Earnings Call Transcript - MVIS Q2 2024

Operator, Operator

Good afternoon, and welcome to the MicroVision Second Quarter 2024 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. Investors can submit their questions within the meeting webcast by typing them into the Q&A button on the left side of your viewing screen. Analysts who publish research may ask questions on the phone line. Please note, this event is being recorded. I would now like to turn the conference over to Drew Markham.

Drew Markham, Executive

Thank you, Tom. Good afternoon. I’m here today with our CEO, Sumit Sharma; and our CFO, Anubhav Verma. Following their prepared remarks, we will open the call to questions. Please note that some of the information you’ll hear today will include forward-looking statements, including, but not limited to, statements regarding our customer and partner engagement, market landscape, opportunity and program volume and timing, product development and performance, comparisons to our competitors, product sales and future demand, business and strategic opportunities, projections of future operations and financial results, availability of funds, as well as statements containing words like intend, believe, expect, plan, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. We encourage you to review our SEC filings, including our most recently filed annual report on Form 10-K and our quarterly reports on Form 10-Q. These filings describe risk factors that could cause our actual results to differ materially from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC’s Regulation 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 call will be available for audio replay on the Investor Relations section of our website. Now, I’d like to turn the call over to our CEO, Sumit Sharma. Sumit?

Sumit Sharma, CEO

Thank you, Drew, and welcome everyone to this review of our second quarter 2024 results. I would like to start by updating you on our automotive OEM engagements for RFQs and new potential customer development explorations. Second, I will update you on our progress and sales opportunities for industrial segments. And finally, I will update you on the market outlook and what we’re seeing ahead of us. The best long-term opportunity for our technology in our company remains with the automotive OEMs, focusing on ADAS level 3 and level 2+ features for passenger vehicles. We remain engaged in seven RFQs with automotive OEM for passenger vehicles. MAVIN and MOVIA S are engaged in all conversations. The pace for reviews and decisions remain with the OEMs. Startup production for these high-volume programs are targeted towards the end of this decade, so decisions are pushing out into later this year. We are cautiously optimistic about these targets to decisions, but remain aggressively engaged. A new era of engagement has opened up with multiple OEMs across Europe and U.S. OEMs are engaging with us to investigate the opportunity for a more strategic hardware and software exploration in developing a more customized MAVIN and MOVIA S design for L2 products. We are actively working on this as it represents near-term revenue opportunities as well as delivering a more custom sensor for their B-sample needs for RFQs. We are working on exploring the integration of MAVIN behind the windshield as well as a new 180-degree field of view MOVIA S sensor that would integrate into a car body with small bumps resembling the current camera module bumps. These are exciting opportunities, and I see them as potentially a faster path to RFQ decisions. Some of these engagements are for RFQs that are targeted for 2025. I’m sure investors are wondering why we continue to stay in the race and what evidence do we have that we will win. I will offer this: our products are exactly what OEMs are looking for. We were a couple of years behind to get to the evaluation point because we did not have the capital to invest heavily early, but with our acquisition journey, we are all caught up. The MOVIA product series was developed by our Germany team for a German OEM after they delivered a SCALA 1 sensor to this OEM. Our MAVIN sensor was developed on our MEMS technology based on all the specifications OEMs require and to be at cost targets. We are aggressively working with OEMs on adoption. We are in a cycle where OEMs have slowed down in their programs. We are at the same evaluation level as our competition. In the meantime, our competition has really faltered. One of them is focused on 1550 nanometer, which is inherently the most expensive high power technology and is taking billions to get to this point and will cost billions to get the cost down to OEM targets. None of their partnerships have materialized to volume production. Our other main competition, in 905 nanometer, launched a first-generation product that ended up costing the Tier 1 more than $240 million in losses to bring to market and has been abandoned. They’re starting with a new technology node for second generation and are no further along. Combined, these companies have spent billions of dollars to capture the market, and they’re not dominant because they did not deliver any product or have the technology. This is our competition. There is demand from OEM, and it may look like we are behind in the race, but we’re not. In the EU and North America markets, we have no competition from the Chinese lidar companies since western lidar is not being adopted in China, and Chinese lidars are not being adopted in the west due to the closed software background. So I totally understand the frustration, but we need to be focused and patient as things are clearing up. But inferior products that spend billions and marketing should not be the reason to fall out of the race. The best products will always win. We are spending moderately compared to all our competition and remain competitive as they further falter. We will be there as a stable company with the technology to deliver. We may not be first yet, but we have the strongest team and product portfolio. We must be resilient and see the race through. Meaningful partnerships are up for grabs in the very near future, but revenues from these partnerships are still four years away as OEM production cycles are long. The solution to the revenue problem lies with our industrial strategy. Now let’s move to update our industrial sales opportunities and progress we’ve made there. Sales in the industrial segment are important as we expect they may bridge the gap from now till automotive OEM revenues come alive later in this decade. We have made good progress on this in identifying segments that will support these opportunities. We have been working on developing partnerships in the heavy industrial market segment that has the potential for sales of an estimated 10,000 to 30,000 units per year starting next year. This segment would leverage our currently available MOVIA L sensor and include a modified version of our perception software for this specific segment. Again, our product is well suited for the space in which humans work in proximity with heavy equipment operated by humans. These machines are now planned to integrate ADAS features developed for automotive in their industrial environment. Our advantage here is speed to market with an automotive qualified product for the industrial market with a big library of software to enable our potential customers. The mature software we have to offer integration and the small solid-state three lidar is exciting for the industry. We are going aggressively after this market segment. We are forecasting meaningful revenues from this segment starting 2025. Again, I’m sure investors are wondering why we continue to stay in the race with industrial and what evidence do we have that we will win. I will offer you this: the grandfather in the industrial lidar market is Sick AG. No one has come close to their annual revenue stream. They do this with effectively a line scanner with up to four lines. Today we have a 3D sensor with much higher resolution and better cost. In addition to perception software we will offer to our customers, we can disrupt this market and take a sizable chunk which we intend to. The lidar world is generally facing headwinds, but it is a race for the more established and reliable markets in EU and North America. We must have resilience to make it through. We have the best products by far with our near IR technologies. I’m going to keep my prepared remarks brief today as we have received a large list of questions from our shareholders and I would like to address that as the main narrative. I would like to now turn over the call to Anubhav to talk about our financials. Anubhav?

