Earnings Call Transcript - MVIS Q1 2024

Operator, Operator

Good afternoon, and welcome to the MicroVision First Quarter 2024 Financial and Operation Results Conference Call. I would now like to turn the conference over to Ms. Drew Markham. Please go ahead.

Drew Markham, Investor Relations

Thank you. I'm pleased to be 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, 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 intends, believes, expects, plan, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the 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 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. The conference 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 first quarter 2024 results. Let me start off by updating you on our progress on multiple RFQs in flight, which remain our primary focus to get automotive partnerships in place, while adjusting to the OEM realities. Finally, I will provide an update on the broader view we are working on for partnerships and licensing. We believe that the best long-term opportunity for our technology in our company lies with automotive OEMs focusing on ADAS features in passenger vehicles. This segment will have the highest demand in millions of units and is spread across several OEMs in North America and Germany. As I shared last time, to win and dominate in this space, a company needs: first, LiDAR cost of scale in the low hundreds of dollars; second, smallest sensor size; third, highest resolution and range with lowest power; fourth, sensor integrated perception software; and finally, a company that operates as a financially stable Tier-1 LiDAR supplier. I believe with conviction that our technology offering with MAVIN, MOVIA and perception software are aligned with OEM needs for existing RFQs and newly expected RFQs in 2024 that we are starting early engagement on. I understand the frustration and anxiety of our shareholders on the speed with which we can provide OEM validation of our technology. Context is important. There is a big demand opportunity in this segment, but a wide range of challenges to meet OEM commercial requirements for successful passenger vehicle nomination. All OEMs evaluate our technology and how it fits into their individual specifications. In all cases, we meet and exceed their technical requirements. Our team's experience and effectiveness is also a strength that OEMs often compliment us on. They find our cost structures compelling, given that we talk about wafer technology instead of rotating prisms and mechanical galvo steering. In each RFQ, OEMs require significant customization of hardware, firmware and perception software. Their timelines for customization and qualification are long and would require several hundred engineers for several years. Commercially, we would want them to cover the cost of this customization, but they expect these large costs to be amortized over a large volume of units to be shipped over five to seven years and to be borne by our investors, with the risk of final volumes not being realized or flat volume pricing provided year after year. Any potential project we could take on would limit our ability to pursue any other potential future nominations. Some OEMs want to see our manufacturing strategy proposals to commit to factories in Asia and North America for volumes that would not justify two factory locations. Some OEMs explicitly want a factory in the U.S. To be clear, they will not accept a NAFTA country, but only a U.S. contract manufacturing factory while expecting cost structures that are only possible from Asia. Others will only review proposals from Asia, while a small group wants to see a diversified operation strategy with multiple continents. Again, the expectation is that we will fund this with our investors. All OEMs want varying levels of perception features, some running within the LiDAR, some running in their ECU, some claiming they need no perception, but want our source code. Some OEMs want the LiDAR in roofline, others want it integrated in headlamps and some others are only looking at behind windshield integration. They want our core LiDAR to be flexible enough to fit into all their locations. They are aware of the trade-offs in each location, but will require updates to the core hardware. Some OEMs only want to work with us as a LiDAR Tier-1 with contract manufacturing agreements in place, others prefer a traditional Tier-1 with a diversified product portfolio and profitability with us in a partnership, and a smaller group wants to see our Tier-2 strategy even if the volumes do not justify any licensing model. OEMs do work very closely with us and are willing to compromise on their needs, but in general, there's a wide area we need to navigate on each RFQ. In addition, we often see OEMs that have nominated other LiDAR companies in previous years actively working to evaluate us as an alternative, even though other projects have not