Earnings Call Transcript - MVIS Q3 2021

Operator, Operator

Good day and welcome to MicroVision's Third Quarter 2021 financial and operating results conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Lindsey Stibbard. Please go ahead.

Operator, Operator

Thank you. Good afternoon and welcome everyone to MicroVision's third quarter 2021 financial and operating results conference call. Joining me on today's call are Sumit Sharma, Chief Executive Officer, and Steve Holt, Chief Financial Officer. The information in today's conference call includes forward-looking statements, including statements regarding product development, potential product sales, scalability of technology and designs, expected performance of products, comparisons with competing products or technology, market opportunities and future demand, advantages of our technology, business and strategy opportunities and execution, expected customer and partner engagement, product development, applications and benefits, commercialization of our technology, strategy per customer sales, maximizing shareholder value, managing costs, future royalties, projections of future operations and financial results, availability of funds, as well as statements containing words like potential, intend, believe, expects, plans, could, likely, 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 various SEC filings, including our annual report on Form 10-K, filed on March 15th, 2021, and our Form 10-Q, filed on April 30th, 2021 and August 12th, 2021, as well as various other SEC filings made from time-to-time in which we discuss risk factors associated with investing in MicroVision. These risk factors could cause 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 of the financial numbers presented on this call, please refer to the information included in our press release and in our Form 8-K, dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com under the SEC filings tab. This conference call will be available for audio replay in the Investor Relations section of MicroVision's website at www.microvision.com. And now I'd like to turn the call over to Sumit Sharma, Sumit.

Sumit Sharma, CEO

Thank you, Lindsey. Good afternoon, everyone. I would like to start off by walking you through our progress in the last quarter, including our product introduction at the IAA Munich mobility show, and our priorities to frame the year ahead of us. We have made progress since our last call. In September, we introduced our LiDAR sensor at the Munich mobility show. It was a great opportunity to showcase our technology alongside our competitors. ADAS safety and the need for LiDAR as a central sensor were part of the story for every OEM and Tier 1 that exhibited at the show. The largest volume opportunity and recurring revenue reside in OEM programs for automotive LiDAR sensors, which has been our focus for the last several years. I can say with confidence that the rates to secure an OEM program for level 2 plus and level 3 ADAS systems, with LiDAR as the central sensor, are still wide open. No LiDAR company has yet secured an OEM deal that is recorded on its financial statements as meaningful backlog. I believe MicroVision is ahead of all of our competitors in several key areas. Based on our work with a leading global consulting firm, we expect OEMs to make partnership decisions after careful and thorough evaluation in the next 16 months for the launch of new EV models with more advanced ADAS features, which we'll start to shape in 2025, with a larger global rollout of battery-operated electric vehicles expected in 2026. This could represent LiDAR unit volumes in the millions in the future. I'm excited to report that we have received very positive feedback from our recent OEM and Tier 1 meetings. OEMs tell us that our sensor is of interest because it demonstrates best-in-class cost advantages, size, key features, and demonstrable scalability for production and quality requirements. We believe our hardware and software solution excel in each of these categories, and we have received acknowledgment of this in our meetings with OEMs and Tier 1 companies. Potential customers and partners have consistently been impressed by the compact size of our sensor and the number of features packed inside. Our capability to provide the highest resolution, net range, with dynamic field-of-view and velocity field while running at 30Hz is a major accomplishment of which we are very proud. The 30Hz could enable higher-speed operations of automatic emergency braking, forward collision warning, and automatic emergency steering ADAS features that are expected to be the centerpiece features for future vehicles. Our technology will also provide larger system cost savings than competitive solutions, an important factor in OEMs’ final decision processes. An ADAS solution integrated with our LiDAR would require a lower number of sensors to meet ADAS safety requirements and result in lower overall system costs compared to the center stack utilizing lower resolution and lower frame rate LiDAR solutions. Working with a leading global management consulting company has allowed us to confirm this, enabling us to more widely start introducing our products to OEMs. As previously stated, we expect to demonstrate our integrated software and hardware ADAS solution by June 2022, which will demonstrate higher levels of ADAS safety features that OEMs desire. As I recently discussed, our technology is built on well-known technologies for lasers, detectors, and custom silicon components. There are no exotic materials in our sensor, so we can quite easily show our cost scalability to OEMs. MicroVision's know-how is combining these standard materials with our algorithms, software, and custom silicon in what creates incredible value through our intellectual property. Additionally, with our history of delivering products for world-class customers, like Microsoft, for challenging applications, we demonstrate the pedigree of the company and provide potential customers confidence in our ability to meet and exceed their expectations. As I frame our priorities for the next year, working to achieve an OEM or Tier 1 partnership remains our focus. Our team is working around the clock and polishing our sample for OEM evaluations that are expected to continue well into 2022. The OEMs require a more specialized product for automotive ADAS and a product for the general market. Because of the large invaluable OEM opportunity ahead of us, we have decided to focus our attention on the OEM business, what we call strategic sales. We will continue to prepare a product for direct sales, but at a slower pace. We expect it will be available in the middle of 2022. I believe we need to maintain our focus on strategic sales, given the time frame for OEM decisions and the value this strategy could represent to our investors. One of the questions I often get from investors is MicroVision's plan to go it alone. Let me clarify my thoughts on this. The opportunity for an OEM program is tremendous and represents significant value for our shareholders. But no company can go it alone in this safety-critical system. Partnerships will be required with OEMs, Tier 1s, and others in their stack to deliver a solution. In the near term, industry experts expect a huge amount of consolidation in the ADAS space, where significant recurring revenue is not expected until 2025 and beyond. MicroVision is in a strong position with our hardware and software built on decades of relevant development and solid intellectual property rights. Before I turn the call over to Steve to discuss Q3 results, let me comment on the CFO announcement we made last week. I would like to start off by thanking Steve for 8.5 years of dedication to MicroVision and helping the company navigate through challenging times to the most financially secure level it has been in its history. Steve and I have worked closely during my time at the Company, and I'll miss his focus and friendship. We also announced Anubhav Verma, who'll be joining us on November 15th as our new CFO. I'm excited that he brings with him great energy and solid experience from years executing in capital markets and investment banking transactions. I'm looking forward to working with him and the expertise he will bring to our management team. In other news of interest to our shareholders, Gabe Alan, MicroVision's long-time IR consultant, is retiring at the end of November. I am very appreciative of Gabe's work over the years, supporting the company's communication with shareholders; he will be missed. I would like to end this update by thanking our shareholders for their enormous support and confidence in the company. I would also like to sincerely thank our employees for their continued hard work and dedication in getting us here and remaining focused on the important work ahead. Let me turn the call over to Steve to discuss the third-quarter results, and then I'll be back to provide some additional perspective.