Anubhav Verma, CFO

Thanks, Sumit. Auto OEMs, Tier 1s and ADAS companies in the U.S. and EU continue to experience market pressure, driven primarily by stiff competition in terms of both technological innovation as well as costs from Chinese players. Second, not being able to generate returns on investments made in the last several years due to weaker than originally anticipated demand for EV and slower adoption of autonomy levels. The OEMs in U.S. and EU continue to be under pressure to produce vehicles with advanced ADAS features powered by multimodal sensors including vision, lidar and radar-based systems to improve safety and autonomy in order to compete with their counterparts. But given the cost pressure and macroeconomic climate, OEMs are expecting downstream lidar suppliers to, A, bear the cost in the initial years even when the volumes are low at the start of the production, and secondly have diversified revenue streams from non-automotive to sustain the company during the multiyear ramp up phase for automotive OEMs. This is primarily the reason why lidar companies are under pressure from investors and markets, especially lidar companies that have announced nomination wins or serial production awards from OEMs. The current business challenge for all lidar players is to accept low volume, low revenue projects from auto customers in the near term and tap into other industries for the revenue needed to sustain these initial years to emerge as one of the few standing lidar companies. We believe that some of our peers have untenable capital structures as well as unsustainable business models coupled with excessive OpEx run rates of over $300 million a year. There’s a huge demand for lidar in the second half of this decade, which is being driven by the global competition and marketplace. However, only a few companies who are fiscally disciplined will be able to withstand this low point in the cycle and come out the other side. We believe MicroVision is very well positioned to capture this demand and remain one of the few standing lidar companies due to the following four factors: Number one, as Sumit described, we have the most relevant and strategic product portfolio, with products able to solve the complex technological problems at attractive price points for customers. Number two, we’re focused on our efforts on big volume passenger car projects from OEMs. Making the right selection is very important for us. We want to commit resources for large volume OEM projects as that will be the best use of our capital. Number three, we have extended our runway and further streamlined our cash burn. We reduced our OpEx in Q2 to now focus on MAVIN and MOVIA with perception software inside. This was a strategic move to conserve resources for these products and terminate all expenses and projects related to MOSAIK and Sensor Fusion. And number four, in the short to medium term, we have to pursue significant revenue streams and partnerships from non-automotive industrial channels with shorter sales cycles such as the heavy equipment vertical to reduce the dependence on low volumes in automotive in the initial years. This is very essential as all serial production revenue will be material only with the economies of scale, which won’t happen until later this decade. Now let’s review our Q2 financial performance. For the second quarter, we recorded revenue of $1.9 million, slightly ahead of expectations. Revenue in the second quarter was primarily attributable to the sale of our sensors to a leading agricultural equipment company for industrial applications. Most of the revenue in Q2 was from non-automotive customers. This is in line with our strategy to focus on revenue streams from non-automotive customers, while revenue from automotive customers ramps up. From a gross margin profile standpoint on an adjusted basis, after adding back the amortization of the acquired intangibles, the gross margin was approximately 39%. We continue to differentiate ourselves significantly from our peers who either have upside-down negative gross margins or near-zero margins. This demonstrates our unique business model, and we believe this will further entrench us as one of the last standing American lidar companies focused on the U.S. and EU markets. So let’s talk about our expenses. Our expenses have trended down since Q1, primarily due to the reductions in force we implemented to focus the company on MAVIN and MOVIA, driven by perception software offerings and away from MOSAIK and Sensor Fusion. We had approximately $22 million of R&D and SG&A expenses in the second quarter. Now this includes, number one, $3.2 million of one-time non-recurring restructuring charges including severance, et cetera. Number two, $3.4 million of non-cash charges related to stock-based compensation expense. And number three, $1.4 million of non-cash charges related to D&A. After