Welcome to the MicroVision Third Quarter 2024 Financial and Operating Results Conference Call. Please go ahead.

Thank you, Mike. Good afternoon. I'm here today with our CEO, Sumit Sharma and our CFO Anubhav Verma. Following their prepared remarks, we will open the call to questions. Please note that some of the information you will hear in today's discussion will include forward-looking statements, including, but not limited to statements regarding our customer and partner engagement, cash liquidity and the impacts of our convertible note financing, market landscape, opportunity and program volume and timing, product development and performance comparison to our competitors, product sales and future demand, business and strategic opportunities, projections of future operations and financial results, availability of funds, as well as statements containing words like intend, believe, expect, plan and other similar expressions. These statements are not guaranteed 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 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-8K 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. Now I would like to turn the call over to our CEO, Sumit Sharma.

Thank you, Drew and welcome everyone to this review of our third quarter 2024 results. I would like to start by providing an update on our engagements for industrial opportunities, our value proposition to our customers, and our view on the long-term value proposition for our investors. I will also update you on the strategic sales with seven RFQs still in flight, and why I believe this is an important component of our value proposition and the disruption we aim to provide in the long term. Let's dive in. Sales into the industrial segment represent the strongest opportunity for us to establish a strong annual recurring revenue stream. There are multiple potential customers classified by volume that will help us establish strong ARR. Core products we will offer in this space have fully integrated LIDAR hardware and perception software on board running at low power. This will remain a big differentiator for us. Our LIDAR software, with differentiated perception software for each segment, will allow customers to reduce system costs and time to ramp up. We provide them with software and their individual custom interfaces. We aim to allow them to take our smart LIDAR solution and interface directly with their domain controllers, eliminating the need for an intermediate ECU which adds cost and complexity to integration, often overloading them with software development. For the industrial segment, we expect to start with MOVIA L as our primary hardware product, shortly followed by our MOVIA L safety-rated sensor. Over the following years, we plan to add additional MOVIA derivative sensors to our product portfolio. Our strategy focuses on extending this segment's specific perception and localization software as part of the solution. This go-to-market strategy represents our best opportunity to establish annual recurring revenues and favorable margins based on our software differentiations, providing a strong baseline to larger revenue opportunities from automotive LIDAR expected to ramp in the latter part of this decade. Next, regarding our strategic sales opportunities, I believe the best long-term high-volume opportunity for our technology remains with automotive OEMs for passenger vehicles, specifically for L2 plus and L3 ADAS safety features. We remain engaged in seven RFQs with automotive OEMs for passenger vehicles. I expect our integrated hardware and software solution to be a key differentiator product in this space. Our MAVIN and future MOVIA S products focus primarily on OEM engagement for passenger vehicles. The unique selling point in this space revolves around cost to OEMs, power, size, and the level of sophistication in onboard perception software. I am strongly confident that we will be the dominant technology partner to OEMs in this field in the future. To win this space, we need to consider winning multiple projects with multiple OEMs moving forward. As OEMs realign their individual product strategies, we remain patiently engaged with them. Long-term, their system costs need to be competitive. Companies with ASPs in the $1,000 plus range will struggle to remain competitive. All our technologies are designed for cost scaling with custom silicon and the lowest cost sequential flash LIDAR and MEMS scanning technology. We need to continue working patiently with OEMs for adoption. I will keep my prepared remarks brief today as we've received a large list of questions from our shareholders that I would like to address as the main narrative. I would like to turn the call over to Anubhav to discuss our financials.