gone into production. Additionally, other LiDAR companies that may have been awarded nominations for 30,000 to 50,000 sensors instead represented they were fleet-wide adoptions in their public comments on order books, complicating market communication. But that is out of our control and expect public markets to take care of that. I believe this is context for our shareholders to understand why providing certainty on timing on any deal is hard to predict for MicroVision. With OEM's start-up production timelines moving out to later in this decade and aligning to regulations that we'll be rolling out while their global product strategies are changing by region and powertrains, there are just too many variables that we face as we work with them to secure nominations. But let's not forget that these are the biggest opportunities in the automotive technology space with multiple OEMs and multiple regions with millions of units expected in the future. This is the best alignment to our technology and products. Getting through this complicated set of variables to find our first partnerships remains our primary focus and I believe represents the best way possible to build shareholder value. Based on vast experiences with an April 2017 OEM, we know that we must only agree to contract terms to support the long-term health of the company as well as the interest of our shareholders. Currently, we remain engaged in seven RFQs for our MAVIN product. Since the Q1 update, we have disengaged on two RFQs. In one RFQ for a passenger vehicle of our MOVIA S product, the OEM moved the decision point beyond 2024 as they look to realign their model year strategy. This decision has nothing to do with our technology, but rather their product strategy. In another RFQ for our MOVIA L sensor for a global trucking OEM, we were not able to reach a commercial agreement. We were told that our sensor and software proposal was the most mature and top offering. Our manufacturing strategy was the highest level of maturity and went through their qualification, reported to us as in the top tenth percentile of their suppliers. Our commercial proposal was also accepted. Their preference was for a partner with a more diversified product and revenue portfolio. MicroVision cannot accept an agreement limited to B-sample only since we would have to take on significant financial risk for a full program with only a B-sample phase agreement. Ultimately, we could not reach a mutually beneficial agreement. As I said earlier, with the wisdom that comes from experience, we know how important it is for us to avoid any partnership that gives outsized benefit to that significantly larger OEM while putting the long-term health of the company in jeopardy. We continue making progress on seven RFQs for our MAVIN products. Timelines for decision from OEMs continue to shift given that there are multiple configurations, mounting locations, integration and model year needs. OEMs acknowledge that a lot of internal decisions are in flight to reduce configurations and they remain engaged with us. On our MAVIN product development front, our ASIC development and B-sample design and pilot line continue to move forward. We chose to fund these ahead of any nomination since demonstrating mature hardware is a requirement for all OEM. We have not funded any new development for MOVIA L or MOVIA S up to this point. MOVIA L hardware is in production now and is a great demonstration point for OEMs to value partnerships from. The outcome of the MOVIA L RFQ that I described was not what we wanted, but this was a great engagement for our company. We remain able and willing to support the OEM. From my perspective, their vision for autonomous trucking is uniquely positioned and I believe is the most viable one I have seen. Ultimately, we understand their needs for the business and we express our needs as a supplier. As a company, we have lived through the lingering challenges resulting from a one-sided contract and we have to make the right long-term choice. We stand ready to support them on future programs. Given this landscape and OEM timeline to decisions shifting for SOP in 2028, we are exploring other opportunities for partnerships and licensing in smaller industrial markets that will allow us to bring in non-dilutive capital into the company for the technology assets we have. We will talk more about this as we make progress, but we are also giving attention to generating revenue from industrial sales and partnerships and collaborating on potential licensing opportunities for MOVIA and MOSAIK. We are fortunate that we have a wider portfolio of distinct products that address automotive and industrial needs. Given the market environment, I believe we are taking prudent steps to reach a sustainable path. I personally remain profoundly committed to the company and the vision. I would like to now turn the call over to Anubhav to talk about our financials. Anubhav?