normalizing for these charges, our new OpEx run rate, including R&D and SG&A is now $55 million to $60 million per year. These actions were taken in line with our business strategy to focus on near-term and long-term revenue-generating opportunities which are in the auto and industrial markets. For the second quarter, $18.6 million cash was used in operating activities, which is in line with our previously communicated expectations. We expect this number to come down by 20% to 25% on a run rate basis once all the restructuring charges have been paid out in the third quarter. In the second quarter, we incurred a non-cash impairment charge on our MOSAIK software asset acquired as part of the Ibeo acquisition. Please keep in mind this is a one-time non-cash charge to impair the carrying value of the software asset acquired from Ibeo. We impaired this asset as we decided to strategically conserve cash to focus on perception software-driven products, which are MAVIN and MOVIA for the auto and industrial customers. The perception software asset, which has the highest carrying value, remains a key differentiator and has significant competitive advantage for our products, both MAVIN and MOVIA. To remind our investors, we continue to show financial discipline with our cash burn being within our expectations and on a healthy trajectory, including extended runways. As expected, second quarter CapEx was $0.2 million. Our balance sheet as of June 30, 2024, we have made all payments, including the last payment for the Ibeo acquisition. Our total liquidity was $179 million as of June 30, including $57 million of cash and cash equivalents and investment securities and $123 million availability under the current ATM facility with Deutsche Bank, Mizuho and Craig-Hallum. With the new ongoing OpEx run rate of $55 million to $60 million, we believe we have sufficient liquidity along with our ATM facility to have an adequate runway. MicroVision continues to stand out and beat competitors in terms of maintaining a clean capital structure and one of the lowest cash burns in the industry with a highly talented pool of approximately 160 engineers in the U.S. and Germany. We sold approximately 5 million shares for net proceeds of $5 million under the current ATM facility in the second quarter. With a new cash burn rate, and given our cash on hand, we are well situated to deliver to our customers. For the rest of 2024, we believe we’re on track for $8 million to $10 million revenue from the following revenue streams: Number one, revenue related to the sales of lidar sensors to both automotive OEM and non-automotive customers. Number two, direct sales channel that includes the sale of our hardware and software to non-automotive customers that include forklifts, warehouse automation robots, agricultural and mining equipment companies. Number three, NRE or one-time development fee for customization projects for customers in both automotive and industrial. From a cash burn standpoint, our new annual OpEx, including R&D and SG&A, is expected to be between $55 million to $60 million per year. We believe we have all the necessary engineering resources to deliver on our existing and anticipated customer projects. To summarize, we’re really excited about 2024 and beyond. Operator, I would now like to open the line for questions.

Operator, Operator

Thank you. Our first question is from Andres Sheppard from Cantor Fitzgerald. Andres, your line is live. Please go ahead.

Anand Balaji, Analyst

Hey guys, this is Anand on for Andres. Thanks for taking our questions and congrats on the quarter. I was wondering, is there maybe some sort of timeline you might be able to give us on an OEM win? I know this was talked about, and is there something we could think about maybe for the second half of this year, or is there something for next year? I mean, none of us have a good foresight into this, but any color would help?

Sumit Sharma, CEO

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

Anand Balaji, Analyst

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

Sumit Sharma, CEO

I think what I find interesting is all of them, first of all, are for passenger vehicles. Out of the seven, some of them are for models that are smaller. They have to integrate in a headlamp, and it’s kind of like a small volume part of it, so they’re all equal. But there’s certain ones that have the highest volume and where the integration gives MAVIN, which has got the lowest profile, the biggest advantage. So of course, those we care about.

Anand Balaji, Analyst

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

Anubhav Verma, CFO

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

Anand Balaji, Analyst

Got you. Sounds good. That’s very helpful. Appreciate the color. Congrats again on the quarter. That’s it for me. I’m happy to pass it on.

Sumit Sharma, CEO

Thanks, Anand.

