Q3 2021 MicroVision Inc Earnings Call

Good day and welcome to the Microvision third quarter, 'twenty, 'twenty, one financial and operating results conference call.

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Please note. This event is being recorded I would now like to turn the conference over to Lindsey Seaboard. Please go ahead.

Thank you good afternoon, and welcome everyone to Microvision 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 designed expected performance have products comparisons with competing products or tech.

Knowledge, he mark adopted Attunity 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 <unk>.

Our technology strategy for customer sales maximizing shareholder value managing cost 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.

First in the forward looking statement.

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 Qs filed on April 30th 2021 and August 12, 2021, as well as beer.

There is other at T. 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 in.

Permission.

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.

Hey, David and submitted to the SEC today, both of which can be found on our corporate website at IR Dot Microvision dot com under the SEC filings tab.

This conference call will be available for audio replay in the Investor Relations section of my provisions website at Www Dot Microvision Dot com and now I'd like to turn the call over to too much Sharma Sumit.

Thank you Lindsey.

Good afternoon, everyone.

I would like to start off by walking you through our progress in the last quarter.

Tuning our product introduction at the IV, a Munich Mcguinty show.

Our priority is to frame a 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.

Safety and the need for Lidar as a central sensor was part of the story for every OEM and tier one that exhibited at the show.

Yeah.

The largest volume opportunity and recurring revenue resides.

Yeah programs for automotive Lidar sensors.

Each has been our focus for the last several years.

I can say with confidence that the rates to secure an OEM program for level, two plus and level three Adas systems with lidar as to central sensor is still wide open.

No one Lidar company has yet secured an OEM deal that was 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 can make partnership decisions after careful and thorough evaluation in the next 16 months for launch of New EV models with more advanced Adas features which will start to ship in 2025.

With a larger global rollout of a battery operated electric vehicle is 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 one meetings.

Oh, yes 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 V. Each of these categories.

And we have received acknowledgment of this in our meetings with Oems and tier one companies.

Potential customers and partners have consistently and impressed by the Capex size of our sensor and the number of features packed inside.

Our capability to provide highest resolution that range with dynamic field of view and velocity field, while running at 30 <unk> is a major accomplishment of which we are very proud of.

The 30 Hertz could enable higher speed operation of automatic emergency braking.

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 process.

And Adas solution integrated with our Lidar would require a lower number of sensors to meet ada's safety requirement and result in a lower overall system cost compared with our sensor stack utilizing lower resolution and lower frame rate Lidar solutions.

Working with a leading global management consulting company has allowed us to confirm this enable us.

The 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 that will demonstrate higher levels of Adas safety features that OEM desire.

Okay.

As I briefly discussed our technology is built on well known technologies for lasers photo detectors mens and custom silicon components.

There are no exotic materials in our sensor.

So we can quite easily show our cost scalability to Oems.

Microvision Knowhow is combining these standard materials with our algorithms software and custom silicon.

And what creates incredible value to our intellectual property.

Additionally, with our history of delivering product for world class customers like Microsoft for challenging applications.

Demonstrates the pedigree of the company and provides 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 one 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 and valuable 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 timeframe for OEM decisions and the value this strategy could represent to our investors.

One of the questions I often get from investors.

It's my provisions, but I have 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 space for such a safety critical system.

Partnerships will be required with Oems and tier ones and others in their stack to be able to deliver a solution.

In the near term industry experts expect a huge amount of consolidation in the Adas space with recurring significant 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 his eight and a half years of dedication to microvision and helping the company navigate through challenging times. The most financially secure level has been in its history.

Steve and I have worked closely to my time at the company and I will Miss his focus and friendship.

We also announced <unk> pharma will be joining us on November 15th as our new CFO.

I'm excited that he brings with him great energy and solid experience from.

Some years executing in capital markets and investment banking transactions.

I am looking forward to working with him and the expertise he will bring to our management team.

Another news of interest to our shareholders Dave.

Dave Allen Microvision longtime IR consultant is retiring at the end of November.

I am very appreciative of Dave's work over the year supporting the Companys communications with shareholders.

He will be missed.

Yeah.

I would like to end this update by thanking our shareholders for their normal 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 important work ahead.

Now, let me turn the call over to Steve to discuss our third quarter results and then I'll be back to provide some additional perspective Steve.

Thank you Sumit.

Good afternoon to everyone.

For the third quarter revenue was 718000 down slightly compared to last quarter's revenue of 746000.

All of the second quarter's revenue third quarters revenue was royalty revenue attributable to our augmented reality customer.

