Q4 2022 MicroVision Inc Earnings Call

We have seen our competitors talk about a TAM of 150 billion by 2030. While we believe that a big market may be possible, our estimates are based on a more rational and mathematical model. Please note that we have not even considered any revenue coming from the L4, L5 capabilities, which we plan to access or tap into with our sensor fusion chip that would fuse two Maven lidars and an array of radars to enable safety at lowest cost to enable L3, L4 features down the road. In the near term, we are highly focused on the monetization of the L2, L3 opportunities with strategic investments in the technology to enable L4 features towards the later half of the decade.

The non-automotive market. While we have seen a variety of estimates from our peers and reputable business consulting firms, we have estimated on a similar basis the cumulative revenue potential through 2030s to size the total non-automotive market. For industrials, we expect this market to be at $2.5 billion in 2025, expected to 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 for the entire market. Extending the same match to non-automotive smart infrastructure subsegments, we expect this market to be at $2.8 billion in 2025 and grow at 30% CAGR. If we sum up the total by every year through 2030, we estimate the total sales in this market will be a cumulative of $46 billion by 2030. And lastly for robotics, we expect this market to be at $1.8 billion in 2025 and grow at a 50% CAGR. And if we sum up, the total sales in this will be a cumulative $37 billion by 2030. Now adding all these three sub-verticals within the non-automotive market, we expect the total cumulative revenue potential or size of the market to be at $115 billion.

Let's talk about the third market, which is the validation and auto annotation software. Let me spend time talking about what this is. 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 sensors OEMs are trying to validate. The key advantage of our validation software platform is that it enables sensor suite including micro vision lidars and third party lidar to process and detect surrounding 360 degrees. A modular approach to enable different sensor setups and enable any use case setup. And lastly, parallel processing due to cloud based architecture. While it is hard to estimate the time for this software, we estimate that we may be able to conservatively generate 200 to 300 million in revenue through 2030. We believe the demand for this software will increase in the upcoming quarters as OEMs strive to validate more and more sensors. Now let's distill down to what it means for us as a company and our business outlook. Our 2023 financial objectives. We expect revenue of 10 to 15 million. As described, this revenue will include Maven sales to OEMs, flash based sensor sales to non automotive customers, and reference software sales to OEMs and tier one validation partners. We expect a high gross margin as a large portion of this revenue.

relates to software solutions. From an expense standpoint, we expect the net cash used in operations to be between 50 and 55 million, which is the net effect of the cash coming from the incoming revenue and our increased cash opex due to the acquisition. While there may be some cost synergies available between the two companies, including IT and some consolidation opportunities, our focus is on accelerating revenue for 2023. While we do not provide long-term guidance, the following measures of success can help investors build a model for Microvision. We are increasing our internal target to 3.5 to 5 billion accumulated revenue potential through 2030, up from the two to 4 billion, primarily due to the increased opportunities and the markets I described earlier. For automotive, we expect to sell more short-range flash-based sensors at $200 per piece. This brings incremental revenue stream on top of the maven. For non-automotive, we expect that we will be able to capture one to 2% of the total market size of 115 billion, translating into one to 2 billion in revenue for us. For the validation business as we described, we expect to capture 200 to 300 million revenue through 2030. Adding these incremental revenues on top of our core product, we expect on the conservative side, an addition of 1.5 billion more revenue compared to our prior estimates of market opportunity. This higher revenue...

integrated products with Perception Software as part of it. Please note that these sample sales are intended to be sold to the OEMs with the clear objective to demonstrate our capabilities so that we put our best foot forward for the upcoming RFIs and RFQs.

Hence, we decided to pause the sample saying for the fourth quarter to instead wait and supply OEM customers with an integrated solution with IABIO perception software. The ship samples in Q4 were then deemed to be a part of our test and evaluation program. Expenses. In terms of expenses, this was one of our most efficient quarters with our cash earn being only 8.4 million for the quarter, for quarter. This was in line with our expectations as I had provided in our prior call. Q4, R&D expenses, total 7.6 million compared to 6.5 million last year. The increase was primarily driven by higher salary benefits, non-cash stock-based compensation, and higher direct, non-direct labor expenses. SUNA expense total 6.4 million in the fourth quarter this year as compared to 6.5 million.

as most of our peers who now have to announce some headcount initiatives. As expected, CapEx in the fourth quarter of 2022 was $2.3 million, which was driven by build-outs and tenant improvements in the new facility that we moved into at the beginning of this year.