Operator, Operator

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

Anubhav Verma, CFO

Thanks, Tom. All right, so the first question is from a new investor who has started following the company and the lidar space only recently. I’m still confused by what everybody says about the 905 nanometer products versus the 1550 nanometer. Help me understand why you’re going to win and I should stay invested in the stock.

Sumit Sharma, CEO

I’ll take that one. Thank you for the question. It’s actually a very, very good question about the right time to talk about it because a lot of things are coming to a head. So just a little bit of context, just you’re newish in this space, or perhaps you’ve done this research, but I’m just going to repeat it for some that may not. So if you think about this whole purpose of 905 nanometer vs. 1550 nanometer, what benefits in one versus the other? Depending on the audience, they’ll say different things. But here are the facts. The only automotive lidar that a shift in volume was by Valeo SCALA. Everybody knows this. SCALA 1 was done by the Ibeo guys here in Hamburg, and SCALA 2 was follow-on by them. It’s the only thing that shipped in volume, let’s be clear about that. That’s 905 nanometer fully qualified with a laser that the automotive customers know. What they care about is the steering mechanism, which is where we come with MEMS, where we can do a wide field of view and far in the low resolution, whereas others spin a piece of glass called a prism. 1550 nanometer certainly can do a lot. You can do a continuous wave lidar with that. You can get a velocity, you can do a time of flight lidar with that, like somebody else does. Right. And there are other reasons to do it because they want to have higher sensitivity on the detector, but the overall system is much more expensive. So if you think about our structure, the architecture that we have with our 905 nanometer laser and our MEMS and electronics, it is the lowest cost, lowest form factor system and low power, whereas a 1550 nanometer is significantly more power, regardless of what people say. On top of that, the material physics that’s over there in 1550 nanometer, requires billions of dollars investment to bring it down to the level what a laser diode cost us right now. So you can imagine you’re going into an industry that wants to sell in the millions, and they’re not known for paying premiums. They pay premiums on software; they don’t pay premium on hardware. So you’re best off listening to the OEM, seeing where they’re going. And there is a very nice laser that’s been qualified, that’s already there. So we chose to build our architecture around it because we know a lot about that laser and so does the OEM base and the only competitor that’s ever shipped anything. So I think that’s the key thing to walk away with: A lidar system with a 905 nanometer laser can be made. There’s a whole body that does the testing for that. There are standards written for that. There’s no doubt. The only company that has ever shipped lidar in volume into automotive is 905 nanometer. So I believe, in general, 905 nanometer is the right choice for the automotive space for high volume production long term. You have to run this product for a decade, so you want to have the most stable system that does not keep requiring hundreds of millions dollars of investment to have new laser sources to be developed, new sensing sources to be developed, and new age to be developed. So that’s what we believe: that’s where we’ve invested. And clearly, if you look at what the OEMs respond to, is that 905 nanometer technology note.

Anubhav Verma, CFO

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

Sumit Sharma, CEO

I’ll take that. That’s a good question, and I’ll answer it in two sections. One is going to be, of course, our industrial space. The other is going to be on the automotive side. So on the industrial space, we’ve been focusing on key accounts, meaning that we’ve identified a market segment. We know the top people in there in that space. That represents 70% of the market share for their product in that space. We’re engaged with them directly. So we’re aggressively working with them on key strategic accounts. We’re not really selling them a lidar. We’re selling them a solution. And software discussions: I can tell you this because I’ve been to all the key customers myself with my team. They are pretty deep into it. What compels them to move forward is the software. Imagine you are in a heavy industry space where humans operate machines that can hurt other humans; slow speeds moving around, and volumes in the annual range of something – somewhere between 10,000 to 30,000, if you can imagine, because they would be able to put them into new products going forward, but also retrofit it to other equipment they’ve sold over the years, because some of their equipment lasts more than a decade. So when you think about these volumes, it’s pretty compelling. And somebody actually told me this statistic recently, that about 100 people die a year in this space. So think about it: a person dies in this space once every three days. This is a problem they want to solve. This is a real problem to solve. And what compels them is not just the lidar. Lidar, lidar, lidar. That’s there. Absolutely that’s a piece of hardware. But it’s the software that was created for the automotive OEM, which we call the perception software, and features like automatic emergency braking, or ACC and others. They can do things in their field of view automatically from our lidar, so they don’t have to write huge amounts of code or spend a lot of money developing code on top of the lidar that could take years. I think some of the videos that we have published recently about this, we’ve been very active about that. Our team works on it. We collect some videos; those are actually part from real demonstrations that we published there. But it kind of shows you the kind of environment you’re working in. Imagine that happening a 20-hour shift per day, seven days a week, just in America by itself. And then imagine it in America and parts of Europe and parts of Asia. So it’s a big market, and there’s a big problem. That’s we’re focused on. And the way we’re turning that over is focusing on key accounts, not instead of casting a wide net. On the automotive OEMs, after what happened in Q1, really was not a surprise. But we’ll talk a little bit more about it if you have to. We chose to engage more directly, me personally also with the OEMs that we are in the RFQs and try to figure out from them or their executive teams of where this is all headed. What’s come out of this is that RFQs are kind of like generic, right? What they’re really looking for is something deeper. What they’re looking for is a more of a deeper collaboration with somebody special and more of a white box approach. So effectively we would work in a collaborative manner because there’s things that we can do in our hardware that would enable them and give them an advantage, reducing the cost of their system. But on top of that is the perception software we have that allows them to have an advantage. Now, this is kind of a tricky thing, that’s IP, but we want to make sure that we actually control our IP going forward and the value it creates for investors. But we also need a partnership. I think you have to look deeper. When they open up and say what we want to explore is a white box approach with you. This has just happened in the last quarter. We’re involved in that to make sure that we support them as they need to explore what their product would be.