As I've pointed out before royalties related to this customer will be credited against the nonrefundable prepayment the customer made in 2017.

Once the prepayment is exhausted the customer will again, making begin making cash payments for royalties due.

At the end of Q3, the balance of the prepayments stood at $5 8 million.

$5 $8 million 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 and must be used.

As long as the components, we developed for the customer or in production royalty revenue will continue to be generated.

Third quarter cost of revenue included a $10000 credit related to the reversal of a warranty accrual.

The result is a third quarter gross profit of 728000.

In comparison gross profit was 777000 in the prior quarter.

Operating expenses were $10 eight.

<unk> 8 million in the third quarter, which was considerably lower than our guidance of $14 million to $16 million discussed on August four and lower than the $15 7 million in the prior quarter.

The decrease in operating expenses for 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.

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 head count 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 are pleased that we were able to attract nine new employees in the quarter.

We remain in a hiring mode and plan to hire more people primarily in engineering, but we also expect to fill positions in sales and other administrative functions.

We expect by the end of the year, we will have 100 to 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 <unk> <unk> per share.

In comparison, the second quarter net loss was $15 million or <unk> <unk> 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 as earnings before interest income taxes, depreciation amortization and share based compensation expense for the third quarter adjusted EBITDA was.

Was negative $6 2 million 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 $1 million and component inventory for our long range Lidar also in the quarter, we paid security deposits in prepaid rent for new Lidar testing in office space.

Those deposits and rent came to about $1 million in.

Finally in July we renewed our D&O insurance or insurance premium increased substantially due to our increased market cap and general conditions in the D&O market and that accounted for about 900000 and increased cast 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.

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 17000 square feet of space that will be used for both lidar testing in 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 the deposit will be returned if.

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 36000 square feet and the facility, we would be leaving is around 31000 square feet.

Now I'd like to give some thoughts on our expectations for the fourth quarter.

First lets 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.

As a result of this focus and the timelines that come with it we have pushed back the start of production of Lidar units for direct sales from Q4 of this year to the middle of next year.

We expect Q4 revenue. This is this year, we will continue to be royalty revenue in the range of 500000 to $600000.

Now for operating expenses Q4, again will have a significant amount of share based compensation in the range of three to $3 $5 million. Additionally, as we continue to hire and continue spending on materials and services I expect to see Q4 operating expenses in the range of 11, 5% to 13 million <unk>.

Including the share based compensation.

Finally cash used in operations.

In addition to the increased expenses I mentioned, we will continue adding inventory of long long lead time components for our long range Lidar. So I expect to see cash used in operations in the 10 to $11 $5 million range.

Finally.

Let me Echo Sumit 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 every bit of what we hoped it would be.

I'll now turn the call over to Sumit for some comments before we open the call to questions.

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. The ambitious is built on my provisions well established technological depth and maturity, including our proprietary ASIC are cost effective components and our demonstrated ability to product ties at scale.

We expect that our engagement with Oems will continue as we support the valuations of our sensor in Q2 2022 and of our software features in Q3 22.

We believe that Microvision will be well positioned to support Oems as they rollout new vehicle programs built on next generation technology.

We remain confident in our ability to successfully execute on our strategy and I am bullish on our future.

Let's open the call for questions.

Thank you we will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone. If you are 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 Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Yes, hi, thanks for taking the questions.

First let me most importantly startup.

Just to congratulate Steve on.

On as I guess as a retirement right in and just say what a pleasure it has been.

Working with you all these years.

So.

That out of the way.

First just I know, it's off topic, a little bit but questions about.

Get your thoughts on.

Facebook is kind of big thing today talking about changing the names of meta and the big movement.

Whether or not you think that kind of spurs investment by some of the other.

Competitors there in terms of just kind of the AAR world I know that a lot of the.

RMB, our stocks got a boost today as a result of the news so just.

Just the opinions on whether or not that Spurs further investment from your one big customer or from our other interest from other parties.

Many of our space.

Good question. So of course I've, just recently read about hits undoubtedly process at all but Glenn if you think about it.

Bigger picture talk about here is if theyre going out there announcing all of the things.

Audaciously aspiration, you want to build out is going to be.

A significant amount of investment that includes hardware software platforms. So I think what's exciting about that move and I read it was that.

A big company with hundreds of billions of dollars of market cap is willing to say that generating cash that they want to actually invest in there. So again these kind of platforms. These kind 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 this space I've always said that it's going to be something big but at the <unk>.

Right time, and it's good to see that Big Big Big Company like meta.

Coming like meta is going to be making investments in strides into that space.