Anubhav Verma, CFO

Thanks, Sumit. The challenges for the auto, mobility and ADAS industries continue to persist amidst the current market conditions. Auto OEMs, Tier-1s, and ADAS companies, and in particular, LiDAR companies, continue to experience market pressure. Particularly the auto OEMs in the U.S. and Germany that remain our primary customer demographic are experiencing stronger pressure mainly due to two factors. Number one is stiff competition from the Chinese OEMs in terms of both prices and features of SDVs, or software-defined vehicles. These software-defined vehicles are being run on centralized computers with domain controllers with 10 to 12 cameras, one to five LiDARs, and several radars, while the U.S. and German OEMs are still showcasing vehicles with ADAS features enabled only by cameras and radars. The pressure to produce vehicles with advanced ADAS features continues to increase for U.S. and German OEMs to stay competitive. The second is the cost focus. OEMs here are also under pressure to realize returns on huge investments made for their transition from ICE, or internal combustion engines, to EV products as EV adoption is lagging in the North American markets. Coupled with this, the recent UAW actions in North America are further driving OEMs to be laser-focused on cost to roll out the new models. Recently, one of the major OEMs pushed out their decision on LiDAR beyond 2024 as they internally aligned their Asia strategy. This RFQ was for high volume passenger cars that we were competing for. We believe that this could be in response to the growing competition from the Chinese OEMs to realign their global strategy and expand the LiDAR RFQ scope in order to compete on a global basis to offer these advanced ADAS features. In addition to this, the high interest rate environment further directly impacts the cost of capital available for both OEMs and Tier-1s to take on new sensor programs like LiDAR to enable advancement towards higher levels of autonomy in their vehicles. As we mentioned last time, quite a few Tier-1s have publicly announced their intentions to shift their focus away from LiDAR. Also, in the recent past, we have seen many publicly announced delays and financial losses caused by immature LiDAR products and their expensive industrialization process. This has driven the OEMs to be more careful in selecting the LiDAR suppliers and cause longer selection timelines and more stringent evaluation criteria. Simply put, with only a handful of Tier-1s interested in LiDAR, the business objective for OEMs is to find a high fidelity LiDAR sensor provider acting as a Tier-1 themselves to enable the L2 plus L3 features for ADAS at the lowest price. Given the publicly announced delays and losses sustained in the LiDAR programs so far, OEMs are taking longer to identify LiDAR suppliers who will be able to fund their own business and sustain on smaller projects, lower volumes, especially in the initial years, and scale accordingly when the volumes ramp up in the second half of this decade. On the supply side of the equation, the objective of the LiDAR players is to navigate these initial low production volume years to measure cash burn and be well-positioned to scale up and become profitable when the volumes ramp up later in the decade. 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. All LiDAR companies that have announced significant serial production awards with sizable commitments are under more pressure because of three reasons. Number one, the ramp of revenue from such perceived wins has been much slower than the pace initially communicated to the market. Second, the volumes, even with the start of production, are nowhere near the publicly announced targets. And number three, higher cash costs to industrialize products and unexpected financial losses to their individual cash burns as they have to front a higher cost for lower volume projects. The markets are penalizing these companies for producing results that are not even in the right zip code of the aggressive targets set by them at the onset. Most of these companies are trading at significantly lower values post announcement of serial wins. The depressed market valuations are clearly indicating that all these LiDAR companies will need several hundreds of millions of dollars of funding given their pursuit of smaller volume projects. We saw this in play in one of the RFQs we were competing with from a global commercial trucking OEM, as Sumit described. As we progressed through multiple rounds of evaluation and of technological and commercial of our MOVIA L proposal spanning over six months, they were very impressed with our sensor proposal and our manufacturing strategy, as it had the highest level of maturity. Our commercial proposal was also accepted. However, they preferred a more traditional partner with a more diversified revenue portfolio as their volumes were lower. They offered us to do a B-sample development only instead of a full nomination. We could not reach a mutual agreement since MicroVision would be required to take on significant financial risks upfront for the full program with only the B-sample phase agreement. We would need to commit significant resources for a lower volume project that would have kept us from competing with the other bigger volume passenger car RFQs. If I can summarize all this, there is a huge demand for LiDAR in the second half of this decade, which is being driven by the global competition and marketplace. The current business challenge, however, is low volume projects and low revenue from the auto in the near term and the ability to sustain these initial years to emerge as one of the few standing LiDAR companies. Now, what does this mean for MicroVision and our shareholders and how do we plan to be successful in navigating this period of low volume? We have to adapt from what the financial markets are indicating to us and do the following three things. Number one, we focus our efforts only on big volume passenger car projects from OEMs. Making the right selection is very important for us. We want to commit resources only for large volume OEM projects as that will be the best use of our capital. In the meanwhile, bring