Steve Holt, CFO

Thank you, Sumit. Good afternoon, everyone. For the third quarter, revenue was $718,000, down slightly compared to last quarter's revenue of $746,000. All of the third-quarter revenue was royalty revenue, attributable to our augmented reality customer. As I pointed out before, royalties related to this customer will be credited against the non-refundable prepayment the customer made in 2017. Once the prepayment is exhausted, the customer will again begin making cash payments for royalties due. At the end of Q3, the balance of the prepayments stood at $5.8 million. The $5.8 million is on the balance sheet as a contract liability. I'd also like to point out that there is no time limit within which the prepayment must be used. As long as the components we developed for the customer are in production, royalty revenue will continue to be generated. Third-quarter cost of revenue included a $10,000 credit related to the reversal of a warranty accrual. The result is the third-quarter gross profit of $728,000. In comparison, gross profit was $777,000 in the prior quarter. Operating expenses were $10.8 million in the third quarter, which was considerably lower than our guidance of $14 million to $16 million discussed on August 4th and lower than the $15.7 million in the prior quarter. The decrease in operating expenses from Q2 was primarily due to a decrease in share-based compensation. Share-based compensation was lower in Q3 because Q2 had a one-time expense of $4.2 million, and some employee awards earned in Q2 were not repeated in Q3. If we subtract share-based compensation expense from operating expenses from both Q3 and Q2, operating expenses would be $8 million in Q3 and $7.8 million in Q2. Our headcount at the end of September was 83, up from 74 at the end of June. We're a little behind in our hiring plans due to the very tight labor market. But we're pleased that we were able to attract nine new employees in the quarter. We remain in hiring mode and plan to hire more people, primarily in engineering. But we also expect to fill positions in sales and other administrative functions. Expecting by the end of the year, we will have 110 people, a little lower than our prior guidance of 110 to 125. Our net loss in the third quarter was $9.4 million, or $0.06 per share. In comparison, the second quarter net loss was $15 million, or $0.09 per share. Because of the large swings in share-based compensation, we think it would be useful in making comparisons if we provide an adjusted EBITDA number. Adjusted EBITDA is earnings before interest, income taxes, depreciation, amortization, and share-based compensation expense. For the third quarter, adjusted EBITDA was negative $6.2 million, and for the second quarter, it was negative $6.7 million. Third-quarter cash used in operations was $10 million. In comparison, cash used in operations in the second quarter was $6.7 million. The increase is due to adding a million dollars in component inventory for our long-range LiDAR. Also in the quarter, we paid security deposits and prepaid rent for new LiDAR testing and office space. Those deposits and rent came to about a million dollars. Additionally, in July we renewed our D&O insurance; our insurance premium increased substantially due to our increased market cap and general conditions in the D&O market, and that accounted for about $900,000 in increased cash usage. Cash and equivalents at the end of the third quarter was $125.1 million, down from $135.3 million at the end of the prior quarter. We did not raise any funds on the ATM in the third quarter or thus far in the fourth quarter. While we have not opted to utilize the ATM since the second quarter, having a strong balance sheet and the ability to raise additional funds has given confidence to prospective customers and partners that we can be a long-term player in the automotive market. A strong balance sheet also helps in retaining and attracting employees. I'd like to return to the topic of real estate leases. In September, we signed a lease for about 17,000 square feet of space that will be used for both LiDAR testing and office space. Start paying rent on this space in November. Additionally, we have placed a deposit for a lease on a building next door to the testing facility. If we are unable to complete a negotiated exit from our current lease, with a positive return, if we can negotiate that exit, we will likely move our main office to the new facility in late summer or fall of 2022. The new facility is around 36,000 square feet, and the facility we would be leaving is around 31,000 square feet. Now I'd like to get some thoughts on our expectations for the fourth quarter. First, let's cover revenue. As Sumit mentioned, we're focusing on the automotive OEM business because of the opportunity for high levels of recurring revenue. In the short term, this effort will consume a lot of engineering resources. As a result of this focus and the timelines that come with it, we have pushed back the startup production of LiDAR units for direct sales from Q4 of this year to the middle of next year. So we expect Q4 revenue this year will continue to be royalty revenue in the range of $500,000 to $600,000. Now, for operating expenses, Q4 will again have a significant amount of share-based compensation in the range of $3 million to $3.5 million. Additionally, as we continue to hire and spending on materials and services, I expect to see Q4 operating expenses in the range of $11.5 million to $13 million, including the share-based compensation. Finally, cash used in operations, in addition to the increased expenses I mentioned, we'll continue adding inventory of long lead time components for our long-range LiDAR, so I expect to see cash used in operations in the $10 million to $11.5 million range. Finally, let me echo Sumit's excitement about our competitive position and the reception we received at the IAA Mobility tradeshow last month. That show was really the first chance we had to show our hardware, and the response we received was everything we had hoped it would be. I'll now turn the call over to Sumit for some comments before we open the call to questions.