Great Yeah. Thanks.

And then on the.

Sure David.

More on OEM versus.

Direct sales of sensors.

On that front.

Yeah.

Little more on the color I mean, I guess, obviously longer term the OEM is the bigger opportunity.

<unk>.

I guess the thought would be.

Some progress on seeing some sales in the short term would be like more of a signaling device for investors and people like that to kind of just get a sense of the acceptance of the products and.

In the marketplace.

So that would be.

Kind of be helpful. In some sense.

But but.

So Larry to the Big mission, which is to get into large.

Design wins and things like that so.

Just a little bit more on the give and take on on your thought process there and then.

Thinking about the fact that there is.

You talk about having product available kind of middle of next year now is that.

So should we start to model in kind of thinking about.

<unk> not seen any product revenue until that point in time.

Should there be some.

Sample revenue for some of these OEM.

The opportunities that are out there.

Yes, I think that's a good way to think about it and I think their sample revenue despite incidental.

Think about what I just talked about that there is we're working with a global management consulting firm, making sure that all the data that the market has that we are up to speed on that wanted to make sure that we.

We're aligned but kind of minimize reduce that means surprised as it come in these kind of.

Endeavors.

16 months ahead of US is where some of these key decisions getting made and it is important for us to focus on that in narcolepsy opportunity passes by.

Now.

Strategic sales represent the biggest revenue recurring revenue for any company in this space.

All companies are hyper focus on that so it's not just microvision all companies are hyper focused on that because it is the biggest price.

Now when you think about direct sales are I think a common term that people are coalescing around his spot sales. Those are example rate go up and down and they have market acceptance, we're going through that as well, but to start something like that you have to focus the team on addressing that to the market. It is not just something software that youre selling.

Youre selling hardware and software and partnerships. So it would take quite a lot of effort and I wanted to make sure that the company focused on the strategic side of it because we do have a significant advantage and I have just more enthusiastic about it after <unk>.

<unk> than ever I mean, clearly from a hardware standpoint, we are heads and shoulders above in size and performance than anybody else and cost advantages and the key features. So we really have all the things that everybody was looking for and anybody that read anything about our visit at the Munich show, Ken can probably like a tester days where.

Our competitors are showing things that are the size of like a VHS.

For the quarter and here, we are a VHS cassette to the sensor size the cost of technology. We actually are ahead than our competitors and it's obvious to the market right now so therefore for us to focus on the biggest opportunity in the world right now in this space I.

I think the most prudent thing that we're doing.

As far as the sales yet those are things that are there, but we want to focus the team on the big thing.

Given the fact that next 18 months are going to be very very active.

Alright.

Thanks for that last question for me So you can tell.

It's about burning tend to $11 5 million next quarter, I imagine thats going to correct.

Is it hiring picks up pace and the investment in sales and engineering and everything else. So.

Talk of that.

Equates to somewhere to the tune of <unk>.

<unk> 50 ish million between now and the end of next year and kind of cash burn so.

Uh huh.

Last quarter, you talked about having exhausted half the.

Current ATM.

And that you thought that it was important to have a lot of cash on the balance sheet.

Sirius it in here for the long term or whatever so what level of cash is necessary and just maybe some of the thought process on why you didnt tap the ATM.

In the current quarter.

Yes.

Okay.

I think what to say on as we would like to use the use the balance of it but we just don't have any definitive plans in.

In the quarter.

We just didn't have.

Open windows for us that we that we thought.

Where it makes sense at the time.

And is there a level of cash that you feel like you wouldn't want to go below or anything like that or is it.

So far below what you could have.

I don't have words this specific number in mind, but I think what what.

What we see as a change in the conversation.

When some of these conversations were happening before this ATM and the raise that we did in Q2.

Going going nature of the company and our longevity was an issue in that.

Seems to have become now a non issue.

So we just want to be mindful of.

Making sure that that's the way the company appears in the Companys stays that way to.

To state the obvious we want to do business with people that are going be around for years right Glenn.

Uh huh.

Great. That's it for me thanks, guys.

Okay. Thanks, Glenn.

The next question comes from Tim Peterman with Craig Hallum Capital Group. Please go ahead.

Hi, guys. Thanks for taking my question I, just thought I'd ask one or two on Lidar to start here you guys probably saw the GM had investor day, the other week and they talked a lot about other new ultra cruise product.

I believe is going to standardize lidar at least on a certain models that are featuring ultra cruise. So I was curious if you could just talk about you know.

Any any more or I guess just in the industry broadly are you seeing more oh, yes wanting to adopt lidar can you talk about kind of how the trend is changing.