in revenue from non-automotive verticals and accelerate their growth. Pursue diversification of revenue streams of non-automotive industrial channels with shorter sales cycles to reduce the dependence on low volumes in the short to medium term. This is very essential as all serial production revenue will be material only with economies of scale, which won't happen until later this decade. Number two, maintain our long-standing capital-light business model with a low cash burn to stay ahead of the curve compared to all other LiDAR players. Our products are mature and we do not need to invest in the next generation on MAVIN or MOVIA unlike our competition. Most of our competition that has announced serial production wins will need significant capital in the next 12 to 18 months, including refinancing of over $600 million of convertible securities. This is a very clear differentiation for MicroVision as our capital needs are not as intensive as others. With our $150 million ATM program, we can be very opportunistic in raising capital and in no rush to pressure the stock like other industry players have done. MicroVision has always demonstrated prudent management of expenses with a strong balance sheet that is scalable. We believe that our mature product portfolio successfully meets all the RFQ requirements. We would start investing in the next-generation products when the auto revenue stream is stronger and the time is right. Number three, bring in non-dilutive cash into the business by pursuing meaningful licensing and partnership opportunities for MOVIA products and their applications in specialized sub-verticals under the industrial market, including forklifts, warehouse automation, etc. This will further help in demonstrating to the market our financial prudence and intention to build long-term value in this company. Now, let's dive into Q1 numbers. For the first quarter, we recorded $1 million in revenue, which is slightly ahead of our expectations. Revenue in Q1 was primarily attributable to the sale of MOVIA devices to a global commercial trucking OEM as part of their RFQ evaluation process. We also sold our sensors to a leading agricultural equipment company for industrial applications. From a gross margins profile standpoint, on an adjusted basis, after adding back the amortization of the acquired intangibles and adjusting for one-time license fees, the gross margins were approximately 25%. We continue to differentiate ourselves significantly from our peers who have either upside down negative gross margins or near zero margins in both industrial and automotive verticals. To support momentum in direct sales last fall in 2023, we also placed an order to build the new MOVIA inventory with ZF Autocruise to help satisfy demand from non-automotive customers. We're beginning to see medium- to long-term partnerships with significant multi-year revenue opportunities in the industrial sector, especially in forklifts and warehouse automation applications. Expenses. In terms of expenses, we had approximately $26.4 million of R&D and SG&A in Q1. This is $2.4 million higher than last quarter because in Q1, we rationalized our workforce and eliminated positions related to the sensor fusion development work primarily in Germany. The higher Q1 expenses are driven by the one-time restructuring charges associated with these actions. These actions were taken in line with our business strategy to focus on revenue-generating opportunities in the near term. The expenses also include $3.7 million of non-cash stock-based compensation and $1.8 million of depreciation and amortization. For the first quarter, $20.8 million cash was used in operating activities, which is in line with our communicated expectations. To remind our investors, we continue to show financial discipline with our cash burn being within our expectations and on a healthy trajectory. As expected, Q1 CapEx was $0.1 million in line with our expectations as well. Now, let's talk about our balance sheet. As of March 31, the payment of €3 million was released from the escrow related to the Ibeo acquisition. This was earmarked as a restricted cash asset on our books. This asset was released in the last quarter. The final payment for the Ibeo acquisition will be paid out in Q2, roughly in line with the remaining accrued liability on the balance sheet of €3 million as of March 31, 2024. Our liquidity was $201.3 million as of March 31, including $73 million of cash and cash equivalents and investment securities and $128 million availability under the current ATM facility. We believe we have sufficient cash and cash equivalence along with our ATM facility to have an adequate runway. We have one of the cleanest capital structures amongst our peers. MicroVision continues to stand out and beat the competition in terms of maintaining one of the lowest cash burns in the industry with a highly-talented pool of engineers in both the U.S. and Germany. We sold 10.4 million shares for net proceeds of $20.6 million under the current ATM in the last quarter. The ability to strategically and opportunistically raise money via ATM positions MicroVision very favorably as compared to our peers, some of which would have to resort to structured finance transactions to raise capital at significant discounts. We believe that with our current cash and our ATM facility, we are well situated to deliver. Now, let's talk about 2024 outlook. We're expecting at least between $8 million to $10 million in revenue from the following streams. As of December, we have already a backlog of $3.1 million. The revenue is expected to come from the sales of LiDAR sensors to both automotive and non-automotive customers as the volume ramps up. Number two, direct channel sales, which includes sale of our hardware to non-automotive customers, and software to our customers that include forklifts, warehouse automation robots, agricultural and mining equipment companies. From a cash burn standpoint, we expect the cash burn for 2024 to be similar to 2023, between $65 million to $70 million. We believe we have all the necessary engineering resources to deliver on our customer projects. To summarize, we're really excited about 2024 and beyond.