Thanks, Sumit. I'm pleased with what we have accomplished as a company since our last quarterly update. We have successfully positioned the company for long-term growth by pursuing significant revenue streams and partnerships from non-automotive industrial channels in the short to medium term. This is critical, as all serial production revenue in automotive will materialize only with economies of scale, which won’t happen until later this decade. We have bolstered our balance sheet with the convertible note facility from a strong financial partner. We have further streamlined our cash burn and extended our runway into 2026. With significantly reduced cash burn, a strong balance sheet, and a focus on the industrial sector, we believe we have improved our timelines to achieve cash flow breakeven. The capital raised through the convertible note comes at a strategic time for us, given the visibility of near-term revenue in the industrial space. The use of proceeds is expected for general corporate purposes and for procuring some long-lead items to deliver on our 2025 revenue opportunities. Securing an institutional financial partner to invest at this time signals a vote of confidence in the company’s future. We ran a competitive process to select institutions for this capital raise and received term sheets from multiple investors that reinforced the market perception of MicroVision's technology. The size and terms of the convertible note reflect MicroVision's market position and strong credit profile, allowing us to emerge as one of the last standing LIDAR companies with the lowest cash burn rate. This is a two-year $75 million fixed convertible note facility. The first tranche of $45 million was funded at a closing price of $1.33 as of October 14, 2024, with a $30 million tranche available for future drawdowns subject to certain limitations. This is a 0% interest coupon facility and matures on October 1, 2026, with the lender having the option to require the company to repay the notes starting January 1, 2025, with amounts up to $1.8 million monthly prior to April 1, 2025, and up to $3.5 million monthly thereafter, plus a 10% premium. The conversion price, at which the notes can be converted into common stock, is fixed at $1.596, approximately $1.60. The total value of the notes convertible into shares at this price ranges from $33 million to $40 million, depending on the stock price on the effective date. The remainder of the $45 million principal, which amounts to $5 million to $12 million, will be converted into shares at a 10% discount to the share price on the effective date. We believe the incentives align with the company as investors are able to convert their principal into stock, benefiting from the upside associated with near-term commercial wins and broader market factors. This makes the overall cost of capital for this convertible facility quite attractive. We believe that the growth generated from this convertible facility is higher than the cost of capital and will help us achieve less expensive ways to finance our business until we generate free cash flow. Now let’s review our financial performance for the third quarter. We reported revenue of $0.2 million, which was lower than expectations as an existing customer pushed out its delivery of sensors from Q3 to Q4. This expected revenue was delayed due to a leading agriculture equipment company altering their delivery schedule. Regarding expenses, while revenues came in lower than expected, our third quarter OpEx performance remains strong. Our operating expenses for the quarter were approximately $15 million, including $2.4 million of non-cash charges related to stock-based compensation and $1.4 million related to depreciation and amortization. For Q3, $14.1 million was used in operating activities, consistent with our prior expectations. The cash used in operations decreased by 25% quarter-over-quarter aligning with expectations. Our expenses have trended down since Q1, primarily due to the workforce reductions we implemented. Given the current perspective from automotive OEMs about their production timelines, we've decided to scale down some of our ASIC programs and rely on third-party contractors for automotive work. Our new annual run rate for R&D and SG&A is expected to be in the range of $48 million to $50 million for the next year, in 2025. This streamlined cost structure is necessary as we respond to automotive project timelines. Our Q2 CapEx was zero, in line with our expectations. Regarding our balance sheet, we have significantly improved our liquidity due to recent convertible note financing. The company now has total liquidity of $234 million comprising: 1) total cash and cash equivalents of $81 million after the initial funding of $38 million from the convertible note; 2) $122.6 million availability under its current ATM facility led by Deutsche Bank; and 3) $30 million of remaining capital commitment under the convertible note. With our new operating expenses expected to run at $48 million to $50 million annually, we have extended our runway into 2026. MicroVision continues to stand out with one of the lowest cash burn rates, positioning us as a leading contender to achieve cash flow breakeven faster than our peers. We did not utilize the $150 million ATM facility in Q3. We believe we're on track for $8 million to $10 million revenue this year, with Q4 revenues expected from sales of LIDAR sensors to automotive OEMs and non-automotive customers, as well as NRE or one-time development fees for customized projects. Since some expected revenue components are tied to NRE, their recognition hinges upon customer approvals. In terms of cash burn, our projected annual OpEx is $48 million to $50 million next year. To summarize, we're very excited about 2025 and beyond. I’d now like to open the line for questions.

Our first question comes from Casey Ryan with West Park Capital.

Good afternoon, everybody. Thanks for the update. I had a few questions. I think everyone's happy you're focusing on the industrial market. Two questions: do ASPs have to change to get the market moving from current levels, let's say, and the second part of the question is, I think in previous comments, you talked about 10,000 to 30,000 units being available, maybe in 2025, but can you talk about what you think the reasonably likely unit TAM might be—not guidance or anything, just a sizing of what the opportunity could be in 2025?

So look, from an ASP standpoint, we believe that ASPs would be in the $1,000 to $2,000 range. This range is primarily driven by the software offerings that these industrial customers are looking for, which, by the way, is lower than what ASP is obviously. We do not get the volume because the customers we are targeting are looking for volumes in the ranges described. But typically, that would be the ASP for this application. As for the range of volumes, we believe we have customers looking to roll these sensors into their fleets, which could involve new robots or vehicles, as well as retrofitting existing inventory. Therefore, we believe this number would reasonably be in the range that you described, between 10,000 to 30,000 units for next year.