Sumit Sharma, CEO

Thank you, Steve. Before we open the call up for questions, let me revisit a couple of important themes from this call. The strategy that I described today, though ambitious, is built on MicroVision's well-established technological debt and maturity, including our proprietary ASIC, our cost-effective components, and our demonstrated ability to productize at scale. We expect that our engagement with OEMs will continue as we support evaluations of our sensor in Q2 2022 and of our software features in Q3 2022. We believe that MicroVision will be well-positioned to support OEMs as they roll out new vehicle programs built on next-generation technology. We remain confident in our ability to successfully execute our strategy and are bullish on our future. Let's open the call for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. To ask a question, you may press 0. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press 0. At this time we will pause momentarily to assemble our roster. The first question comes from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Glenn Mattson, Analyst

Hi, thanks for taking the questions. First, I want to congratulate Steve on his retirement and express what a pleasure it has been to work with him over the years. Now, Sumit, I know this is a bit off topic, but I'd like your thoughts on Facebook's announcement today about changing its name to Meta and its significant move into the metaverse. Do you think this will encourage more investment from your main customer or other competitors in the augmented reality space? I've noticed that many AR and VR stocks have seen an increase today due to this news.

Sumit Sharma, CEO

Good question. Of course, I've just recently read about this, so I've not really processed it all. But Glenn, if you could think about it, the bigger picture that you've talked about here is, if they're going out there and announcing all the things they audaciously aspire to build out, it could take a significant amount of investment, which includes hardware, software, and platforms. I think what's exciting about that news, when I read it, was that a big company with a $100 billion market cap is willing to say they're generating cash that they actually want to invest in there. Again, these kinds of platforms, these kinds of spaces when one big party makes investments, others do as well. So I'm excited for this space; I've always been excited for the space; I've always said that it's going to be something big. But at the right time, it's good to see that a company like Meta is going to be making investments and striving into that space.

Glenn Mattson, Analyst

Thanks for your question. Regarding the focus on OEM compared to direct sensor sales, it seems that the long-term potential lies more with OEM opportunities. Our immediate goal would be to achieve some sales, which could serve as a positive signal for investors regarding product acceptance in the market. While that’s important, our broader mission remains centered around securing significant design wins. I'd like to hear your thoughts on that approach. Additionally, you've mentioned that products will be available by the middle of next year. Should we plan on not expecting any product revenue until then, or could there be potential sample revenue from some of these OEM opportunities in the meantime?