Operator, Operator

I would now like to open the line for questions.

Andres Sheppard-Slinger, Analyst

Okay, wonderful. Sumit, I want to maybe start with OEMs. Last quarter, you had mentioned I think you expected to announce an OEM contract win by March 31. So I guess, can you help us understand what happened with this particular contract? Was the contract award lost to a competitor, or was the timeline kind of delayed further? Just I guess trying to understand what might have happened there.

Sumit Sharma, CEO

I believe there will be additional announcements from another party, so I'll let others investigate that. To be honest, we are on this call discussing timelines for RFQ completion and nominations, MOUs, and all the elements related to the contract, right after the earnings call. Our confidence was high, and we were very engaged. However, as I noted in my prepared remarks, reaching an agreement is challenging when there is a significant asymmetry, and our previous experience shows that a contract with such an imbalance means all our people will be committed to it. We maintain good relationships, but they recognize that the volume isn't sufficient, which concerns us as well. We worry that if such a nomination occurs, we may lack the talent to pursue something larger that could stabilize us. So, as usual, we're discussing this, we are confident, but we have to acknowledge that earnings calls occur at their own time. It's important to provide our investors and the market with the most realistic perspective of our situation. Our expectations were clearly communicated, but we could not come to a mutual agreement.

Andres Sheppard-Slinger, Analyst

I understand. Thank you for the helpful context. Following up on that, it seems that some of your competitors have secured OEM contracts, such as Innoviz with BMW, Luminar with Polestar, and Aeva with Daimler, which are generating significant revenues this year. Ouster is projected to achieve $116 million in revenue with a 30% gross margin, while Innoviz is expected to bring in around $40 million. Can you provide a specific timeline for when you anticipate making an announcement or securing a win from an OEM? Are we looking at Q3, Q4, or is this perhaps a story for 2025? Thank you.

Sumit Sharma, CEO

You've mixed a few points together. First, Ouster has not secured any automotive OEM wins, so let's clarify that. They can speak for themselves regarding any announcements related to BMW. You might know more about their initial and final orders since you're an analyst. Additionally, regarding the other companies you mentioned, we would prefer to be in their position given their revenue to burn rate ratio. However, it’s evident that signed agreements typically range from 30,000 to 50,000 units, and they have an order book that complicates discussions with OEMs regarding expectations for announcements. While it's nice to throw out numbers, it would be great to see the actual revenues from BMW, and we anticipate updates in the next few months. The RFQs we are discussing now represent significant volumes that weren’t available previously. Any past communications are not accurate, and it's up to the market to sort that out with those companies. If I were to lose something, I'm known to be upfront about it. However, we can't enter agreements that could potentially harm the company. It’s clear that having many people involved is necessary for securing an OEM, and there's no guarantee of revenue at the end of that process. We are all navigating similar challenges. It's not straightforward to suggest a revenue range like $20 million to $70 million by year-end, especially when some projects haven’t launched yet. For launched products, there’s no revenue from the start of production. We'll need to be patient and see how things unfold. I often find it difficult to sleep because I would love to secure one of those contracts, yet caution is crucial to avoid agreements that could jeopardize long-term stability. OEMs are explicitly stating they are extending timelines and expect partners to maintain their operations for an extended period due to potential shifts in project timing. With all this information, we strive to share everything we can and develop a sustainable path forward.

Andres Sheppard-Slinger, Analyst

That's helpful. Regarding the last part of your question, do you have any sort of timeline for when you might expect a contract win? Is that something anticipated in the second half of this year or next year? None of us have a crystal ball, but please go ahead.

Sumit Sharma, CEO

Well, I'm cautious about this, Andres, because if I just go by what I'm being told, OEMs are saying that we expect to make decisions in Q2 and Q3, but I did not say that in my prepared remarks because again, we're discounting the fact that we've been told those things before and they keep moving it out, because they don't move to the timelines that we have to report to the market. That's an anomaly for us. To them, they deal with Tier-1s that never have to do this, right? The traditional Tier-1s have huge business. This is just part of ongoing business. So, I'm being cautious here is like when we know something for certain, we're going to go out there. But yeah, of course, the expectations still are that sometime in 2024, some key decisions will be made. But personally, when I look at it, the expectation is when an OEM says, yeah, I'm going to make a decision, yet they have multiple configurations they're looking at in multiple models for multiple brands within their group, and it's clear that they are not all in agreement within the OEM, right? We just have to be cautious that what they're telling us within even their company, their people tell us that they're not so certain how they're going to come to those decision points fast enough, right? So, I can't give anything, but yeah, the most current one that we have is that sometime in 2024, they expect to start making these decisions for these big large volumes. So, they'll have four years to start a production, and we're going to focus on what information that we're given.

