MicroVision, Inc.

Good afternoon and welcome to the Microvision Third Quarter 2024 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 a chat line. Investors can submit their questions within the meeting webcast by typing them into the Q&A button on the left side of your viewing screen. Analysts who publish research may ask questions on the phone line. For analysts to ask a question on the phone line, please press star 1 on your telephone keypad during that time. Please note, this event is being recorded. I would now like to turn the conference over to Drew Markham. Please go ahead.

Thank you, Mike. Good afternoon. I'm here today with our CEO, Sumit Sharma, and our CFO, Anubhav Verma. Following their prepared remarks, we will open the call to questions. Please note that some of the information you will hear in today's discussion will include forward-looking statements including, but not limited to, statements regarding our customer and partner engagement, cash, liquidity, and the impacts of our convertible note financing, market landscape, opportunity, and program volume and timing, product development and performance, comparisons to our competitors, product sales and future demand, business and strategic opportunities projections of future operations and financial results, availability of funds, as well as statements containing words like intend, believe, expect, plan, 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. Now, I would like to turn the call over to our CEO, Sumit Sharma. Sumit?

Thank you, Jewel, and welcome, everyone, to this review of our third quarter 2024 results. I would like to start by providing an update on our engagements for industrial opportunities our value proposition to our customers and our view on long-term value proposition for our investors. Second, I will update you on the strategic sales with seven RFQ still in flight and why I believe this is an important component of our value proposition and the disruption I believe we will provide long-term.

Let's dive in. Sales into the industrial segment represents the strongest opportunity for us

to establish a strong annual recurring revenue stream. There are multiple potential customers in multiple tranches classified by volume that will help us establish strong ARR.

Core products we will offer in this space have fully integrated LiDAR hardware and perception software onboard running at low power. This will remain a big differentiator for this space. The same LiDAR software

with differentiated perception software for each segment will allow customers to reduce system costs and time to ramp up. We provide them with software and their individual custom interfaces. We should allow them to take our smart lidar solution and interface directly with their domain controllers, eliminating the need for intermediate ECU, which adds cost and complexity integration and tends to overload them with software development. For the industrial segment, we expect to start with MOVIA-L as our primary hardware product, and shortly followed by our MOVIA-L safety rated sensor. Over the following years, we expect to add additional MOVIA derivative sensors to the product portfolio, so we will expand on the product roadmap in the future, all along expanding the segment specific perception and localization software that is part of the solution. This go-to-market strategy represents our best opportunity to establish annual recurring revenues and favorable margins based on our software differentiations and provide a strong baseline to larger revenue opportunities from automotive LIDAR expected to ramp in the later part of this decade.

Let's talk about our strategic sales opportunities.

I believe the best long-term high volume opportunity for our technology remains with automotive OEMs for passenger vehicles for L2 plus and L3 ADAS safety. We remain engaged in seven RFQs with automotive OEM for passenger vehicles. I expect our integrated hardware and software solution will also be key differentiator product for this space. Our Maven and the future Mobius product are primarily focusing on OEM engagement for passenger vehicles. The unique selling point To be competitive in this space remains cost to OEM, power, size, and the level of sophistication in onboard perception software. I remain strongly confident that we will be the dominant technology partner to OEM in this space in the future. To win this space, we need to think about potentially winning multiple projects with multiple OEMs in the future. As OEMs realign their individual product strategies, we remain patiently engaged with them. Long term, their system cost needs to be competitive. Companies with ASPs in the 1,000 plus range will not be competitive. All our technologies have been built for cost scaling with custom silicon and the lowest cost sequential flash LIDAR and MEM scanning technology.

We need to patiently work with OEMs for adoption and continue to do so.

I'm going to keep my prepared remarks brief today as we received a large list of questions from our shareholders, and I would like to address that as the main narrative again. I would like to now turn the call over to Anupam to talk about our financials.