Sumit Sharma, CEO

I believe that’s an appropriate perspective. The sample revenues are secondary. Consider my previous points regarding collaboration with a global management consulting firm, ensuring that we are up-to-date with market data, and striving to be aligned to mitigate any unexpected developments in these initiatives. We have key decisions being made over the next 16 months that we must concentrate on and not let slip by. Strategic sales represent the largest recurring revenue for any company in this sector, and all companies are intensely focused on this, not just MicroVision, as it is the prime target. Regarding direct sales, often referred to as spot sales, these are less stable, experiencing fluctuations based on market acceptance. We will pursue that too, but launching such sales requires the team’s focus on market needs. It’s not simply about selling software; it's a combination of hardware, software, and partnerships, which demands significant effort. I want to ensure our company prioritizes the strategic aspects, especially since we hold a considerable advantage. My enthusiasm has grown after our experience in Munich. Clearly, in terms of hardware, we outperform our competitors in size and performance, along with our cost advantages and essential features. We possess everything the market is seeking, as anyone who attended the Munich show can confirm. Competitors showcased products akin to the size of a VHS recorder, while our sensors are comparable to a VHS cassette in terms of size, cost, and technology. We are indeed ahead of the competition, which is evident in the marketplace. Therefore, we must concentrate on seizing the largest opportunity currently available as it relates to sales. While there are additional opportunities out there, our primary focus should be on the significant prospects, especially considering the next 16 months are poised to be highly active.

Glenn Mattson, Analyst

I believe so. For my last question, you mentioned a cash burn of $10 to $11.5 million next quarter; I assume that's linked to an increase in hiring and investments in sales and engineering. That totals around $50 million in cash burn from now until the end of next year. Last quarter, you noted that you had used up half of the current ATM and emphasized the importance of maintaining a strong cash position for the long term. What amount of cash do you consider necessary, and could you share some insights on why you did not access the ATM this quarter?

Steve Holt, CFO

Yeah. I think what to say on as we would like to use the balance of it. But we just don't have any definitive plans. And as in the quarter, or just didn't have open windows for us that we thought were made sense at the time.

Glenn Mattson, Analyst

Thanks. And is there a level of cash that you feel like you wouldn't want to go below or anything like that or is that so far below what you current have?

Sumit Sharma, CEO

I don't have a specific number in mind, but I think what we see is a change in the conversation. When some of these conversations were happening before this ATM and the ways that we did in Q2, the going nature of the company and our longevity was an issue and that seems to have become a non-issue. And so we just wanted to be mindful of making sure that that's the way the company appears and the company stays that way. To state the obvious, people want to do business with people that will be around for years, right Glenn?

Glenn Mattson, Analyst

Great, that's it for me; thanks, guys.

Sumit Sharma, CEO

Okay. Thanks, Glenn.

Operator, Operator

Your next question comes from Sam Peterman with Craig-Hallum Capital Group. Please go ahead.

Sam Peterman, Analyst

Hi, everyone. Thank you for taking my question. I wanted to start by asking a couple of things about LiDAR. As you may have noticed, GM recently held their Investor Day where they discussed their new Ultra Cruise product. I understand this will standardize LiDAR on certain Ultra Cruise models. I'm interested in knowing if you can share any insights on the broader industry. Are you observing more original equipment manufacturers wanting to adopt LiDAR? Can you elaborate on how this trend has evolved over the past few months, especially in light of GM's recent announcement?

Sumit Sharma, CEO

That's a good question. The eye-opening part is that Munich was one of the first auto shows since COVID. Every original equipment manufacturer and every Tier 1 supplier showcased where the LiDAR would be located in their vehicles. In many cases, some of the LiDAR displayed were not even operational and served merely as markers. However, it's clear that every product discussed, which features higher-level Advanced Driver-Assistance Systems safety features, includes LiDAR as a central component. We're talking about OEMs that produce tens of millions of units annually, and their strategies are well established. All the top and mid-tier Tier 1 suppliers included LiDAR in their offerings, indicating its widespread presence. Advanced Driver-Assistance Systems safety is on the rise, especially as battery-powered electric vehicles gain popularity. Higher levels of safety are crucial and represent a key value proposition for these manufacturers. Regarding Ultra Cruise, while it's presented as standard, it is actually selected LiDAR. Although the Ultra Cruise feature is appealing, LiDAR is essential. This trend is emerging in premium models and, over the next several years, we can expect to see it implemented across various programs.

Sam Peterman, Analyst

Okay, that's great. And then, just talking about the Munich show. I mean, when OEMs are showing you where the LiDAR is going, obviously, there's a lot of spots. The different OEMs seem to be looking at whether that's windshield or roofs or in the headlamps or on the corners. Is there any particular place that MicroVision's LiDAR couldn't go, or are there particular places that you think you can integrate well into? Any color on that?

Sumit Sharma, CEO

Well, with the smaller size that we have, we have a lot of options for a variety of placements. That's one of the nice options for the design teams. Let's not forget, beautiful cars have to have a certain shape and line to them. The design teams are very particular about what they want to incorporate. Having LiDAR that can fit into the headlamp, behind the windshield, or within any part of the body gives a lot of flexibility. And that's actually important. A huge benefit to our technology that nobody else can demonstrate working today. And they are years away from that from anybody's speculation.