Changing there over the last few months, especially with the GM announcement the other week. Thanks.

Yes, good question I think.

The eye opening part is actually public so Munich was.

One of the first auto show since Covid, so, let's not forget that.

Every OEM every tier one if you visit with them every model that we're showing there would show where a lidar would be placed inside the car and in most cases some of the lighter there we're showing we're not even operation that was just showing a mockup, but it clearly showed that every product. They are talking about that will have these higher level Adas.

<unk> features Theres, a lidar as a central feature as part of that and now you are talking about Oems that ship in the tens of millions of units per year.

So their strategy is pretty well known and Oems that support them every one of those Oems the top tier tier one Oems in the mid tier tier one Oems. They all had a lidar as part of their product offering. So it's everywhere I think Adas safety is coming as a more battery operated electric vehicles become commonplace higher levels of safety.

Central feature that is the real value proposition for them.

And later, we will be required for them. So I think like the ultra cruise is interesting product you say its standard, but yet if selected lidar, but if you look at the features of standard crews the ultra cruise I mean, the ultra cruise is meeting the lidar actually so again, it's starting to happen in the premium models, but over the period of the next several years, you'll start seeing it.

Across the board on different programs.

Okay. That's great and then just talk about the the Munich show me, what Oems are showing you where the lidar is going obviously theres a lot of spots.

The different Oems seem to be looking at whether that's the windshield of roof.

Or in Headlamps are you know on the corners is there any particular place that.

Microvision.

Provisions line or Couldnt go are there particular places that you think.

You integrate well into.

Any color on that.

But with a smaller size that we have we need to get a lot of different places. So that is one of the nicer options for their design teams.

Forget cars are beautiful cars have to have a certain shape in line to them. So the design teams are very particular about what they want to incorporate and having a lidar that can fit into the headline behind the windshield within any part of the body gives a lot of flexibility.

That's actually important a huge huge benefit to our technology that nobody else can demonstrate working.

And they are years away from that.

Anybody's speculation.

Okay. Thanks for that perspective, and then I think last one for me. There's been you know continued activity in the industry with a.

New wider companies coming public and acquisition is being made and corner just trying to go public with the optical phased array technology and also just bought some switches, making flashlight or I guess my question is do you guys see.

A trend towards kind of Nextgen technologies, taking hold at all or do you think the.

Sometimes approach that you are growing with us.

So more than sufficient.

It's going to be those technologies.

I mean, not because that I get the opportunity to lead our Mems based company, but honestly I can say that Mems technology, we'll see a lot of traction because its the most obvious thing that can scale has to be cost effective and something that will show the reliability for 15 plus years worth of life, which is what's required for safety.

So if you think about all kinds of different steering systems optical phase Iia Flash base.

All of them had benefit but all of them have detriment, so you'd really have to do a cost analysis.

And a risk analysis of what will happen.

A question that came up recently and I think I would add that somebody asked me well what about the flash based technology, but it isn't that better.

They have a global challenges of 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 right. So you need significantly more software to be able to fill in the gaps and again now, leaving the realm of actual data versus something Thats software thing. How do you believe that you would need redundancy you need more software effectively the system cost goes up.

And those flash based systems are running at 24, Hertz and Thats considered cutting edge, but everybody wants 30 years 30 Hertz is at the agency, where the automotive system is more effective than a human so.

So when you think about 10 HERT system 15, our system. The question always is like well I feel the same the answer to that no. This is all about latency how much better is the system and responding at speeds to human.

The other lidar system that lower frame rates are not able to actually show that working now.

That's a big advantage will have so I think consolidation that will continue to happen I think even though somebody is making a battery battery and want to spend hundreds of millions out worth of investment to make custom VIX those customs pads and investors want to support it or power does that right. Our story is much simpler.

The tough sells itself.

Not even a good sale Guy I would say I'll open up the thing and I showed them aside and remind them everything in here if things you know.

As plastic theres metal theres non silicon technology, that's a 200 millimeter wafer sensor technology 300 millimeter wafer lasers that you can buy it's all the stuff that you know it's stuff that they have in their vehicles now.

What's magical about it is how microvision use our IP to develop a product therefore, the cost effective nature of it and the scalability is there. It makes it much more palatable to them that these are things that they understand and know think about a new technology.

Phased array.

The meta materials.

It goes on and on the path for those things is going to be harder because theyre more novel the path for my provision is going to be less because it's proven technology. So I believe strongly that the path that we have chosen is going to bear fruit.

Okay. Thanks for the perspective, that's all from me.