We expect to recover this investment through the contractual incentive payment agreed to be paid to us by the incoming tenant in our previous building. Going forward in 2023, we expect CapEx to settle back to its original levels. Now, let's talk about our cash position. As discussed during our IBO acquisition call in December last year, we took advantage of the APM facility to finance the IBO acquisition. In 2022, we utilized our APM program for net proceeds of $14 million as presented in our cash flow statement.

In January 2023, we raised an additional 12.5 million under this program. And we raised a total of 26.5 million from the beginning of 2022 to today. With this, we now have approximately 42-43 million currently available under this ATM program. As of January 31, 2023, we have already made a payment of 10 million euros towards the purchase price of 15 million euros for the asset purchase agreement. After making those payments, we had approximately 78 million in liquidity, including investment security at the end of January 31, 2023. We plan to make the remaining payment on the acquisition of 5 million, less the deductions in purchase of the purchase price in the second quarter this year. Based on our current operating plan for 2023 and beyond, we anticipate that we have sufficient cash and liquidity to fund our operations. David, with perceptions off there.

Lidar sales with non-recurring engineering revenues from OEM, sales of flash-based Lidar for non-automotive customers, and sale of auto annotation software for automotive OEM validation work. 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 a value proposition at the unique wall position Lidar company. I would now like to open the line for questions. Thank you, Anaba. At this time, we are conducting a question-and-answer session. Investors can submit their questions within the meeting webcast by typing them into the Q&A buttons on the right side of your viewing screen. Analysts who publish published research may ask questions on the phone line. For analysts to ask questions on the phone line, please press the star key. I'm sorry, please press star and one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. Our first question today comes from Andre Shepard of Cancer Fitzgerald. Please go ahead. Hi, good afternoon guys. Congrats on the quarter and thanks for taking our question. Anaba, maybe you can just remind us again on your capital needs for the future. You know, with the 83 million in the community currently, when do you anticipate needing additional capital? Thank you. Thanks, Andre. So based on our current operating forecast, we think that we are well funded through the middle of next year. Obviously, as you can imagine, the cash burned expected this year is 50 to 55 million.

in 2023 and we are expecting incoming revenue of 10 to 15 million. So that puts us in a very good position. And one thing I would like to say is obviously our cash burden for employee metrics continues to remain one of the best in the industry. So we feel our financial discipline is positions as well from a balance sheet strength standpoint. God, thanks very well. That's very helpful. And maybe just walk us through your plans to ramp up in 2024. You know, is that still the case? And do you see kind of those revenues gradually improving over time or just any visibility there will be helpful. Thank you. Yeah. So 2024 is very actually very excited about it because we expect the growth from the auto annotation software, which as I talked about, it's going to be a high margin or high contribution margin revenue stream.

that we expect to improve in 2024, primarily because as OEMs need or try out more sensors, they need the software to validate the ground truth data against those sensors. So we expect 2024 to be even higher growth in terms of the revenue mix coming from this auto annotation software. Now the second theme is, which I talked about, was the sale of these sensors to the non-automotive market, which we seem to be picking up steam from as well in 2023 and 2024 as the market expands, because that just gives us another revenue stream in 2024. Obviously, this stream is not gonna be the recurring revenue because this is in spot sales or direct sales, which is similar to some of the non-automotive light art business model that I think we all are familiar with, but this will certainly add more momentum and add more cash flow to the company between this year and next year as we ramp up that production. Now the other thing to note there is, we already have a production line, so that obviously helps us to ramp faster as the demand for some of these products grow in this year and next from that standpoint. The last stream of revenue, which I think Subit also described for this year and next year is gonna be.