Okay, good, great. That's very helpful. I think on the Q2 call, you referenced that the non-automotive opportunity could be $8 million to $10 million, maybe in calendar '24, but it sounds like that has shifted a little bit and blended into '25. Does that feel like the right pacing of revenues from non-automotive opportunity, perhaps something in that $4 million a quarter range? Also, inventories are at $4.8 million. Does inventory tell us something about the opportunity within one or two quarters in terms of what this customer could consume?

Yes, that’s a great question. I think you picked the right metric on the balance sheet, and I think that's also why this capital raise comes at this time, as we build inventory to prepare for revenue commitments for next year. I'm a bit hesitant to provide a quarterly run rate, as the ramp depends on the customer. Typically, the customer has to deploy this across multiple sites, which will somewhat dictate the timeline. Revenue recognition occurs when the sensors are delivered, but I believe the figures I mentioned for total sales sound about right for 2025, with the ramp possibly occurring in mid-2025, potentially around Q3 when revenue builds up. However, the ramp is customer-driven.

Right. Okay, I think that makes a lot of sense. How many, so, regarding the one customer we're discussing, you mentioned that it's in the ag space. Can you provide insight into how many players are in this market who resemble your customer? Are we talking about a duopoly type customer base, or is this a situation where you may serve 5 to 10 customers with multi-customer opportunities within the segment?

Let me take that. When you think about this opportunity, let's categorize the customers in tranches. In the top tranche, customers needing more than 100,000 and less than a million units annually are primarily our strategic sales to automotive OEMs. There are numerous potential customers in that group, and we continue working with them. The next tranche is customers needing annually more than 20,000 and less than 100,000 units. You likely can count those customers on two hands, but the segments they target vary, potentially aggregating to something substantial without reaching the volumes of the first tranche. The third tranche consists of customers requiring over 1,000 but less than 10,000 sensors per year—this list grows larger than the previous group. As we continue down, we get into transactions needing over 100 but fewer than 1,000 sensors per year, which includes a massive pool of customers. When summed, those customers represent perhaps 50% or 75% of the quantities that the tier above them targets. Last, below that, we have groups needing more than one but less than 100 sensors. This is how we categorize our engagement with different customers, each requiring different responses. For instance, the MOVIA L safety-rated sensor comes with standard software so we don't customize it, allowing them to get up and running quickly. As we go down the tranches, we begin seeing more sales effort needed than engineering due to the larger customer base to drive revenues, but we have developed a product that allows for standard offerings that include pricing, while still integrating various necessary interfaces.

Yes, that provides a helpful framework. Just to conclude, can you provide insight into capacity? I understand it might not be an issue today, but sometimes it's useful for investors to gain clarity regarding your ability to support production in light of potential order surges. What is the maximum production capacity and what flexibility do you have? If orders outpace expectations, are there potential fulfillment issues?

There will be no concerns regarding operations. Our current capacity averages about 45,000 units a year on a single shift, but we can certainly ramp that up. If we were actually shipping at that unit rate, our production line developed for automotive is fully qualified, and we can run at much faster output if needed. Those types of volumes are substantial in the industrial sector, ensuring we can cover anticipated demand. As highlighted, the MOVIA L product operates on that production line with no other product sharing it. The key differentiator is the firmware and software integral to our solution. This allows flexibility for multiple customers and a decent ramp rate.

Sounds great! It seems you're making substantial progress. I'm looking forward to observing how developments unfold over the year and into the new year. Thank you for your time.

Thank you.

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

Thanks. The first question is management mentioned on the latest conference call 15 ongoing non-automotive RFQs. Please describe where we are seeing a greater appetite for our solutions. Can you further outline this composition, such as five for AMR or warehousing, or 10 for heavy equipment? Are they primarily in agricultural and heavy equipment, or is there more interest in warehouse and forklift applications?

We need to consider how we categorize customer opportunities. A lot of our focus right now is on AMR, warehouse management, and related industrial applications. While these may not reach automotive sales numbers, they do present higher volume opportunities.

Thank you. Next question, what are the main use cases for MicroVision's products with these new industrial opportunities? What problems are they solving, and how? What low-hanging fruit exist concerning business efficiency and performance upgrades?

This is an essential question. We have technology that must address significant problems. Forklifts and similar equipment have been around for a long time, with humans working in close proximity. OEMs have struggled to provide technology for safety, focusing primarily on automotive applications. Our perception techniques from automotive can be adapted for these spaces using the same sensor. The main advantage here is that, while our LIDAR looks like others, its software profoundly enhances safety. For example, imagine a fully loaded forklift moving at full speed, unaware that an obstacle might cause harm. Our product can stop the forklift, ensuring the operator's safety. Recently, I saw a live demo that confirmed these capabilities. We provide samples with custom software and communication interfaces, showing prospects our strong capabilities, including balance sheet strength, to support long-term partnerships.

