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Operator: Good day, and welcome to the MicroVision First Quarter 2023 Financial and Operating Results Conference call. At this time, all participants are in a listen-only mode. At the end of today’s presentation, there will be an opportunity to ask questions via chat line. Investors can submit their questions within the meeting webcast by typing them into the view Q&A button on the right side of your viewing screen. Analysts who publish research may ask questions on the phone line. Please also note that this event is being recorded. I would now like to turn the conference over to Drew Markham. Please go ahead.

Drew Markham: Thank you. I’m pleased to be joined today by our Chief Executive Officer, Sumit Sharma and our Chief Financial Officer, Anubhav Verma. Following their prepared remarks, we will open the call to questions. Please note that some of the information you will hear in today’s discussion will include forward-looking statements, including, but not limited to, statements regarding our product development and performance, comparisons to our competitors, market opportunity, product sales and future demand, business and strategic opportunities, customer and partner engagement, projections of future operations and financial results, availability of funds, as well as statements containing words such as potential, believe, expect, plans, and other similar expressions.

These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. We encourage you to review our SEC filings, including our most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q. These filings describe risk factors that could cause our actual results to differ materially from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC’s Regulation G.

For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as for all the financial data presented on this call, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com under the SEC Filings tab. This conference call will be available for audio replay on the Investor Relations section of our website at www.microvision.com. Now, I’d like to turn the call over to our CEO, Sumit Sharma. Sumit?

Sumit Sharma: Thank you, Drew. And welcome everyone to this review of our first quarter 2023 results. We started the quarter with the closing of our transaction of Ibeo assets and I’ve been working diligently on integration and expanding customer engagements for our new product portfolio. We’ve made great progress and positioned the company well to achieve the business milestones I presented in our previous investor call. So let’s dive into updates on our progress. We remain on target for full year revenues in the range of $10 million to $15 million from our expanded product portfolio. Our go-to-market strategy remains unchanged and our team is executing on it. We have restarted the momentum of sales for the combined company with direct sales and royalties from LiDAR hardware, from non-automotive OEM sales.

With the current MOVIA sensor in direct sales, we expect to fulfill a market demand of stable sensors to enable development of software applications that deliver safety, security, and smart city management for our potential customers. We remain on track to bring to market and in industrialized product based on MOVIA to address various channels with a more cost competitive industrial solution. This new product leverages the sensor developed and qualified by Ibeo team and is optimized for cost and performance for industrial segment. We also expanded sales of our MOSAIK validation software suite with a new OEM customer. This product line is just starting its growth cycle and we’re excited about how it’ll develop deeper engagement with OEMs. OEMs and Tier 1 spend hundreds of millions of dollars annually validating various sensors in their vehicles, and we intend to become the dominant player in this segment.

Now let’s talk about strategic sales for automotive OEM and RFI and RFQ in-flight for MAVIN and MOVIA. As I recently updated on our Investor Day in April, we are engaged with OEMs for technology and partnership review for sensors targeted for roofline and behind windshield integration for MAVIN dynamic-view LiDAR and in-body integration for MOVIA sensors. These are the highest volume RFQs in-flight with top global OEMs, and our technology is well received. We remain on target for our 2023 milestone of OEM partnerships. As I’ve mentioned before, the process is long with deep review of technology, manufacturing, integration, safety, and business stability. We remain on target to complete RFQs in the second half of the year as I’ve stated before.

To support future MAVIN revenue stream, we look to launching our analog and digital ASIC, new contract manufacturing partnership and completing a B sample design by the end of the year. This B sample design will incorporate all the features required in the smallest form factor and would be the candidate to meet requirements for multiple OEMs. Beyond our current 2023 engagements, we are starting to see RFIs for 2024 RFQs from OEMs as well. As I’ve stated before, some of the views announced in the past from our competitors are not for the entire fleet. OEMs are active in sourcing more advanced LiDAR solutions for larger projects. ADAS systems that require small object detection require the highest resolution at all ranges in the lowest profile sensor with an integrated thermal management system.

MAVIN meets all these requirements. We are also receiving requests from MAVIN with full perception one box solution, which proves the acquisition thesis. We have the technology and the talent to enable these partnerships. We are also seeing RFI and RFQ engagement for MOVIA sensor for high volume now. For wide field of view, short range LiDAR, the simplicity and the price point, MOVIA can provide will be unparalleled. These RFQs also involve the current generation MOVIA sensor and proposals for a miniaturized version using the current developed ASIC with multiple LiDAR required per vehicle, this is a great opportunity for us to expand our LiDAR offerings to OEMs. I wanted to conclude my prepared remarks by reiterating two key points. First, we are focused on generating revenues from software and hardware sales and remain focused on our business goals for 2023.