Thank you. Thank you.

Anyone participating through the webcast skin for many question by using the submit a question box on your screen.

Now I'll turn the call back to Steve Holt to begin answering submitted questions through the webcast.

Okay, we're going to respond to some of the 150 <unk> questions. We've also received via E mail. Many of the questions are variations on the same topic.

And many of the questions were addressed in our prepared remarks.

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 will open up.

Our 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.

So I think I covered this in the call today and the last question, Sam, but let me reiterate that so let's think about like four categories in which you would want to sort all the sensor companies and figure out.

What's best about them.

Believe it or not for Oems the number one is actually cost.

Every conversation starts with understanding scalability of the technology and what will be the cost for the sensor, but really the cost of the delivery system that will deliver the adas to them. So they are things from a cost standpoint, as I, just said right things inside their predictable. So when we actually talk about some cost numbers projections of the future level of economies.

Gail it's much more believable theres no fantasy Theres no. These are things that can be verified because there are fabs out there.

Things are pretty easily reconciled.

Reconciled.

But the cost of our system is the interesting part so think about when you have a vehicle like this level lidar you'll have some.

Lower quantities of other sensor stacks, including radar and camera modules and each you ultimately are lined out with the high resolution. Some of the features key features that we've developed allows the system cost that they are forecasting today to be reduced.

And through our partnership with our global consulting and management companies will.

What we found is that our system put inside a level, two plus or level three would be actually competitive.

Today's prices offered by camera module based systems.

So think about the cost competitiveness, we have advanced technology that is competitive today, which is also the bigger markets that means that.

The market that Microvision technology could address the significantly wider than just what's in the future for level three or level two plus.

So cost is a big one so I would say clearly like you know very very confident that I can say there isn't a check that.

We're very confident that when it comes to cost best in class pans out.

Next one is size right. So.

As I said people still want to buy vehicles and if they buy a vehicle.

The design of the car is actually important are the beauty of it is still in the lines of the vehicle so having a having a sensor that meet the cost requirements and fits inside the body of the car in all different places based on what the Oems need for flexibility that's important.

And this was this was apparent when we were at the show that everybody all our competitors showing up hardware publicly the number one thing when any OEM or tier one visited us that one of the first response to them was like Wow. It really is very nice and small and tiny and we went through and talked to about it and they were very impressed seeing a live demo of seeing some of the other road testing data.

We've demonstrated and the hardware there I think so clearly like the size of it actually makes a big difference and is a big advantage for us.

Anybody thats been in hardware in the industry will tell you that if youre showing hardware and like our <unk>.

Bedroom is worth that are significantly larger to reduce that take several years and significant amount of investment.

But for US we're already there that's another big advantage that we have so again I would consider best in class because of that and that will demonstrate publicly as well.

The third one of course it does matter what the features are does matter the range and the point cloud density and the frame rate and things like dynamic field of view.

We have labor our team has labored defining these features.

And executing on them and I can honestly tell you years ago 2019, when I actually went on the road and actually shared these.

We intended to create with these Oems.

<unk>.

First of all there were surprised that we actually have such a deep understanding of what was acquired but after that they were actually really impressed that anybody could even take an audacious goal to produce something like that so we did it demonstrated at <unk>.

I think the impression is now that having these features inside it is reasonable for them to actually say that other sensors as part of the stack could be removed therefore, reducing the overall system cost.

So if you have a lidar that allowed us to reduce not just our future cost of our lidar, but also their system.

That's why Dave each economy of scale, that's what they will have more models that they can actually put this onto so thats an exciting thing. So this is how do you think about features right it's not about.

This feature versus X feature one OEM may value range more of the other one values resolution more the third one may value. Some combination right. We can support all of them from the same hardware.

A very very big thing, we're not tied down so as we mentioned right. Our team worked very hard to Polish the features and make sure that the Oems they they get to see what's important to them.

And from the same hardware, we're able to do that so that's actually a pretty big win for US again first in class, we don't have to develop a new product to.

To satisfy their needs of understanding what's possible.

The last one I would say majority of technology, So as I said.

Things that I'm talking about things that this company has had a long history, we have history with big companies like Microsoft and Sony and others that we have demonstrated this at scale, so really regardless of how much revenue the company generated in its history.

Core technology maturity has been demonstrated and that's actually a big part because that makes it believable that makes something that's a partnership that people go on so again I believe very strongly that.

Our maturity of technology is significantly higher for our silicon based.

System.