Anubhav Verma, CFO

Thanks, Sumit. Next question: Seeing the Hesai news this week has us starting to feel worried. Hesai is announcing new design wins with GM, Ford, and a prominent European automotive brand and announcing that it has secured design wins at 18 OEMs and tier-1 suppliers globally, covering approximately 70 vehicle models as of Q1. The company also holds mass production agreements with six of the top 10 Fortune 500 automakers. We know that Sumit has never said that he is targeting the Chinese market, but it leaves us concerned as to what the future holds for MicroVision if we do not get a similar announcement.

Sumit Sharma, CEO

Let me take this question and give you a financial perspective of this. I think we have seen Chinese lidar companies clocking almost over $250 million in annual revenue, selling over 220,000 lidars every year. Yet the U.S. markets and the investors do not give them any credit. They are trading just barely over their cash value, which I think is a very important testament and a telling sign that the U.S. markets and investors do not have the confidence or the comfort in their business model. And remember, this is not the first time that this has happened; this is a very important area because governments are getting involved and all the U.S. and EU, OEMs are in the middle of it. As recently as a few days ago, the U.S. Commerce Department came out with an article to propose to bar Chinese software in autonomous vehicles in the U.S. Now that is a very significant shift for everybody who had been using Chinese lidar in the U.S. and EU so far. So data privacy is very clearly a concern and I feel that this is why there’s going to be a barrier between the U.S. and Chinese, where obviously we cannot go sell in China and the Chinese lidar players will not be able to be successful in the U.S. markets. Just given the transparency and the political climate is very clear. Now, having said all that, I think it is becoming beyond clear doubt that there is a lidar market here in the U.S. and EU and that demand can only be fulfilled by American lidar companies which are headquartered in the U.S.

Anubhav Verma, CFO

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

Sumit Sharma, CEO

Let me take that. I think if you think about the industrial space, you have to cast your vision bigger. There’s a much bigger market than one lidar company whose revenues people follow. If you think about SICK AG, that one company by itself is the majority of the lidar market in the industrial space. They sell a line sensor, and effectively, it’s not a 3D sensor. It’s effectively a 2D sensor. Our smallest product that we make right now are MOVIA L. It’s got like 80 lines, and a MAVIN product has got like 500 lines. So these are vertical lines of scans, and you can imagine the amount of resolution we can get. So in the MOVIA sensor, the MOVIA L sensor is ready now. But the real differentiator is, if you think about an integrator, somebody in the industrial space, they get a lidar, but what do they do with it? They have to write a bunch of code for the point cloud to enable them. In the case of SICK, they have these zone detection that they can give them a warning, and the vehicle has to take some action. That’s not real perception; that’s just some zones just trickling off red, yellow, green light. But what we can do is we can provide them all the software to the level where we can actually instruct these heavy industrial vehicles to stop or to slow down. For example, if two of them are going, the one in front is carrying a heavier load and is moving slower, the one behind is coming at a higher speed. The operator does not notice; instead of rear-ending or slamming on the brakes and their payload goes and hurts somebody else, the vehicle automatically starts following the speed of the one in front. Now, think about that: that’s no different than ACC, adaptive cruise control, that some of the cars, that most of us cars have ACC nowadays. You can imagine that in the industrial space; you have somebody that by their own ambition has an expectation of €850 million a year of revenue from the lidar space. It’s a big market that’s just one player, and there are others, actually. They have a much bigger market that they’re planning to go after. For us, that is it. So focus on that market, take some of the key segments, places where we have an advantage, where our software is a differentiator, where we can get a partner up and running quicker. We would license the software to them; they would have to buy the hardware. Through that deal, we enable them to actually have content because we may have been an industry where there’s a wall, where the China market is different. The U.S. and European market is different. Obviously, the Chinese would not be coming in, but they compete in a space. The heavy industrial vehicles they make compete against the Chinese. The Chinese vehicles are cheaper, but if they give higher levels of safety as part of their product, they’ll be able to compete. This is not something I read in a market report. I’ve actually visited the customers and talked to the leadership, and this is their biggest concern. So again, that’s how we’re looking at it. That’s how we intend to capture the market, which is we have an asset. It is not impinging upon our capability to go after the really big market called automotive lidar and software in the future. But if we can enable a partner right now and get embedded, we can bridge the gap from today till that revenue starts, then we should leverage what we have.