I want to add that NRE agreements are significant because these projects involve ongoing work with our customers, and approval will segue into revenue recognition. What insights can investors gain about the margins associated with hardware and software on these prospective deals? How do customers perceive our technology concerning business model shifts within industries like warehouse logistics, farming, and mining?

Certainly. We've invested significantly to develop the hardware. While we aim to recoup some costs, our software can often command higher margins. The way we approach it is primarily about ensuring that we can help customers deliver products more efficiently. In doing so, we also help them mitigate costs. If customers suffer from downtime, they incur losses in time, productivity, and inventory, so our solution helps them operate more effectively.

As we pursue high-volume long-term automotive contracts, how does MicroVision balance this with generating near-term revenue through industrial LIDAR applications?

It's crucial for us to ensure our survival through diversified revenue streams until automotive volumes ramp up. Companies that can solve this challenge are likely to be the last standing LIDAR firms. Currently, OEMs have low-volume needs, requiring LIDAR companies to invest substantially on their own to accommodate these needs, which makes it vital for us to generate revenue from industrial applications. This fosters confidence in OEMs, indicating our ability to withstand cycles, which is what they want from a partner.

What is MicroVision's strategy for navigating the changing landscape of Tier 1 suppliers in the automotive industry? How do you plan to leverage these relationships to secure high-volume contracts?

I am cautiously optimistic regarding the timing of RFQ awards. The OEMs are currently refining their inner strategies, adjusting what they need. Our position with Tier 1 suppliers allows for partnership, given OEMs express preferences towards us due to factors such as service quality. However, we recognize the wider context where Tier 1 suppliers are reinforcing their core technology focus away from larger projects. Our approach is holistic; OEMs want integrated solutions, which involves comprehensive evaluation across technologies, including LIDAR. Ultimately, we remain focused on developing dependable products that adhere to the market's pricing and innovation demands.

For model year 2028, what is your assessment on when automotive OEMs might begin selecting their LIDAR partnerships?

Developments in the automotive sector typically operate on cycles of around three years. As 2024 concludes, 2025 will manifest as a pivotal moment for OEMs to solidify partnerships and initiate product development, followed by extensive testing cycles to validate their offerings. We thus anticipate that the careful orchestration of our technology inputs will play an essential role in aligning with these timelines.

How does MicroVision differentiate its technology and business model from key competitors in the LIDAR industry, especially considering financial challenges faced by others?

In evaluating competitive advantage, our focus centers on how we scale our technology without compromising quality. Our designs for MAVIN and MOVIA products ensure they are built for replication, unlike others who might struggle with cost scaling. We have already delivered impressive volumes to partners like Sony and Microsoft, and we aim to maintain our status as a low-cost, high-quality alternative while capitalizing on our unmatched scaling ability.

What customization requests are typical among OEMs for LIDAR solutions, and what implications do these have on development timelines and costs?

The major customization typically begins with interface requirements. Each vehicle has its own language, necessitating extensive software development for proper integration. We often have significant investment associated with software customization without reusability for other projects, which complicates cost recovery. For the hardware side, customization needs are minimal; the majority (around 80-90%) focuses on software—ensuring products align well with the OEM's unique demands.

How significant are the dynamic view enhancements of the MAVIN product in relation to its LIDAR capabilities?

Our technology is fundamentally solid; however, realization often aligns with OEMs' processing capabilities. We can produce a high density of point clouds, making our technology compelling while remaining mindful of cost, ensuring it provides long-term advantages to our customers.

What is MicroVision's perspective on the implications of comments made regarding imaging radar potentially replacing LIDAR?

I respect the comments of my counterparts, but I assert our technology’s adaptability remains unchallenged. Imaging radar may provide some velocity metrics, but it cannot deliver the rich detail that LIDAR offers. This distinction underscores our strategic positioning in a complex marketplace environment.

What steps is MicroVision taking to enhance analyst coverage and visibility among institutional investors?

The recent convertible financing has been transformative for us. We have attracted reputable institutions as partners, which has improved our visibility and fostered stronger confidence in our market and growth potential. This position sets us favorably against common concerns regarding cash flow breakeven times, as we actively pursue diversified revenue streams.

I promise to include these inquiries in future discussions, and we appreciate your time. We look forward to speaking with you in our Q4 earnings call.

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