People can have galbo with another kind of a beam steering technologies, but none of those are mature as cost effective. So if you take all of these four legs of the table you need all four to have a very very secure product and can make the claim you're best in class and I'm very confident that I can say that we are best in class compared to any larger company out.

There at the moment.

Thanks.

Second question.

As.

On our previous call we talked about.

Our ability to output axial lateral and velocity vertical velocity.

Moving objects and other lidar companies seem to be making similar claims is that those abilities. So what can you tell us about micro vision's capabilities.

It's a good question actually.

The number one thing to think about is the latency we talked about the low latency systems. So the 30 Hertz number is very important.

For safety Youre going to have to do make decisions faster than the human work.

And you need a system that's operating at around 30 Hertz.

Sure.

That's about 33, 34, maybe 35 milliseconds and the refresh rate is so fast.

It is important to see everything in the field of view and to be able to predict what will happen in the next 30 milliseconds, giving that information to the central computer allows them to predict what to do with the maneuvering that theyre about to start how much this tier which way to go slow down speed up these decisions have to happen at a very very fast pace. So the law.

City is actually a very big component of it so in a lidar just knowing exactly where the point cloud is very important, but additionally, and probably more important is exactly what the velocity of that cluster pointed out is going.

You may not know if it's a motorcycle or.

Mini Cooper.

Escalate it does not matter if matter that those cluster point clouds to predict where they will be in the next 30 months 60, 90, and so on so as you remove range you can predict where you will end up and is there any way you can avoid them. So if you think about these prediction. Thank velocity is a big part of it.

The way, we do velocity of course, since we have high frame rate.

We have our software that's going to be.

Of course, the condensed down into our ASIC eventually.

We lost the output is happening continuously clustered velocity aqua is going to happen continuously.

And we're also going to be able to give lateral and axial meaning.

In the direction of motion of your vehicle and 90 degrees to it you.

You need both of these components. The third one vertical is it all because no cars don't bounce up and down too much but it'll be there, but if we kind of noisy.

If you only had one of those youll predictions always going to be off so you need more sensor. So your census that cost goes up but from a single sensor, we're able to do both axiom and lateral and that is a first and so far we have not seen anybody talk about it at 30 hopes to be able to do that so I'm not really sure if I've actually seen any light our company claims that at 30 Hearts that can do both which is what the ODM.

That required.

Alright next question.

About just asking generally about employee morale that microvision.

So first.

We have a really great team that microvision.

Sumit and I are always amazed at the capabilities and the creativity and the dedication of the people here.

We think morale is good and we are really thankful that.

Turnover has not been a big issue for us.

So we think morale is good.

The next question is on the.

The ATM.

Yeah.

Just lots of different questions about the ATM as I said in my prepared remarks, the ATM gives potential customers and suppliers employees and the prospective employees confidence in our ability to be a long term partner in the automotive lidar space and that is important and when were talking about the businesses we're talking to.

And also the ATM with Craig Hallum was not used in the third quarter and $70 million remains available on it.

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.

I'll also point out that under the ATM agreement with Craig Hallum.

Craig Hallum has not allowed to short Microvision stock.

Okay.

There is some general questions about the IAA auto show in Munich in.

Any additional color you can provide about it and the response we receive.

Talked about this a fair amount of if theres anything else you have to add no I think I think Steve in his remarks, you put it the best that the reaction that we had hoped that we expect it to get we received it across the board.

Very welcoming to shared publicly and.

We get a lot of praise from.

OEM and tier one so it was up.

A great experience.

Okay.

Next question relates to other verticals.

Can you talk about other verticals with us are typically talking about augmented reality or inter.

Interactive display products.

And what's the status of these verticals are you actively pursuing or investing in them now.

And as we've shared in the previous calls our focus and effort has remained on the automotive lidar since I've taken over I think I've been pretty clear about at the last 18 months.

But I've also said that we are I believe the VR. So far ahead in those verticals to anything that the market is offering and we stand ready to work with any partner as they come along.

Where we put together our BD team as you know, we've just hired our first VP of BD.

My 10 year in Germany and of course, we're also looking to expand that in the U S. So I think as these markets are developing we stand ready we know all the players they know us but.

But right now our focus remains solely in the automotive lidar given the fact the opportunity is so big and it is right in front of us.

Yes.

Yes.

So I would say with the next question was about the business development staffing and.

First as Sumit said Thomas routes.

Coming on board has been.

A big man, he is making a big impact already and.

We're just real real real excited that he's with the company.

And he is working on adding to the European team.

Sumit said, we're continuing to look for folks to expand the North American team is in the near future.

And then what can you tell us about how lidar operates in inclement weather.