Anubhav Verma, CFO

Thanks, Sumit. We do have a question from the dial-in line right now from Kevin Garrigan of WestPark Capital. Kevin, your line is live. Please go ahead.

Kevin Garrigan, Analyst

Yes, hi, all. Thanks for letting me ask a couple of questions. I hopped on late, so I apologize if you may have answered some of these already. But we’ve started to see robotaxis or L4 vehicles kind of make a comeback over the last few months. I’d say you have Tesla talking about it. You had Uber making their fleet. The seven RFQs that you’re in, are any of those for L4, or are they all kind of geared more towards L2+ and L3?

Sumit Sharma, CEO

All the RFQs we’re in are for L3 and L2+.

Kevin Garrigan, Analyst

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

Sumit Sharma, CEO

I’m not really sure I can definitively say that. I mean, you hear things, but I don’t think it’s probably appropriate for me to just talk about some rumor that I’ve heard from someplace. What I can clearly tell you is I’ve been to OEMs, multiple OEMs and they’ve said that their management decision is that moving forward, they’re not going to entertain any Chinese supply chain, even in your lidar. They want to know what key components are where they’re coming from. They want to know your value chain. It’s to the point where we cannot even use some of the key components that go inside our lidar to come from the Chinese supply chain. So I know that doesn’t answer your question, but I’m telling you the gravity of what is happening right now in this space where EV cars and the fully ADAS and autonomy for the future are seen as key technological areas that European Union and North American OEMs want to own.

Kevin Garrigan, Analyst

Yes. Got it. Got it. Okay. That makes sense. Thank you.

Anubhav Verma, CFO

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

Sumit Sharma, CEO

I’ll take that. I think that’s a fair question. I’m a shareholder in the company also, by the way. Not just the shares that Anubhav and Drew signed me as part of my employment, but I’m a shareholder in the company. So that’s a great question. I clearly am a believer. So let me convince you why you need to be a believer. I think before you can pick upon a winner, like where you want to put your money, think about the space, think about what’s happening. There’s clearly, like, if governments are getting involved, if lidar companies are not the source of information, but the OEMs are, that tells you there’s a market that’s developing that’s going to be around for decades because there’s some sort of major transformation, major disruption is happening in transportation. Right? So if you think about disruption, the industry is about to get disrupted and it’s been trying to get itself disrupted for five years, and it’s going to take another five years, I guess. But it’s big enough that there is just a lot of people involved where governments are involved now. If you think about disruption, the current players, which is a typical tier-1, they do not have a leg up on anything. So the true value of their shares is already to where it is; this new space as it breaks up, where new revenues will come in and there’ll be great opportunities to sell software with higher margins, is becoming open. So keep in mind there’s an opportunity here. The opportunity is that the current players, the tier-1s, do not have the technology. And one of them that partnered with another lidar company admitted, their CEO admitted that lost $0.25 billion trying to industrialize that. So there’s evidence that people are playing with real money in this space, and somebody’s going to win. Yes, we’re a little company, but that’s not what you need. Right now, we’re in the phase where you need to develop the product and get some partnerships done. All right? Those partnerships are going to be for revenue. But it’s not going to be everybody talking to me about dilution and shareholder value. Trust me, I live that every day. I can assure you that. I think about that all the time, all of us do. You have this big opportunity and on top of that, you have a company that seems to have a lot of things ready and is saying the logical thing where it’s not going to cost billions of dollars to capture the market. That’s ridiculous. There’s no billions of dollars as a public company that you can raise just to capture the market because the market size to recover that billions of dollars is going to take you like three decades. That doesn’t make any sense. So we’ve done everything right. We’ve spent kind of trickle along least amount of what makes business sense. And we have the goods, we have the technology. Some of you have come and seen it, right? But think about just your judgment. You walk up to something, you walk to a car that you have to buy someday, are you ever going to buy it with a big bump out on the roof? It does not matter; you’re an investor. You have to buy a car for your family. You want this ADAS feature, but you’re going to want it to look nice because it’s still a $50,000, $70,000 vehicle in the future. Therefore, it’s going to be important. Well, so far, out of all the companies out there, there’s only one that actually has a product that can do that, achieve that: us, which is us in the MAVIN product. We’re taking the product that the team here in Germany had created, the MOVIA product, which is MOVIA L, which clearly cannot fit into the car, cannot get integrated into the car in the most beautiful manner. We’re actually investing in it to miniaturize that further. Once that’s done, you could provide lidar hardware and your software running on it. You’ll have a platform where your own software runs. You’ll have an opportunity to go into that market. So you have this big opportunity that the OEMs are going after, and it’s going to be enabled by lidar. There’s one OEM out there that says no lidar. I think that’s okay. We’ll find out where it all ends up. Companies, there’s one company here in Germany, that has actually delivered an operational L3 car. It is at 37 miles per hour, but it is fully qualified. That tells you that a company that has delivered all the innovation automotive for more than 100 years takes the lidar, and they’re continuously looking for the better lidar that goes into their next generation product quality. So the space is there; there’s lots of money to be made there. There’s a disruption. None of the big tier-1s that are at the position that any of us investors could buy into and extract any kind of real value, they’re not in it. Some of the technology companies that are there, one of these, more than one, I guess. But I would say we, one of us would rise and capture it all, if you're aggressive. We’re smart about how we step by step plan our ascend. So I’m clearly a believer, and I hope you are as well, because think about not just the MicroVision. That’s great. I really want you to think about MicroVision; I’m glad you’re an investor. But I really want you to think about also is the space, what’s really happening in the space and where are the opportunities? The opportunity is MicroVision creates a product; we create a solution, but the problem exists somewhere else, and the problem can be verified, and you can see how much money people are spending on it. That kind of tells you the kind of revenues you can get in the near future.