Andres Sheppard-Slinger, Analyst

Got it. No, I appreciate that. That's helpful. Maybe one last one for Anubhav. So, assuming an OEM contract win is announced maybe in this year at some point, can you just maybe remind us how do you foresee the revenue recognition from that contract taking place? Like I guess, how would that contract ramp up in terms of revenues and kind of what would be the timeframe for that? Thank you.

Anubhav Verma, CFO

The way I see it is that the passenger market is assessing the competitive landscape, influenced by the challenges in the OEM ecosystem. A significant amount needs to be accomplished, ranging from product industrialization to volume ramp-up. Any sensible OEM contract will initially generate NRE revenues, gradually increasing as vehicle production incorporates sensors at various sites. Therefore, the revenue sequence will begin with NRE, followed by anticipated volume revenues. From our recent RFQs, it’s clear that OEMs are cautious due to past setbacks and are ensuring there’s ample time before the volume increase. Most programs we’re discussing are expected to ramp up significantly around 2028 or 2029. This is a crucial aspect to emphasize because while there may be some initial revenue, it won’t be enough to offset the cash burn right now. This issue applies not just to MicroVision but to all LiDAR companies facing a time when revenues are not aligned with cash outflow. We must all manage these years wisely, as many LiDAR companies might struggle if they enter into unfavorable agreements.

Andres Sheppard-Slinger, Analyst

Got it. That's super detailed and helpful. I appreciate that. Okay, that's it for me. Thank you so much. Congrats on the quarter. I'll pass it on.

Operator, Operator

Our next question is coming from Kevin Garrigan with WestPark Capital.

Kevin Garrigan, Analyst

Yeah. Just to start out, in the seven RFQs that you mentioned, are there other automotive trucking customers in there, or are all seven RFQs now just passenger vehicle OEMs?

Sumit Sharma, CEO

All seven are passenger vehicles.

Kevin Garrigan, Analyst

Okay. Perfect. And then, this is kind of a two-part question, but I think you noted in addition to industrial sensor sales, MOSAIK is going to be pretty important going forward. And then last quarter, you had called out sales kind of were slowing there. So, are you expecting kind of any revenues here from MOSAIK with sensor supply agreements kind of being pushed out? And the second part, it seems like others in the automotive industry are either kind of creating partnerships or developing their own validation software. So, can you kind of give us your thoughts on why you believe the MOSAIK software would have a competitive advantage against other solutions?

Sumit Sharma, CEO

The MOSAIK software requires validation for all sensors when they are integrated into a vehicle. For instance, in one of the requests for quotes we are working on, the OEM team had very specific requirements and key performance indicators that were quite ambitious. This contract could exceed $100 million. We informed them we could validate their needs, which would indeed cost that amount. Eventually, they reduced their expectations, realizing they had set the bar too high. This illustrates the significant costs involved in validating a solution—not just for the sensor, but for the entire system—which is substantial for an OEM. Much of this involves data collection and a variety of factors. MOSAIK automates a large portion of this process, offering potential savings. To your initial question, yes, we do anticipate some revenue from MOSAIK this year, but it will depend on the validation cycle of our clients. Any software tools we provide would require a multi-year commitment. Currently, we also engage in smaller agreements that allow them access to specific parts of their validation instead of the full suite. Our team remains in touch with customers to understand their evolving needs. Recently, during a meeting, a client mentioned an existing manual process they relied on which was cost-effective, albeit inefficient, highlighting their interest in better solutions. These relationships develop slowly, particularly with OEMs that do not handle validation independently and must choose partners for support. Thus, we need to consider this dynamic as we look at the potential of MOSAIK. Validation is essential at the system level, not just for LiDAR but also for radar, camera modules, and the full range of sensors used in advanced driver-assistance systems.