It's a good question.

So just let me give some context.

So if you think about systems that are shipping right now.

Some level sensor fusion, what I can tell you depending on the Oems vehicle that you have they all have some restrictions based on weather condition you can't use the.

The future.

So because of the regulations right. There are some limitations of what features.

What we did what means it can be operated so those are part of today's reality.

You can imagine that that's not going to go right effectively if you're going to have a safety feature it has to work always airbags work all the time ABS brakes work all the time. So therefore Adas feature has to work all the time.

When you think about our lidar. So this question I got quite often also at in Munich.

95 nanometer laser what happened in the rain I think I've answered this before the.

The density I pointed out is so high that if let's say there was a rain drop that hits one of our policies and that one has gone there is still significant amount of other pulses that.

You can drive Sony will still get a very high quality data.

Unless you were driving for like a sheet of water like a waterfall right that's not realistic let's be honest so.

So lidar by themselves are going be able to operate that there is no magic, saying that 95 will not be there, but I can tell you is.

Most investments the most interest people get is when I say the work that we have 95 nanometer lasers. So Oems that I've looked at this problem or not shying away from that because they do understand that this is a sensor fusion problem that once we have our software integrating radar and.

Integrating other parts of it goes products by themselves are going to be significantly more valuable because they will solve the problems have redundancy and you will still have the sensor that's able to provide it. So when you think about range of resolution those are actually big things. So when you have a company that's as well many points per second is good enough. We're looking good here, that's not true actually because that's now about OEM months.

And consistently I can tell you.

We always get these RFID then I recently saw one where they wanted to even a high resolution to unexplored and of course, we want to support that in our system can do that when we we respond to those and it's amazing to me that.

Uh huh.

Weather.

An issue now.

Regulatory body ever let the system be operational in whiteout snow conditions.

I can't answer that that's really for the regulated regulatory bodies right, but you can imagine that over a period of time the sensor suites are going to be asking more and more sophisticated but as we sit today. There is no impediment for us to see a path to adoption.

Okay and the last question, we have before we take some more live questions relates to the Lidar software.

You've talked about Lidar the software component of our product.

What can you tell us about.

Our lidar software.

So our Lidar software. This is the key this is Ed.

Very bright jewel in the Crown for Microvision. This is something that all of us should care a great deal about and I am very very excited about this.

We're working on some things that would allow.

Oems to start evaluating <unk>.

A system, where more of the load from their computing can be shifted into our ASIC through our algorithms that we've already developed that we are going to develop and we're going to actually demonstrate and.

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 and having a big software component. Besides a 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 whats in those features I think it's more.

We're gonna demonstrated I think.

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 the industry and I can say with confidence that we.

We are on a very good path and our global.

Management consulting partner also has better this out with us of course, but also with Oems.

And they strongly.

Agree with me that this is something that is going to be pretty impressive.

Alright. Thanks.

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

Thank you.

As a reminder, please press star then one to be joining the question queue.

The first question comes from Pi coordinate with the private investor.

Please go ahead.

Okay. Thanks.

First of all congratulations to Stephen and also Dave Islands for your impending retirement, so thanks for that.

Everything you guys have done over the years appreciate that.

Sumit.

In your prepared remarks, you referenced.

Our focus which I think is on Oems.

I would say versus tier ones or even <unk>.

Mobility as a service companies maybe you can.

He'll.

To add some color to that and also I think you've labeled it just in terms of the labeling strategic versus direct maybe you can also label from or put some color into that those words as well.

Okay. So when you think about the OEM of course those are the cars that go by tier one Oems are connected no company is going to be able to ship their product directly to the Oems.

They're going to have to work with a approved tier one suppliers because the tier one is the one that actually doesn't manufacturing of most of those modules for the Oems.

So our go to market strategy pretty straightforward similar to lots of other people, we focus our energies and our efforts and our attention towards OEM to make sure. They understand the gravity of the problems with regard to solve for them.

And we also work with tier one because we know at some point, we're going to have to have a tier one partnership that we expect to be favorable to microvision. After all the innovation that we've done that allows us to ship that product for OEM programs, we are not endeavoring to become a tier one.

That's just not that's not.

That's a whole beyond just thought what any company should be thinking about that as.

People can think what they want but that's not what we're going to think about but whenever you're talking OEM. They always want to know.

The structure and how you would want to work with a tier one in that case, and we are well aligned with our expectations. So think about OEM and tier one together, okay. They are focused on Adas.

I'm sorry go ahead Todd.

Right right right.

Right, but it's a little confusing so.