Anubhav Verma, CFO

If I can add one more thing, while we talk about our peers, I don’t think we’re trying to slam our peers, or I think we’re just trying to point out the obvious. Because talking about the peers is an important aspect because none of the lidar companies have in the U.S. have steady state revenues. It’s very important to have a business model that is sustainable and a capital structure that is tenable. How can a company burn through $80 million in a quarter with revenue that doesn’t even match up? Again, they talk about the gaps, the gross profits widening next quarter. That tells you that this is a cash guzzling business. The markets will be penalizing them, and I think the reason why I’m bringing this up is to say the market will decimate companies which are not being thoughtful. If you are being careful, if you are being prudent, you are going to be one of the few guys who would be able to capture this demand, because the demand clearly exists out here. That’s why we’re not trying to slam, but point out the very obvious facts about the business model. Let’s take the next question. How many FTEs are on staff and what are they primarily spending their time doing? Specifically, we have program managers, salespeople, operations people, engineers who are currently cost centers of the company without any meaningful revenue or partnerships to keep them occupied? So we have 160 engineers post the reductions that we carried out in the second quarter in both U.S. and Germany working on these products. These projects are very demanding. It’s not like the work that’s after the award. We have to be engaged with the customers, defining the RFQ, responding to the RFQ, and working with their engineers to understand their technical requirements. They are getting smarter. I think that’s why these engineers are required to be constantly working with the customers' engineers. Obviously, the work will start; the majority of the work will start afterwards. But a lot of the legwork has to be done to help the customers overcome their business and technological problems. This is where we are using our resources. That’s just for automotive. The same thing is applicable for the industrial customers as Sumit described, because we are essentially using our perception software for solving their ADAS problems and their ADAS problems. Let’s take the next question. Is MicroVision continuing to explore strategic options, either a takeover or strategic partnerships? Dilution overhangs with little revenues and cash burn appear to be restricting sustainable share price movement. What is the progress that’s been made here? We are a public company, and we are one of the cleanest public companies. We are not a private company. So as you can imagine, as some of these other companies falter and start disappearing off the map, our value inherently rises just because of the bad decisions and business models that others have created. Obviously, I cannot comment on what are some of the live discussions that are going on. But I think we would always be making strategic choices, like we did with Ibeo to make sure that we are creating value. Our goal is simple: to build a business model that survives the uncertainty and the ability to capture the demand when it shows up later this second. Let’s take the next question. What were the reasons Sumit’s contract was extended as CEO? This is not meant to be a snarky question, but rather a genuine question that would allow us to address a topic that is on many shareholders' minds. Why have Anubhav and Drew also received additional performance incentive stock awards?

Sumit Sharma, CEO

Thank you for the question. I think I expected that one. We are committed to the company. Think about our board. It’s not like we just award ourselves. This is an independent board, independent compensation committee. They reviewed it. I’m encouraged that they believe we are the right people to navigate the tough storms ahead and take the company to safe harbors. We’re thankful they acknowledged it was important to have some retention value in the company. We are not just having equity in the company; we’re always giving cash. I know everybody believes us as shareholders always believe that. But having equity in the company motivates people because there’s a reason to build more. Keep in mind that this is our board and compensation committee evaluating the situation and realizing the team that they want to go forward with, based on their engagement with us day to day and understanding our performance and all the things we’re going through to make sure that we make the right choices at the right time.