Kevin Garrigan, Analyst

Yeah. Got it. Okay. I appreciate that color. And then just last question, we've heard from a few other LiDAR companies kind of speaking about the recent NHTSA ruling for automatic emergency braking systems. I'd love to hear your guys' thoughts on it and what it kind of means for LiDAR?

Sumit Sharma, CEO

My personal perspective is that automatic emergency braking has been widely implemented in Europe and is now becoming a standard regulation. As a result, we can expect more vehicles to incorporate this feature. There are some preliminary capabilities demonstrated using camera systems and radar, but for mass adoption, it is crucial to have a feature that is broadly applicable, safe, and reliable over the long term. LiDAR can contribute to this. While some Tier-1 suppliers and one OEM might assert that they can manage without LiDAR and rely on alternative technologies, the majority of OEMs clearly view it as a necessary component. The essence of LiDAR is that if you have a LiDAR sensor providing 360-degree coverage along with long-range capabilities, many features become integral without the need for additional subsystems to ensure safety. During active maneuvering and safety operations, these features can seamlessly integrate into the sensor stack being developed by the OEMs. As adoption increases, there are broader opportunities because the product evolves beyond just high-speed highway piloting to include safety features mandated by regulations. This development is advantageous for LiDAR, aligning with long-term product capability requirements for NCAP. The news is positive for LiDAR, as it is inherently well-suited for these requirements. With increasing economies of scale, we see production volumes reaching millions of units, particularly around the 2028-2029 timeframe. Consequently, more OEMs are investigating the features that LiDAR can offer. It's important to note that we manufacture LiDAR, provide perception software, and assist in developing automatic emergency braking and other safety features, as well as high-speed highway driving functions. While we support these efforts, LiDAR inherently simplifies the integration compared to other technologies. However, as other technologies have existed for longer and can function at lower speeds, OEMs are likely to assess those alternatives alongside LiDAR. I firmly believe that those who have worked with LiDAR data find it significantly easier to utilize compared to other data streams.

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

So, the first question is, why has there been a lack of any communication from the company since February 29? And are there expectations of further delays in the RFQ decision-making timeline? And how is MicroVision adapting to these changes? Do you expect to add to the RFQ pipeline?

Sumit Sharma, CEO

I will address the last question first. Yes, we anticipate adding to the RFQ pipeline. We already have some leads for RFQs for both MOVIA and MAVIN that we are beginning to engage with. Our team will be traveling globally to support the OEM during the initial stages of their planning. Regarding the delay since February 29, when we had our earnings call, as I mentioned earlier, we were actively working with them. It was important to remain quiet until we had a clearer understanding of the situation. It was a confusing time, and we wanted to ensure we reached a point where we could agree on something or truly grasp what was being offered before communicating. As we approached the earnings call, we were prepared to inform you about the specific RFQ. The other RFQ was for the MOVIA S. The OEM was clear about its product strategy for different regions, but that could change as their strategy evolves. They indicated that we should not expect regular updates, but rather give them time to sort things out. Therefore, it made sense to discuss this during the earnings call to provide more context, as we couldn't convey that level of detail in a brief press release or comment.

Anubhav Verma, CFO

The next question is, last year at the Retail Investor Day, MicroVision reiterated that the company is very far ahead of the competition and it would take years for them to catch up. Does this statement still hold true? And if it does, are the OEMs still keeping their bar standard high, or are they lowering it to accommodate more choice in suppliers?