Sam Peterman, Analyst

Okay. Thanks for that perspective. Then I think the last one from me, there has been continued activity in the industry with new LiDAR companies coming public and acquisitions being made. Companies like Quanergy trying to go public with optical phased array technology. I'll start just spot sense, which is making flashlight. I guess my question is, do you guys see a trend towards kind of next-gen technologies taking hold at all, or do you think the MEMS approach that you're going with is still more sufficient and it's going to beat those technologies?

Sumit Sharma, CEO

I mean, not because that I get the opportunity to lead a MEMS-based company, but honestly, I can say that MEMS technology will see a lot of traction because it's the most obvious thing that can scale cost-effectively. And something that will show the reliability for 15-plus years worth of life, which is what's required for safety. If you think about all different steering systems, optical phase array, flash-based, all of them have benefits, but all of them have detriments. You really have to do a cost analysis and a risk analysis of what will happen. The question that came up recently, and I think I want to add that here is, somebody asked me, 'What about the flash-based technology? Isn't that better?' It has a global shutter; it’s a rolling shutter. Well, most of the things in your life are rolling shutter, by the way. But put that aside. Imagine two vehicles, and they are flashing at each other. Dropping one single frame, dropping several frames. That actually causes a problem with the software. So you need significantly more software to fill in the gaps. And again, now you're leaving the realm of actual data versus something the software is saying; how do you believe it? You would need redundancy; you need more software. Effectively, the system cost goes up. And those flash-based systems are running at 24Hz, and that's considered cutting edge. But everybody wants 30Hz. 30Hz is the latency where the automotive system is more effective than a human. So we think about 10Hz systems, 15Hz systems. The question always is, 'Aren't they all the same?' The answer is no. This is all about latency. How much better is this system in responding as speeds to a human? And if the other LiDAR systems at lower frame rates are not able to actually show that working, that’s the big advantage we will have. So I think consolidation there will continue to happen. I think if somebody is making a bet in this space and wants to spend $100 million worth of investment to make custom voxel systems and investors want to support, more power to them. Our story is much simpler. The sell itself. I'm not even a good sales guy; I would say, I open up the thing and I show them inside. I remind them that everything in here is things they know. There's plastic, there's metal, there's known silicon technology. That's a 200 millimeter wafer, sensor technology at 300 millimeter wafer. Laser that you can buy. It's all the stuff that they know. It's stuff that they have in their vehicles now. What's magical about it is how MicroVision uses our IP to develop their product. Therefore, the cost-effective nature of it and scalability is there, making it much more palatable to them; these are things that they understand and know. Think about a new technology, phased array, and the Meta materials. I mean, it goes on and on. The path for those things is going to be harder because they're more novel. The path for MicroVision is going to be less because it's proven technology. So I believe strongly that the path we have chosen is going to bear fruit.

Sam Peterman, Analyst

Okay, thanks for the perspective. That's all for me.

Sumit Sharma, CEO

Thank you.

Operator, Operator

Thank you. Anyone participating through the webcast can submit a question by using the submitted question box on your screen. I'll now turn the call back to Steve Holt to begin answering submitted questions through the webcast.

Steve Holt, CFO

Okay. We're going to respond to some of the 150-plus questions we've also received via email. Many of the questions are variations on the same topic, and many of the questions were addressed in our prepared remarks. We tried to consolidate these questions down on the same topic to address the basic issue. We won't be able to answer every question submitted, but we will go through some of them here and then we'll open up the call to investors. So the first question is, Sumit, can you give some detail on why you think the MicroVision LiDAR sensor is best-in-class?