Second, strategic sales of MAVIN and MOVIA sensors are the biggest revenue opportunities for MicroVision, and I believe we are in great shape for our 2023 objectives of multiple OEM agreements. I want to conclude my thanking our global team and their hard work that has allowed us to be well positioned for an incredible year ahead of us. I would like now to turn the call over to Anubhav to talk about our financials. Anubhav?

Anubhav Verma: Thanks Sumit. I’m really pleased with what our combined teams have accomplished in the first of 2023. The joining forces with Ibeo has positioned as well to become one of the most experienced LiDAR hardware and software companies in the market. With over 50 years of combined operating history and 735 patents, MicroVision is uniquely positioned to win. I’m pleased to report that MicroVision had a solid first quarter 2023 with revenue coming in ahead of expectations. We recorded $782,000 in revenue, which represents impressive growth from Q4 and 123% growth year-over-year as compared to first quarter 2022. As a mature public company, we will continue to differentiate ourselves from our competitors through financial discipline, transparency, and guiding to metrics that we believe are realistic and achievable.

Now, before we talk about Q1 2023 financial results in a bit more detail, I would like to discuss and remind investors how the Ibeo acquisition significantly accelerates our trajectory and transforms our roadmap with new products and access to new customers. Following our co completion of the Ibeo acquisition, MicroVision is indeed at an inflection point. Our teams have been working hard to execute the integration process ahead of our expectations. The integration between our sales and business development teams is also picking up momentum, and we recently added a very seasoned executive based in Detroit, Michigan to lead our U.S. sales and business development efforts, especially in the automotive sector. MicroVision’s first quarter performance continues to demonstrate our financial rigor and discipline along with strategic capital deployment.

The investment in Ibeo brought us an experienced and highly talented team of engineers, targeted customer relationships and a broad product portfolio. We’re now benefiting from the past R&D investments made by Ibeo of over €200 million deployed over several years. This considerably reduces our go-to-market timeline and allows us to leverage these products to generate high margin revenue for the go forward company. Let me recap some of the highlights of our investment presentation for some of the new investors addressing the size of the markets we compete in and how they have significantly increased due to this transformational deal. We think of the LiDAR industry divided into three sub-verticals. First, the ADAS market, modeling the requirements of L2+ and L3 vehicles produced every year.

We expect L2+ cars to require one long range LiDAR and two short range LiDARs per vehicle, while L3 cars to require two long-range LiDARs and four short-range LiDARs per vehicle. While we continue to hear ASPs from our peers at around $1,000, our design and ASIC enables us to price our LiDAR – our long-range LiDAR at $500, depending on volumes greater than 10 million for MAVIN. Using this ASP estimates applied to the projected number of vehicles expected to come out of production, we estimate that the total LiDAR market for the automotive and the ADAS sector will generate at least $82 billion of cumulative potential revenue for the entire industry through 2030. The second sub-vertical is the non-automotive market. While we have seen a variety of estimates from peers and reputable business consulting firms, we have estimated on a similar basis the cumulative revenue potential through 2030 to size the non-automotive market, which further consists of three sub-verticals.

The industrial, we expect this market to be at $2.5 billion in 2025 and grow at an estimated 20% CAGR. If we sum up the total by every year through 2030, we estimate that the total sales in the industrial market will be a cumulative $32 billion by 2030. Extending the same model to non- automotive smart infrastructure, we expect this market to be at $2.8 billion in 2025 and grow at a 30% CAGR. If we sum up similarly the total by every year, we estimate the total sales in this vertical to be a cumulative $46 billion by 2030. For robotics, we expect this market to be at $1.8 billion in 2025 and grow at a 50% CAGR and summing all these things up, it adds up to $37 billion. Now, if we add these three sub-verticals, we get to $115 billion market potential for all the LiDAR players.

The third and perhaps one of the most important pieces in the LiDAR industry is the validation and the auto annotation software, which we call MOSAIK. This is a specialized market with not a lot of players competing. As a reminder, this software provides ground truth data generation to reference against the sensor OEMs are trying to validate. The key advantage of our validation software platform is it enables validation of a sensor suite that includes MicroVision LiDARs and third-party LiDAR to process and detect surrounding 360 degrees. Modular approach to enable different sensor setups enables any use case setup. While it is hard to estimate the TAM for this industry, we estimate that we may be able to generate $200 million to $300 million revenue through 2030 through the sales of this software.