from the Maven sample sales and the one box solution, which we expect to happen in 2023 and 2024, coupled with some NRE revenue from the OEMs as well. So these are the three screens to think about between 2023 and 2024, which we expect to be even a stronger year than 2023 based on their things stand today. Gotta think about it maybe just one last question, maybe for Sumit. Can you give us an update on potential partnerships with OEMs? You know, when any updates there, when do you expect my you might have a partnership materialized? Thank you. I think we as I you know, iterated through the hard call right, 2023 is a year of convergence. I think, you know, they are all settled in. Most of them have settled in and all the products they're going to need. So the RFC cycles are, you know, ongoing. Where do we end up to converge? I think it would be pretty hard to say, like, you know, we're going to sign by this date. How can we impossible like that? I'll give you an example.

there was something specific, like nothing big, right, with the OEM for the auto annotation software that we're expecting to close for this call. And for reasons because of some of the bureaucracy within the company, that delayed. That's something that I feel confident sharing that is gonna happen, but you can't nail down the time. They control the momentum, let's be honest. But I feel very, very confident that for them to get, if you look at the schedules, the multiple schedules I've looked at, they have a launch schedule and you work backwards from them. The launch schedules are set all the way out to, they need industrialization by this day, so on and so forth. Those decisions have to get made in 2023. And these are big decisions with big volume, so the look is extensive, but I feel very, very confident that 2023 is gonna be a converging path. And the fortunate thing is, we were lighted that's ready. We showed it at IAA in Munich two years ago. The product has, the housings have changed, but pretty much has stayed consistent with the hardware ready for a while. The valuations have happened. They've seen the software running, they've seen pretty much everything has gone to the technology checklist and now comes the commercialization part of it. So I feel pretty confident where our competitors are just starting off doing designs and showing CAD images. We have products that they've had, that they've reviewed multiple times. And so I feel pretty confident 2023 on this. Got it, thanks very much. I'll pass it on, thank you. I will now turn this call back over to Anna Boggs Verma to read questions submitted through the webcast.

All of the vehicle is given to the computer and this scenario is put in front of it. And different variations of the scenario will have to be done and then you have to avoid it. You can't just drive through 15 times and 14 times you hit it and one time you don't make it and show the world that video. If you're really going to do it, it's got to work. And that's really what it is, right? The word drive-by-wire really implies that you're sitting there. The driver is, there's a train driver sitting in the seat, but the control of the vehicle is given to the computer in a closed environment as a test.

to demonstrate that it can actually negotiate these kind of very complicated scenarios. That's it, and drive-by-wire sometimes gets confused for autonomous driving. What I've described here is a precursor to that someday. But that's not what our focus is, that's all we said. Safe mobility at the speed of light, we focus on the big prize, the level two, the level three, and demonstrating features that can go to level four because our technology can grow. And OEMs would like to sell these products, they have a 15-year life cycle on these products, they wanna do an OTA, over their update, and effectively offer better features in the future. So having these kind of test platforms and demonstrating this gives an advantage. The other advantage that you could think about is, some OEMs, like you guys, if investors are watching all the news that goes out, some OEMs are investing heavily in engineering and validation and announcing deals, with Avidia and Qualcomm and so on and so forth, they're doing all these things, so they're heavily invested. There are other OEMs that are not so heavily invested, or their teams are not further along. These kind of demos are kind of very instrumental in letting them show the avenue you would take to get to a solution. Ultimately, we wanna sell software, we wanna sell silicon, we wanna sell our LIDAR.

but a demonstration like this enables them to show that a structure within which it can be made to work. And we're very, very fortunate. I met them, I have a really great team here in Hamburg. And they've done quite a lot of work in this space. I think with Maven, it unlocks other possibilities. So I'm kind of excited about showing off this feature with the team later on this year. Thank you, Sumit. The next question is, what are the steps forward with IBO specific customers and their contacts? Okay, I guess I'll take that. I think when the install receipt was announced last year, you know, of course, as you can imagine, has a very dramatic effect on the entire group of people that were engaged. I think it was a surprise to employees, but I'm actually certain it was also a surprise to the market, to the partners over there. So once we have announced, you know, of course, we've got to do everything to stabilize the core team, you know, try to give assurances to everybody, right? But our intention, of course, is to try to pick up as much of that as possible. I think if you're alluding towards, you know, some of the contracts that we've signed in the past, of course, we...