Sumit Sharma, CEO

I addressed this topic earlier in the call, particularly in my last response to Sam, but I want to reiterate it. There are four key categories we can use to evaluate sensor companies and their strengths. Surprisingly for OEMs, cost is the top priority. Every discussion begins with the technology's scalability and the sensor's cost, particularly the cost of the delivery system for ADAS. From a cost perspective, when we provide future projections for economies of scale, they are credible. There are no unrealistic assumptions; these figures can be validated through existing fabs. The interesting aspect is the overall system cost. When considering a vehicle, it includes LiDAR, various sensor stacks, camera modules, and the ECU. Our high-resolution LiDAR and unique features allow for a reduction in the system costs that are currently being forecasted. Our collaboration with global consulting and management firms has shown that our system, when integrated into a level 2 plus or level 3 vehicle, could compete with the prices of current camera module-based systems. This highlights our cost competitiveness. Our advanced technology is already competitive in the larger markets, indicating that MicroVision's technology can address a much broader market than just future level 3 or level 2 plus applications. Cost is crucial, and I can confidently state that in terms of costs, we are best-in-class. The second category is size. As I mentioned, consumers are still interested in purchasing vehicles, and the design of the car matters significantly. The aesthetics of a vehicle are important. Therefore, having a sensor that meets cost expectations and can be seamlessly integrated into the car's design based on OEM needs is essential. This was evident at a recent show where many competitors showcased their hardware. The first comment from OEMs and Tier 1s visiting us was often about how compact and sleek our sensors are. They were impressed during live demos and road tests. Size plays a major role, and it's a significant advantage for us. Anyone familiar with hardware will note that while competitors with larger designs face years of investment to shrink their hardware, we have already achieved that. This gives us a substantial edge and I consider our offering to be best-in-class in this regard. The third aspect is that the quality of features matters. Whether it’s range, point cloud density, frame rate, or dynamic field of view, our team has spent considerable effort defining and refining these attributes. When I first presented these features to OEMs back in 2019, they were surprised at our deep understanding of their needs. They were also impressed that we could actually deliver such technology. Now, having these features means OEMs can consider eliminating other sensors from their systems, which lowers overall system costs. Our LiDAR not only reduces future costs but also contributes to economies of scale, enabling the development of additional models. Therefore, it's essential to consider features collectively rather than comparing them individually. Different OEMs may prioritize different attributes; we can accommodate all of them with the same hardware. Our team strives to tailor our features to what matters most to each OEM, which is a significant advantage for us. The final factor to highlight is technology maturity. We've demonstrated a history of successful partnerships with major companies like Microsoft and Sony. Regardless of the revenue history of various firms, our core technology's maturity stands out, making it credible and attractive for partnership. I firmly assert that our technology maturity is significantly superior for a silicon-based system compared to any alternative beam-strengthened technologies. When evaluating those four key areas, all are essential to confidently claim best-in-class status. I am highly confident that we are indeed best-in-class compared to any current LiDAR companies.

Steve Holt, CFO

Thanks. Second question. On a previous call, we talked about our ability to output axial, lateral, and vertical velocities of moving objects. Other LiDAR companies seem to make similar claims about those abilities. So what can you tell us about MicroVision's capabilities and the capabilities of others in the movement space?

Sumit Sharma, CEO

It's a good question. The key consideration here is the low-latency system, specifically the 30 hertz rate. This is crucial for safety, as decisions need to be made more quickly than a human can react. The system must operate at around 30 hertz, which translates to approximately 33 to 35 milliseconds. The fast refresh rate allows us to see everything in our field of view and predict actions in the next 30 milliseconds. This information is provided to the central computer, enabling it to determine how to maneuver—such as how much to steer, which direction to go, and when to slow down or speed up. These decisions must be made rapidly, making velocity a significant factor. For LiDAR, accurately identifying the position of the point cloud is essential, but even more critical is knowing the velocity of that cluster of points. Whether the object is a motorcycle, a Mini Cooper, or an Escalade is irrelevant. What matters is predicting the future positions of those point clouds over the next 30, 60, or 90 milliseconds while maneuvering, which aids in determining if avoidance is possible. Velocity is a crucial aspect of this prediction process. Our approach to measuring velocity benefits from high frame rates, and our software will eventually be condensed into our ASIC. Continuous velocity output from clustered data is achievable. We can also capture lateral and axial movements, meaning in the direction of vehicle motion and perpendicular to it. Both components are necessary. The third aspect, vertical measurement, is important even though vehicles don't generally bounce significantly; however, if it's too noisy, predictions can be off, necessitating more sensors, raising costs. Our single sensor can handle both axial and lateral measurements, which is a first, and to date, we haven't seen anyone else achieve this capability at 30 hertz, which is what the OEMs require.

Steve Holt, CFO

Next question is about just asking generally about employee morale at MicroVision.

Sumit Sharma, CEO

So first, we had a really great team at MicroVision. Sumit and I are always amazed at the capabilities, creativity, and dedication of the people here. We think morale is good, and we're really thankful that turnover has not been a big issue for us. And so we think morale is good.

Steve Holt, CFO

The next question is on the ATM. Just lots of different questions about the ATM. As I said in my prepared remarks, the ATM gives potential customers, suppliers, employees, and prospective employees confidence in our ability to be a long-term partner in the automotive LiDAR space.

Sumit Sharma, CEO

As I said last quarter, we'd like to complete the raise on that ATM, but don't have any definite plans as to when we would do that.

Steve Holt, CFO

I'll also point out that under the ATM agreement, Craig-Hallum is not allowed to short MicroVision's stock.

Sumit Sharma, CEO

Okay. There's some general questions about the IAA Auto Show in Munich and any additional color you can provide about it.

Steve Holt, CFO

No, I think you put it the best; the reaction that we had hoped that we expected to get, we received it across-the-board, very welcoming to short publicly and get a lot of praise from OEMs and Tier 1. So it was a great experience. The next question relates to other verticals. When people talk about other verticals, they're typically talking about augmented reality or interactive display of products. What's the status of these verticals? Are you actively pursuing or investing in them now?