So ultimately I guess it sounds like you pitch to the Oems.

But then almost U.

The direct you to the tier one four.

You know.

I don't know manufacturing production is that is that right or.

How should we think about that.

Yes, im going to comment on that because we know every tier one I think about there is a certain amount of margin theyre going to pay you think I think we've done some great work here. Our goal is to be part of that and make sure that the margin stacks in our favor right time.

So that's where when you want to do is if you want to get if you get adopted OEM.

OEM believes that you have the right solution for what they need and they want to work with you on your technology.

I think all directed by.

Tier one will have to work with you on strike a deal that makes sense, alright, and none of these deals that anybody would do or we would do in the future will be exclusive with one tier one so we would find the most favorable deal for our investors and Oems notice as well.

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

Okay.

It sounds like you've got a good morning.

I wanted to add one more thing. So your first question was what about mobility as a service. So this OEM tier one is adas.

Well the service companies are primarily focused on autonomous driving level, five and theyre much more aspirational I realize it could be 10 or 20 years before real products are being fielded out there or six years and trucking our three years whatever number some of these companies are saying okay.

Okay. There are two different but the biggest price known biggest price I can confirm by multiple people globally is the OEM.

90 to 100 million cars that are expanding in the next five years, yes. It sounds like you've got to convince the OEM or Oems that you that you know you're the right product and then they start to direct the tier ones to go and make it all happen does that.

Correct, Yes, yes, okay. Okay.

Second question I have is if you use the term partnerships.

The partnerships will be looking at your prepared remarks partnerships will be required with Oems and tier ones 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 do you mean by partnership exactly.

And and then you refer to consolidation again, so maybe talk about both of those.

If you think about partnerships I think how people trade and partner with each other clearly we've developed the hardware or invest a lot of money in it with developed software invest a lot of money silicon lots of this is in our IP and.

All companies are looking for a recurring revenue that support significant multiples to their market cap right.

Obviously things can change.

Sure.

We had high growth companies, but it's been important for us to strike a business set a business deal that allows us to actually stand up for that.

When I think about partnerships, it's about how do you partner with each other if we are the ones that are developed the technology and where the experts added about how can we participate of how that thing gets manufactured housing revenue gets.

Split.

How does the margin get to pay for it but we want to be in controlling I believe by us owning all of our IP. We are in a controlling position and we have to just.

Demonstrating the OEM, how we can partner with them and solve their problems Daimler already have all the problems with that.

Alright.

Yeah go ahead.

So what was the second part of your question actually I just recall there was another part of the question I did not answer yet but.

The very next sentence in your prepared remarks, the very next day.

Oh It is right Alright, my words as a public company. So at any given time, if somebody feel that.

Somebody is looking for a Lidar company, a big company with lots of money.

I think we are available and if the gravity of the problem you saw determines what the future growth of the company would have been I know think about terminal.

Terminal value could be established right now, but the market is just so big so for us to work feverishly hard and why focus all our attention on the Oems to get recognition is more valuable to our shareholders in any kind of spot sales are direct sales like I talked about.

So Wi focused the company on that because of establishing that by doing that our product our technology would have a 10 year or multiple years worth of AR.

Decades worth of future.

<unk> has more value to the shareholders.

Direct sales were going to direct sales reps those are spot sales those are periodic and nonrecurring.

Okay. Okay.

Last question. So in your in your Investor placed interview the other day.

Instead, we investors need to remain patient, which is a long term investor It makes sense.

But of course, we're all looking for you know a deal right without respect though to a deal.

What are you know what are some milestones or events that we can as an investor investors.

We can use to track progress over the next.

Near to midterm.

I think we're just going to focus on the OEM business and I think materialized types, we're going to talk about it publicly but if there was honestly if there was anything that I wanted to ask shareholders to track that will be valuable I would've put it on the call today.

Okay, Alright, thank you I appreciate it.

The next question comes from.

Genes groninger risks.

Private investor.

My question concerns any day.

Developments that you may have.

Made to date on nonrecurring engineering.

Does that look like in the area you can use to focus on.

The Oems.

Yeah.

Working on several nonrecurring engineering.

Programs may be a way for you to do.

Develop some.

Sympatric cohorts some credibility.

As those move forward.

You kind of dropped that.

Gravity.

No as a go to market strategy is that we're going to face them, we're going to work with them and show them a solution and I expect there may be some maybe some nonrecurring engineering programs that may come along and so I don't think that we have put it aside.

I think we are actively pursuing any kind of <unk>.

Engagement with Oems.

Okay.

This.

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

Okay.