We believe the demand for this software will increase as the OEMs trying to validate more and more sensors. Now, let’s dive into our Q1 2023 financials. For the first quarter, we recorded revenue of $782,000 million that came in ahead of the expectations. This revenue is both from automotive and non-automotive customers. The split of this quarter’s revenue is approximately 60% LiDAR hardware and about 40% related to the software. The customers in the hardware revenue stream include a major automotive OEM along with other customers in the industrial and agricultural sectors. The customers in the software revenue stream include two major automotive OEMs. Before we move on to expenses, a quick recap on Microsoft. We received communication from Microsoft that no units were delivered in this quarter, as a result of which we still have an unapplied 4.6 million balance left on this contract liability.

Our agreement with Microsoft continues to be in effect with an expiration date of December 2023 with automatic renewal clauses. Now let’s move on to expenses. The cost of goods sold. Our gross profit margin on a GAAP basis was 30%. Please note that going forward, because of the acquisition of intangible assets from the Ibeo acquisition, we will now have a non-cash amortization of intangible charges hitting the cost of goods sold every quarter. For this reason, we now believe it is more meaningful to provide non-GAAP adjusted gross profits and margins, which excludes these non-cash charges for the intangible amortization. We believe that these adjusted gross profit margin metrics will be a better indicator of our cash gross margins. Based on our adjusted gross profits margins were 63%.

In terms of expenses, we had $21.5 million OpEx, including R&D and SG&A. This includes approximately $5 million of non-cash stock-based compensation and depreciation and amortization. The higher expenses were driven by Ibeo as we added additional employees and facilities as a result of this acquisition as well. In this quarter, we also have a bargain purchase price resulting from the Ibeo acquisition. For the first quarter, $14 million cash was used in operating activities, which was well in line with our 2023 full year guidance. To remind our investors, we continue to show financial discipline with our cash burn being on the expected trajectory. In these times of uncertainty and weaker macroeconomic conditions, MicroVision stood out and beat competitors in terms of maintaining one of the lowest burned rates in the industry with a highly talented pool of engineers in both U.S. and Germany, and a strong balance sheet.

As expected in the first quarter of 2023, CapEx was $0.6 million in line with our expectations. We received the incentive payment in the second quarter of 2023, which helps us recover the build-outs and the tenant improvements associated with the move into the new facility earlier this year. We will be reporting more details on this incentive payment next quarter. As of March 31, 2023, we have made majority of the payments associated with the Ibeo acquisition. We plan to make the remaining payment on the acquisition of €5 million less certain deductions and purchase price in the second quarter of 2023. Our total liquidity was $67 million as of March 31, including investment securities. There has been no update since the last earning calls in February on our ATM program.

As we had previously stated, we still have approximately $44 million currently available under this program. Based on our current operating plan for 2023 and beyond, we anticipate that we have sufficient cash and cash equivalents to fund our operations through the middle of next year 2024. Now, looking ahead, we’re excited about 2023 as we march forward on our path to $10 million to $15 million in revenue this year from the revenue streams, Sumit and I described above, especially with a strong Q1 performance. We believe our three product lines MAVIN with perception software, LiDAR sales with non-recurring, engineering revenues from OEMs, MOVIA sales of flash-based LiDAR and third MOSAIK sale of auto annotation software for automotive OEM validation should be able to drive the momentum in the remainder of the year.

To summarize, we’re really excited about 2023 and beyond. With our milestones and key focus on winning RFQs, we will be proving to the market our value proposition as a unique and strong LiDAR company. With this, I would now like to open the line for questions.

Operator: At this time, we are conducting a question-and-answer session. Our first question here will come from Andres Sheppard with Cantor Fitzgerald. Please go ahead with your question.

Unidentified Analyst: Hi. This is for Andres here. I just wanted to touch on your liquidity status that you just mentioned. I know you mentioned that you have $67 million in liquidity down from $83 million last year, and you’re funded through the middle of 2024. How are you thinking about the burn and what’s going into this calculation? Just wanted to get more color there.