Sumit Sharma, CEO

As mentioned in previous calls, our primary focus has been on automotive LiDAR since I took over, and I've been consistent about that for the last 18 months. I believe we are significantly ahead of what the market currently offers in this area. We are prepared to collaborate with any partners that approach us. We've assembled our business development team, and recently hired our first BPO business development lead in Germany, with plans to expand our efforts in the U.S. As these markets evolve, we are ready and well-connected with all the key players. However, our current emphasis remains strictly on automotive LiDAR due to the substantial opportunity right in front of us.

Steve Holt, CFO

That was a good say. The next question was about the business development staffing. First, as Sumit said, Thomas Luce coming on board has been a big, he's making a big impact already. We're just really excited that he is with the company. He is working on adding to the European team, and as Sumit said, we're continuing to look for folks to expand the North American team in the near future. And then what can you tell us about how LiDAR operates in inclement weather?

Sumit Sharma, CEO

It's a good question. To provide some context, current systems that are in operation involve sensor fusion to some extent. Each OEM's vehicle has restrictions based on weather conditions that affect feature usage due to regulations. This reflects today's reality, where ADAS safety features must operate reliably at all times, just like airbags and ABS systems. Regarding LiDAR, I've received similar questions before. When using 905 or 1550 nanometer lasers, the performance in rain is a concern. The density of the point cloud is so high that even if a raindrop obstructs one pulse, there are still plenty of other pulses providing high-quality data, unless you're driving through an extreme situation like a waterfall, which is unrealistic. LiDAR will operate effectively under such conditions. While there's no guarantee that either 905 or 1550 will be dominant, the most interest from OEMs comes when we discuss 905 nanometer lasers. They recognize this as a sensor fusion challenge. Once we integrate LiDAR with other components through our software, the resulting products can offer significant value by addressing problems like redundancy. When it comes to range and resolution, these factors are crucial. Some companies may suggest that a million points per second is sufficient, but that's not what OEMs are looking for. We consistently receive requests for higher resolution, which our system can accommodate. Interestingly, I wondered if any regulatory body has ever tested this system in serious snow conditions, and that responsibility falls on them. Over time, sensor suites will need to become more sophisticated, but as it stands today, we see a clear path to adoption without any significant hurdles.

Steve Holt, CFO

Okay. And the last question we have before we take some more live questions relates to LiDAR software and what you've talked about; LiDAR; the software component of our product. What can you tell us about our LiDAR software?

Sumit Sharma, CEO

Our LiDAR software, this is the key. This is a very, very bright jewel in the crown for MicroVision. This is something that all of us should care a great deal about, and I'm very, very excited about this. We're working on some things that would allow OEMs to start evaluating a system where more of the load from their computing can be shifted into our ASIC, to our algorithms that we've already developed, that we are going to develop, and we're going to actually demonstrate. This is what the exciting news about the June 2022 timeline that I talked about previously and also touched upon today is. That actually is a very, very big deal for us in the future. Having a big software component besides our hardware component makes the company a lot more valuable. So having our custom ASIC and software story getting solidified, that's important to all of us. So what endos features? I think it's more we're going to demonstrate it. I think we don't want our competition to listen to our earnings call and understand what features are coming in the future. But I can clearly say that I think I hope I've demonstrated over the last 18 months that I have good insight into what's happening in this industry. I can say with confidence that we are on a very good path, and our global management consulting partner also has better this out without, of course, but also with OEMs. They strongly agree with me that this is something that's going to be pretty impressive.

Steve Holt, CFO

Right, thanks. Okay, let's now take some live questions from investors.

Operator, Operator

As a reminder, please press 0 to join the question queue. First question comes from Ty Bordner with private investor. Please go ahead.

Ty Bordner, Analyst

Thank you. First, I want to congratulate Steve and Gabe Alan on their upcoming retirement. I appreciate everything you both have contributed over the years. Sumit, in your prepared remarks, you mentioned focus, particularly regarding OEMs. I would contrast that with Tier 1s or mobility as-a-service companies. Could you elaborate on that? Additionally, you categorized it into strategic versus direct. Could you provide more detail on those terms as well?

Sumit Sharma, CEO

When you think about the OEM, of course, those are the cars they're going to buy. Tier 1 and OEM are connected. No company is going to be able to ship their product directly to the OEM. They're going to have to work with approved Tier 1s to supply because the Tier 1 is the one that actually does the manufacturing of most of those modules for the OEM. Our go-to-market strategy is straightforward and similar to lots of the people. We focus our energies and our efforts, and our attention towards OEMs to make sure they understand the gravity of the problems that we've already solved for them. And we also work with Tier 1s because we know at some point we're going to have to have a Tier 1 partnership that we expect to be favorable to MicroVision after all the innovation that we've done, which allows us to ship that product for OEM programs. We are not endeavoring to become a Tier 1. That's not who we are, and that's not something any company should be thinking about. People can think what they want; that's not what we're going to think about. Whenever you're talking OEMs, they always want to know your structure and how you want to work with a Tier 1 in that case, and we're well aligned with their expectations. So think about OEM and Tier 1 together. They are focused on ADAS. I'm sorry, go ahead, Ty.