Sumit Sharma, CEO

It is definitely true, and I'll provide an example. The seven RFQs we are discussing that MAVIN is involved in require us to simplify MAVIN to fit in. We have steps we need to take, but we can manage it. There's no new development involved; it's simply new calibration and firmware adjustments for our ASIC, which isn't a major issue. As I've mentioned, it is best-in-class and well ahead of the competition. In these RFQs, nothing has been presented that imposes strict requirements on us. In fact, we've been pulled towards the average; we are no longer at the high end of the spectrum but are being asked how we can compete on cost, size, and performance alongside others. While specifications such as range and resolution need to be met and exceeded, we do not typically seek exceptions, unlike others who may have flexibility due to existing products. This highlights the gap we see with competitors, as we can meet the original requirements designed for different incumbents. We need to approach this with humility and recognize the customer's strategy. For instance, if there is a specific software development challenge, like the dynamics in LiDAR providing significant benefits that take time to realize, we understand that. If a customer needs a fixed field of view due to their existing software, we can accommodate that. We can deliver optimal results, but we will also support any alternative needs they have for easier integration. Regarding MAVIN, I believe it will remain relevant and not require redesign for a long time. Recently, someone asked about monostatic LiDAR, and during our OEM meeting, I indicated that what we offer far exceeds their needs. We can meet their cost and power requirements, so there's no pressing need for development in that area. It’s a forward-looking product, and we would invest in it if there were demand. At this point, we aim to complete our B-sample and finalize industrialization, put automation in place, produce samples, and initiate reliability testing. We aren’t planning any redesigns for MAVIN because it's unnecessary right now, and I haven't faced much pushback. Therefore, I stand by the assertion that we are indeed ahead of the competition, and I feel confident in that statement.

Anubhav Verma, CFO

A year after the Investor Day, how does MicroVision assess its market position in light of Innoviz and Luminar releasing new slimmer products for windshields? I believe the market's reaction to these announcements is reflected in the stock price. This ties back to a previous question raised by Cantor; it seems the market is not recognizing any of the publicity, as the actual numbers are telling their own story. The market capitalization of the LiDAR companies that announced $1 billion awards is actually lower than their value prior to those announcements, indicating the market is discounting these awards and anticipating a decrease in value since they were signed. To simplify, the current situation revolves around managing the mismatch between revenue and costs. At this point, no LiDAR company can afford to invest in new developments; they need to focus on refining their existing technologies. Recently, we noted in the Q1 announcement that companies are increasingly relying on third parties for industrialization rather than handling it in-house. In my view, this approach is becoming unsustainable, which is reflected in the valuations of these companies. Nonetheless, my main point is that, despite these challenges faced by competitors, we must secure beneficial deals and ensure our cost structure supports business growth. When the demand for millions of units arises, we need to be prepared to meet it, especially since some LiDAR companies have already exited the market, and this trend is likely to continue. It’s vital to be ready for these changes. As Sumit mentioned, our product continues to meet and exceed expectations in all the requests for quotations we are engaged in.

Sumit Sharma, CEO

I want to focus on our company rather than compare ourselves to others. This is our earnings call for MicroVision, and I’d prefer to discuss the partnerships we have formed and their implications. Right now, our challenge is not technological but rather a business issue we are addressing. Regarding our technology, I believe it will prevail, especially when we present our MEMS technology and its advancement in wafer integration, as opposed to others who are still using traditional methods. It’s important to understand what truly drives these technologies. While some companies have made announcements and secured market support, success ultimately depends on having a viable product. Those who have gone through the de-SPAC process have raised substantial funds, while we have to navigate more carefully due to our established status and constraints. I’d rather not discuss other companies; my focus is on our efforts to solve our business challenges and secure a customer that can change our trajectory positively. I’m confident in the technology and the hard work from our teams in both Hamburg and Redmond. Ultimately, the winner will be the one focusing on wafer-level advancements rather than traditional technologies. My priority is to get an original equipment manufacturer to align with us on these developments.

Anubhav Verma, CFO

Can you provide more detail on cash runway? And does the company envision it will have to issue shares in 2024? Let me take that question. So, let's talk some numbers here. Our cash balance at the end of March 31st is $73 million. We have $128 million available under the ATM. While I cannot share exact plans, our history indicates that we would only opportunistically raise capital when needed, because to navigate this, you have to be financially prudent. As Sumit described, we would be accelerating our industrial revenue stream from our MOVIA product, which generates cash faster than the automotive revenue. Additionally, we are exploring licensing and partnership opportunities in sub-verticals within the industrial market. These opportunities will help monetize assets and generate non-dilutive cash to support our cash burn and the sustainability of the company. It is critical to focus on how to survive the next couple of years to emerge as one of the few remaining businesses in the LiDAR industry. As I mentioned earlier, the demand is significant and awaits at the end of this decade, and we want to ensure that we are one of the few players that reach the finish line. Thank you to all our investors for your support, which reflects how the market perceives our strategy and execution. We continue to work towards the objectives that Sumit outlined and look forward to our Q2 call in August.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. We thank you for your participation.