Anubhav Verma: Yes. Thanks, . So this year as we had guided we are on track to $50 million to $55 million cash burn as we have previously stated. Obviously, we expect as we gather more momentum in rest of the year for the sales to pick up, which we expect to continue in 2024, we expect there would be more inflows in the second half and early next year. So that’s why we feel very comfortable with our current liquidity position and as well as what’s coming down the pipe in terms of our wins, projects and some of the revenue opportunities that we’re chasing. Please keep in mind a bulk of this revenue as we had described earlier, would be driven by MOSAIK MOVIA, which obviously is a high contribution margin revenue stream for the combined company.

Unidentified Analyst: Got you. Thank you. And to follow-up to that I wanted to see how you’re thinking about capital raise opportunities potentially. Are you looking at equity or debt or how do you consider that in the future?

Anubhav Verma: Yes, No, that’s a great question. Look, I think we are – I think we have demonstrated that we have always demonstrated a strong rigor for accessing the capital markets as and when needed. And we believe capital raising should always be accompanied with strategic purposes. For example, when we had closed the Ibeo acquisition, we tapped into the markets to fund the acquisitions because we believed it would have – it was a very good investment in the company’s future. So we continue to execute the same discipline. And because I think one of the things that differentiates us from the LiDAR peers is again being a traditional public company, which has been – which has over 20 years of public company experience.

So that’s sort of why I feel good about the options available to us as compared to some of our peers just by the virtue of us being one of – in fact, the only company in the space out there with no SPAC history. So that’s why we feel good about the capital raising options for the company down the road.

Unidentified Analyst: Got you. And to switch gears a little bit I was wondering how long it could potentially take for an OEM contract to materialize? Or how long do you think it would take for you to announce it, or do you have plans to or do you have – can you provide any color about your relationships with your OEMs for the MAVIN LiDAR?

Sumit Sharma: I’ll take that on top. I think we’ve talked about that quite a lot. That’s our corporate milestone for this year and we continue to make progress on it. I think the key there, of course, to think about is, other people have announced it, it’s taken the mirror. There’s no product out there, but the current tranche of projects that are in these RFQs these are the high volume ones that are for consumer vehicles. I mean, these are not for trucking, these are for vehicles and they are not as options. So the volume is a lot higher. So therefore the rigor required is significantly more. But based on our engagement with the engineering teams and of course also with their purchasing team, feel pretty confident that we remain on track.

Unidentified Analyst: Got you. Thank you.

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

Anubhav Verma: Thank you. Let me take some of the questions that we’re getting from our investors. The first question is management has mentioned automotive RFQs want dynamic view LiDAR and only MAVIN offers this feature. Why do you think that you won’t win all the deals this year? And are there any RFQs out there that MicroVision is not a part of?

Sumit Sharma: I guess I’ll take that. Well, I’ll answer the last one first. I’m not really sure. There’s no like public listing of all these different RFQs that are out there that you can bid on. We engage with all the OEMs, we look for projects, we look for alignment. In some cases, they’re fielding the most advanced sensor they need because of the highest volume, it has to be integrated within the body of the car. They have these requirements. So certainly, right, the dynamic-view LiDAR is the perfect one for that because it kind of meets all the requirements. I think recently you’ve seen that in the last, I would say three months, our competitors are doing, Photoshop and some other CAD images and all sorts of prototype level stuff, demonstrate that they’re headed in that direction.

But of course, we have that. So, in those specific ones, we feel pretty confident. But there are still other RFQs that were, let’s call it legacy, that it was not that important to have a root on line integration. Maybe it’s for some sort of small truck, a 4×4 something like that kind of project. So it’s mounted low to the ground and they were just leveraging what somebody else had already done. So there’s nothing innovative there. So those kind of RFQs, certainly we can be competitive there, but that’s not the big volume stuff. So we focus on everything. We focus on any RFI, RFQ that comes along. The team is dedicated to that. In fact, every week is very eventful at the moment and we’re very fortunate that we have such a large team between Redmond and Hamburg and Nuremberg, of course that allows us to address these.

So as far as the dynamic-view LiDAR is concerned, it’s looking for projects that require long range, high resolution throughout the range, we’re pretty well positioned for that. As far as ones that are not looking for that and they’re just looking for a feature, and it may be some sort of a trucking application or something like that, they can probably take a lower specified product as well as a starting point. But all the high volume stuff is, as I mentioned, the dynamic-view LiDAR.

Anubhav Verma: Thanks Sumit. The next question is over the last few days, there was a significant shakeup at CARIAD, how do you think this impacts the LiDAR players including MicroVision?

