static LiDAR, we provide that. In those cases, we differentiate the product, and the resolution is listed in the data sheet, as you know. The summarized data sheet includes performance in a single field of view. However, all three of them are not included. The key difference as far as the value is concerned between the products. If someone wants just a long-range LiDAR, it will be our A1 sample, which is what we detailed last year, which is the black body. The new product, MAVIN, which is the white cover you see now, has the resolution we announced last year. These are two separate products, and almost all components are the same. But the housing and some other features are slightly different that allow us to provide higher resolution in all three fields of view in a single product. This gives us the flexibility to address all the needs we're hearing from the market, and we are in a really good position to accommodate those requests.

Thank you, Sumit. The next question is about silicon. How does MicroVision view chip platforms like Qualcomm and NVIDIA for its design and current architecture?

Okay. So in our current design, think about the LiDAR, our ASICs are inside our LiDAR. The ASIC has to be co-located within the hardware because we have very tight analog signals going back and forth, which are high speed and high density. It’s crucial for our team to maintain that control. So those ASICs cannot be placed far away into another box. Our digital ASIC, which of course, is a core component, has to be co-located because everything inside the device has been designed for so many years and they need to have very tight control of those signals. The foundational piece of all of this is Class 1 laser safety, which cannot be moved away into software. We do this in real-time and logic, put into an FPGA, lock it in, and then go to an ASIC. Some other competitors, they don’t have real-time logic. They run their software on an NVIDIA or Qualcomm platform, which uses high power. So when we make the transition to ASIC with all the features running fully integrated, we have a shot of having the lowest power device. We’ve discussed this in many meetings and they acknowledge that the path we are taking will yield the lowest power. They are quite impressed that all these features run efficiently at very high speeds and we have a history of making these ASICs. As you can imagine, we're currently at our fifth-generation ASIC.

Thanks, Sumit. The next question is, will MicroVision's end customers be Tier 1s? I think our go-to-market strategy remains solid, and there have been no changes to it. While we're focused on both OEMs and Tier 1s, we are demonstrating our products and capabilities directly to OEMs. I've always maintained that for series production, OEMs need automotive-grade optoelectronic devices that must be supplied by Tier 1s. The next question is, again a form of question that Andres referred to, so let me reframe the question. Is MicroVision still focused on automotive LiDAR only, or will AR, VR market or other LiDAR applications be considered for expansion? As we've stated before, we truly believe we have an industry-leading LiDAR sensor for automotive applications. Hence, we continue to focus our efforts on automotive LiDAR, given our current cash burn and balance sheet strength. Automotive LiDAR still presents the largest total addressable market for LiDAR applications and is adequate in size for our company to become a multibillion-dollar business once series production starts. In regards to AR and VR applications, MicroVision's technology, utilized in Microsoft HoloLens, demonstrates that we are far ahead in the AR/VR space technologically. We stand ready to assist our customers if they approach us for such technology. Additionally, we also believe industrial LiDAR applications will be a very attractive market opportunity to pursue additional revenue and accelerate growth beyond automotive LiDAR applications. Next question is about cash burn. Which areas does MicroVision intend to spend its cash on, and what capabilities is the company looking to gain? We continue to expand our engineering team as we work with all automotive OEMs to demonstrate the breadth and depth of our technology. We recently expanded R&D and production infrastructure with the delivery of our automated pilot line and continued construction of our new testing and lab facilities. We intend to expand our team to demonstrate our software capabilities that enable our drive-by-wire with our LiDAR solutions in 2023. These are the primary areas where we will be spending our cash in the coming quarters.

I guess we are out of time. We appreciate your participation in our second quarter earnings call, and your continued support of MicroVision. Thank you.

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