Ty Bordner, Analyst

It's a bit confusing. It seems like you choose the OEMs, but then they guide you to the Tier 1 for manufacturing production. Is that correct? How should we understand that?

Sumit Sharma, CEO

I’ll comment on that because every Tier 1 considers the margin they are willing to pay. Our goal is to ensure that the margin works in our favor. What you want to do is get adopted; if the OEM believes you have the right solution for their needs and wants to collaborate with you and your technology, there’s something called directed buy. A Tier 1 will need to work with you and negotiate a deal that makes sense. None of the deals that anyone will make now or in the future will be exclusive to one Tier 1. We will seek the most favorable agreements for our investors, and OEMs recognize this as well.

Ty Bordner, Analyst

Okay.

Sumit Sharma, CEO

But the important thing is they don't adopt because just of one factor. At Tier 1, they themselves don't know which one to pick. They want the OEM to make a choice, and they want to go work out a deal. So as I said, you're part of a group; you're going to be in the stack, and you have to work with them, and there'll be other partnerships you have to prepare for.

Ty Bordner, Analyst

It sounds like you've got to convince.

Sumit Sharma, CEO

Before you go on, I want to add one more thing. Your first question was what mobility at the service... is. So this OEM Tier 1 is ADAS. Mobility and the service companies are mainly focused on our autonomous driving level 5, and they're aspirational items like it can be 10 or 20 years before real products are fielded out there or 6 years in trucking or 3-years, or whatever number some of these companies are saying—okay?

Ty Bordner, Analyst

Okay.

Sumit Sharma, CEO

There are two differences. The biggest prize, the known biggest prize I can confirm that multiple people globally is the OEM. 9 million to 100 million cars expanding in the next 5 years.

Ty Bordner, Analyst

It seems that you need to persuade the OEM or OEMs that your product is the best choice, and then they will guide the Tier 1 suppliers to implement it.

Sumit Sharma, CEO

That's correct.

Ty Bordner, Analyst

Am I right?

Sumit Sharma, CEO

Yes.

Ty Bordner, Analyst

Yeah. Okay. Second question I have is you used the term partnerships. You said partnerships will be looking at your prepared remarks. Partnerships will be required with OEMs, and Tier 1s, and others in their stack to be able to deliver a solution. And then, you also, in the very next sentence, talk about a huge amount of consolidation. So maybe you can comment on what you mean by partnership exactly. And then you refer to consolidation again, so maybe talk about both of those.

Sumit Sharma, CEO

When considering partnerships, it's essential to think about how people can trade and collaborate. We have invested significantly in developing hardware, software, and silicon. Much of this is part of our intellectual property, and ultimately, we aim for recurring revenue that enhances our market capitalization. As a high-growth company, it is crucial for us to establish business agreements that support this goal. Partnerships are about collaborating effectively. Since we have developed the technology and are experts in the field, we need to determine how we can participate, how manufacturing will operate, how revenue and margins will be shared. By owning all our intellectual property, we are in a strong position and need to focus on growth. We must show original equipment manufacturers that we can work together to solve the challenges, as we have already addressed these issues alongside them.

Ty Bordner, Analyst

All right. Go ahead.

Sumit Sharma, CEO

So there was another part of the question that I didn't answer yet.

Ty Bordner, Analyst

The very next sentence in your prepared remarks. The very next sentence about consolidation.

Sumit Sharma, CEO

MicroVision is a public company. If anyone is seeking a significant LiDAR company with substantial resources, we are available. The importance of the problem we address affects the company’s future growth potential. The market for our solutions is vast, and we are working diligently to gain recognition from OEMs, as this focus is more beneficial to our shareholders than one-time sales or direct sales, as previously mentioned. We prioritize this approach because it ensures our products and technology have a long-term value for shareholders. While direct sales of our software will occur, they are infrequent and not recurring.

Ty Bordner, Analyst

Last question. So in your Investor Place interview the other day, you said investors need to remain patient, which as a long-term investor it makes sense. But of course, we're all looking for a deal. Without respect, though, to a deal, what are some milestones or events that we can, as investors, track progress over the next near to mid-term?

Sumit Sharma, CEO

I think we're just going to focus on the OEM business. As things develop, we will discuss them publicly. If there was anything important for shareholders to monitor, I would have included it in today's call.

Ty Bordner, Analyst

Okay. Alright. Thank you. Appreciate it.

Operator, Operator

This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.