Sumit Sharma: I think it’d be inappropriate to speculate. If there were facts that I knew that I could share, I would share. But as you can imagine, this is all new news that is coming along and how that’s going to roll out. There’s a lot of speculation what it means for the individual brand at VW taking over versus CARIAD versus, it’s all speculation, nothing has been announced yet, but certainly as you can imagine, this was not a huge surprise for a lot of folks because since the change with the CEO, changes were expected. But I think I’ve been pretty consistent about it for about a year now that if you look at some of the early agreements that people have signed that they’re trying to defend now, the facts of that is it was never part of the entire fleet.

Nobody should ever projected that, the different brands want different things. And a high end vehicle that requires roofline integration would never have a big bump out on the top of the roof. I think I’ve been pretty consistent about that. But besides that, the shakeup that has happened at CARIAD, I would say that it’s unclear what it really means. And I’ve heard a lot of speculation in the last 48 hours. I have to be honest with you. Some facts but mostly speculation but I think we just have to wait till the plans are made clear of how the brands are going to deploy LiDAR by themselves or as a team.

Anubhav Verma: Okay, thanks Sumit. I think this is – you have a one-box LiDAR solution with multiple sensor solutions software, and now MicroVision is a one-stop shop for OEMs. Could you give us some color on the cost benefits this has for OEMs versus having to piece together solutions from multiple partners? Is this one-box, one shop approach well received by the OEMs?

Sumit Sharma: The one-box solution of course means, there’s a one-box would include the perception inside. So you can imagine that would require two ASIC. There’s one ASIC that would be point cloud only. If somebody just wanted that because they want to use their software, certainly we would provide that as a product. But the perception as it gets integrated into real products would really enable more efficient development at OEMs. And this is our thesis effectively, right. And we’re pretty clear about it. I think I’m pretty enthusiastic that recently we got our first engagement with somebody, a very large entity, OEM entity that’s looking for a one-box solution. And I think with all the features that have been developed by the Ibeo team, so it’s kind of exciting, but again, it’s early stages.

Because something like this, you can imagine if evaluating a LiDAR takes a long time, imagine LiDAR plus software going to take more time to evaluate. I think this is pretty consistent of what the selling cycles for automotive is, but it’s exciting that the thesis behind it is getting traction because it does make a lot of sense. Now as you think about economy of scale is to bring price down and it’s all about giving the customer the most advantageous price to them. The most of the hardware inside the LiDAR would be leveraged the same way, the optics are the same, the sensors, the lasers, some of the electronics are the same and some of the electronics are different based on the perception that’s in there. But again, it’s all on the electronic side.

So you could really leverage, I would say three quarters of the entire design and you can aggregate it across. So even if you have different model years that have, let’s say shipping few hundred thousand to half a million units a year, let’s just say, there was some models like that, you could aggregate them all because there’s common parts. And the only part difference would be versus one model that has got full perception and the other model within that entire segment for that OEM comes without the perception, you could leverage it all and the overall price advantage you could create for them is high. So even though it is a more sophisticated piece of sensor software, we would be able to provide them economy of scales by aggregating it. And this is evident in what I said today, that the team is focused on finishing the B sample design because we feel like we have gotten enough feedback, enough understanding of all the different integrations that has to be done, customization that they may want that still stay separate under NREs that we’ve talked about before, but enough of the design can be made common that we can start converging to that D sample design that’s going to be the production ready design in the future when the ASICs arrives.

So I think we’re at a good point right now, but I think when we talk about that Anubhav has mentioned about pricing ASP, I still feel pretty confident that there’s a – that’s one of the great advantages we have with the way we’ve architected the product. We don’t force feed one specific solution to everybody. There’s enough customization and even the box designs they have that we are providing right, completely meets the requirement with an integrated thermal solutions. When you go to these high resolutions, use a lot of laser power, use a lot of ASIC power. You got to dissipate it. Imagine several watt light bulbs inside your car, it’s going to get hot. So we’ve also, our team has been working very diligently and has come up with a really great integrated solution that will keep it nice and cool right behind the windshield or in the roof line.

So all of that coming together in the design, you could still offer with the economy of scale because most of the parts are common across all the variants that we’re going to offer them. So I think we’re in a good place. I think teams have done a great job of architecting the product from ground up with that in mind.

Anubhav Verma: Okay, thanks, Sumit. I think we’re now out of time. We appreciate your participation in our results call and your continued support for MicroVision.

Operator: This concludes today’s conference call. All parties may disconnect and have a wonderful day.