Anubhav Verma, CFO

Do you have any comments about the recent buyout of Cepton by Koito? Do you think more companies will consolidate directly under Tier-1s versus partnering?

Sumit Sharma, CEO

I think that was a unique one. I think that was kind of accounts a long time ago. I think where they’ve ended up, we’ll just see in the future where Koito is able to deliver a product and how prominent they are. I think in my experience, and I think I started off in my prepared remarks, I talked about one Tier-1 that lost nearly $0.25 billion. You can imagine they have no desire to do anything. I know for a fact when we’ve spoken to them, they’ve said their management decision is that there’s no appetite in the company. Anyone bringing this up will get fired. All Tier-1s are going through a transformation as well. If you just read in the U.S. and Germany what the Tier-1s are doing, even in Japan, there’s like they’re shutting down programs, and for the first time in decades, they have something like 17,000 people getting laid off in some of these companies that have hundreds of thousands of employees. Their business is going to change as the ICE engine age extends and a portion of it becomes into EV towards the end of the decade. So is there going to be opportunities for things like that? I don’t know; anybody that’s got capital, if they see a big market and they are a believer and the share price is right, why not? Our job is to execute on everything we say and create value. If the share price reflects that, and if there’s a premium on that in the market, great. And that’s what most investors believe in: what the company is doing, what the management is doing, and the evidence they’re showing. If they believe there’s bigger value than what the share price represents, that could happen at any time. Is it Tier-1? Is it somebody else? We’re a public company, so that’s always on the table.

Anubhav Verma, CFO

Thanks, Sumit. The next question: to be brutally honest, the takeaways from the last call were that management didn’t understand the business environment, questionably put all eggs in one basket, and now lacks leverage after losing that OEM deal. Ask yourself, how can we square these issues with investors? Our share price has been greatly impacted by these actions.

Sumit Sharma, CEO

Yes, I’ll take that one. I was very intimate in that deal, so I think I always get lots of private notes of encouragement from some of you, but also that you were not so excited about the tone at the last call and how we talked about it, right? Let’s just talk about clarity. If we had enough cash balance, and if we had alternative revenues, it was not that we were caught flat-footed; we were intimately engaged that the judgment was impaired. If you think about something that can transform the company, it was not just me; many people were involved, and the board was involved. Everybody knew what was going on. At some point, if somebody keeps moving the goalpost, we think we have very good standing with them. There was little risk compared to others. We always should remain cautious. We had to make a critical decision, and we were very cordial about it. We parted on good terms. We let them know that we are certainly able to do anything, but we’re going to need some financial support, and if their programs cannot support that because they’re concerned about their own timelines, we thanked them for being upfront. We had to make the critical decision. I would not say we were surprised; we put our eggs in one basket. We were in nine RFQs. One of them melted away; they are redoing their product strategy. The automotive OEMs will always be a big chunk of our attention because long-term, that’s the biggest revenue opportunity for the company: real growth and an opportunity to sell lots and lots of software features.

Anubhav Verma, CFO

Thanks, Sumit. I’ll take one last question. Will MicroVision provide additional videos and press releases, updates outside of quarterly results conference calls? It would be nice if these were provided up to date information and reassured between quarterly calls that we are on the right path in the future. If this was happening, being kept in the dark doesn’t help one bit. Let me take this question; this is not an attempt to slam others because context has to be important here. We are trying to establish how we run a traditional company where the company is communicated on a regular cadence with the markets, informing the markets about wins, contracts, and awards that are significant to the company’s future. We all agree we’ve gone past beyond those days where people are posting selfies, people are posting trivial updates. That’s reflective in the stock prices. People can have giant media events; that’s what’s led to the $80 million cash problem. We need to be disciplined. If you don’t use the cash judiciously, that’s what the markets are telling all lidar companies. That’s why it’s important to understand the context of why we’re being conservative. We are sticking to our schedules, sticking to our cadence. If and when the major events come up, we’ll announce them and have investor events. Until then, we really don’t see the use of cash and our time to do media and publicity events. I think we have run quite past the hour. I again thank everybody on the call and for being patient with us. I’m hopeful that you got the theme of the call and why we feel very confident about the future and how we believe MicroVision is positioned to be one of the few successful lidar companies to capture this demand. Thank you, all investors for joining this call.

Sumit Sharma, CEO

Thank you, everyone.

Operator, Operator

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