We are in the process or already engaged with talking to those folks to try to resurrect it as a new company. And that's why I think Anubhav speaks with confidence about our growth path from the revenues we're talking about this year. As part of the asset sale, asset purchase, of course all those things are part of what we have acquired. So I think they had great connection with OEMs. I think we had started off with our connection with OEMs in 2019 and I think combining the two things together and of course putting an experienced team together and expanding it further, I think we're gonna have great connections with global OEMs. I know, and yeah, that's right, Sumit. And obviously what I would like to add to that is obviously with the I-bills operations in the Detroit area also gives us more strength and momentum in both OEMs across both sides of the Atlantic. So we're very excited about the future. The next question is, so you have just added more engineers and is this...

OEM programs for the customization that Sumit described, obviously we would be looking for the OEMs from the revenue streams, etc. to fund those development programs. Hence, that's why I feel very comfortable with our balance sheet position and the new cost structure of the company, which in my mind is very scalable.

Because obviously to have a 350 engineering team or 350 employees across US and Germany gives us a very good chance to even scale up in the event of RFQ wins and design wins and which obviously we can always build from on top of here and unlike our peers which where the cashware in significantly at a much higher level where it stands today. The next question is actually regarding Lumenar recent announcements. Do you have any views around the new product launch from Lumenar today and what does a 300 meter ranging facility best in the planet even me? Look to be honest, right I have not looked at it in depth. I just had a little bit before this call. Here's my impression. I felt like the 300 meter I think our teams working together demonstrated that 300 meters was our LiDAR without any changes but that.

calling with the FIC so everybody can know what it is.

The product, I think a lot of people have asked me a question already about the product that they have announced today. Again, brief review that I did of it, and all of a sudden, I was CAD. We've been showing products with the cover off for a while, and supply chain reviews, and we've launched waifers, and we're much further along, so I'm not really sure that.

I mean, more data is needed, and I think it's for them to describe to the market and to their investors and analysts, and I think it'd be appropriate for me to comment beyond just as an engineer saying, cool, that's really cool CAD. Thank you, Samit. The next question is also related to that. How does Luminar's AI engine compare to Microvision, and what's the competition there?

I've gotten this question before several times. I don't know what that product is. I don't know any details about it, but I can describe to you what our strategy is. What makes sense and what I believe is ultimately going to win. If you could actually put these perception algorithms, and these are classical algorithms, not AI-based algorithms.

into the ASIC, running on DSP, running without huge amounts of GPU power. The chip would be cheaper and it would actually have all the KPIs that the OEMs are looking for. One of the main reasons why I was so charmed by when I met the IBO team is because they had done the same exact work, the same premise and they have arrived at the same point. They're demonstrating KPIs to the OEM levels that the OEMs are also, you know, it's pretty much to the limit what the OEMs want. So effectively, their software for the IBO sensor is already optimized to level that was pretty phenomenal. You add maven to it, it of course now goes to much longer range is going to have the KPIs. So as it sits, all those, you know, features that you talk about for perception, they had the highest KPIs with the combination of two companies. But the real magic happens when you can put that perception feature into the ASIC, if the cheapest version of it's going to be there. If customer, if one OEM says, you know what, I just want the LiDAR, my team wants to...

produce the, we want to own the perception software. No problem. Chip A, one version that chip they can get, and they can go on their way. That's perfectly fine. But there's definitely OEMs that always want their perception development teams, perhaps, or not that for their long. Then of course, you can offer them software and the LiDAR from a different variant of the same chip. Okay? That's actually really powerful because from the LiDAR now, you're getting object level. I mean, you're getting perception. This is really, really incredible and important. And the only way you do that is because they've already found the classic algorithms that can go inside the chip. This is really, really powerful. You know, this is, once this adoption happens, imagine for 15 years, you're making the same exact product, because nobody's going to ever switch, because once that's qualified, it's going to, you know, just keep turning the crank. So this is incredibly powerful. It will not require significant amount of software every year for every model of a qualification. So the long term trajectory of expenses for OEMs would go down. And this is something that they had developed. And this was one of the primary reasons that I felt that the team at Hamburg is somebody that, you know, we have to join forces with. Thank you, Semit. We're now out of time. We really appreciate your participation in our fourth quarter earnings calls and your continued support of my provision. Thank you. Thank you. This can.