Thanks, Amit. I'm pleased with what we have accomplished as a company since the last quarterly update. We have successfully positioned the company for long-term growth by, A, pursuing significant revenue streams and partnerships from non-automotive industrial channels in the short to medium term. This is critical as all serial production revenue in automotive will be material only with economies of scale, which won't happen until later this decade. B, bolstering the balance sheet with the convertible note facility from a strong financial partner. We have further streamlined our cash burn and extended our runaway into 2026. With significantly reduced cash burn, strong balance sheet, and focus on industrial, we believe we have improved our timelines to achieve cash flow break even. The capital raised to a convertible note comes at a very strategic time for us, given the visibility of near-term revenue in the industrial space. The use of proceeds is expected to be general corporate purposes and procuring some long lead items to deliver on the 2025 revenue opportunities. Securing an institutional financial partner to invest at this time signals a vote of confidence in the company's future. We ran a competitive process to select institutions for this round of capital raise and received term sheets from multiple investors that reinforced the market perception in Microvision's technology. The size and terms of the convertible note are also reflective of the Microvision's market position and strong credit profile to emerge as one of the last standing LIDAR companies with the lowest cash burn. This is a two-year, $75 million fixed convertible note facility. The first tranche of $45 million was funded at a closing price of $1.33 as of October 14, 2024, with a $30 million tranche available for future drawdowns subject to certain limitations. this is a zero percent interest coupon facility and matures on october 1 2026 with the lender having the option to require the company to repay the notes starting january 1 2025 up to 1.8 million monthly prior to april 1 2025 and up to 3.5 million monthly on and after april 1 2025 plus a 10% premium. The conversion price or the price at which the notes could be converted into common stock is fixed at $5.96 or approximately $1.60. The aggregate value of the notes that could be converted into the shares at this price ranges from 33 million to 40 million. The range is dependent on how does the stock price on the date S3 registration statement goes effective compared against the initial close price of $1.33. The remainder of the $45 million principal, which is $5 to $12 million, will be converted into shares at 10% discount to the share price on the date when the S3 registration statement goes effective. We believe HITRIL's economic incentives are aligned with the company as they get to convert their principal into stock if the stock price sees momentum due to the near-term commercial winds and other industry factors, thereby riding the upside with all other shareholders. This makes the overall cost of capital for this convertible facility quite attractive. We believe that the growth coming from this convertible is higher than the cost of capital and will put us on a trajectory which will lead to cheaper ways to finance the business until free cash flow generation. Now let's review our Q2 financial performance. For the third quarter, we reported revenue of 0.2 million. This revenue was lower than our expectations as an existing customer pushed out its delivery of sensors from Q3 to Q4. This expected revenue from the sale of our sensors was delayed because the leading agriculture equipment company pushed out their delivery schedule. From an expensive standpoint, while our revenues came in lower than expectations, we're pleased with our third quarter OPEX performance. For the third quarter, we had approximately 15 million of R&D and SG&A expenses. This includes 2.4 million of non-cash charges related to stock-based compensation expense, and $1.4 million in non-cash charges related to depreciation and amortization. For the third quarter, $14.1 million cash was used in operating activities, which is aligned with our previously communicated expectations. The Q3 cash used in operating activities came down by 25% quarter over quarter. In line with our expectations, our expenses have trended down sequentially since Q1, primarily due to the reductions in force we implemented to focus the company on Maven and Movia and away from Mosaic and sensor fusion. Keeping in mind the current view from the automotive OEMs regarding their start of production timeline, we have decided to further scale down some of our ASIC programs and dependence on third-party contractors related to automotive work. We believe that our new fixed expenses of R&D and SG&A annual run rate will now be in the $48 to $50 million for the next year, 2025. We think streamlining the cost structure in response to the automotive start of production dates related to projects is the right move. and helps the company to scale faster with industrial revenue in the near term. We will resume some of these ASIC programs at the right time when we see the momentum for automotive revenue building up in 2025. As expected, Q2 capex was zero in line with our expectations. Now let's talk about our balance sheet. We have significantly bolstered our balance sheet as a result of the recently announced convertible note financing. Post the financing, the company now has a total liquidity of $234 million with the following three components. Number one, total cash and cash equivalents of $81 million after giving effect to the net cash proceeds of $38 million from the first tranche of the convertible note. Number two, $122.6 million availability as of 9-30 under its current at-the-market ATM facility led by Deutsche Bank, Mitsuo, and Craig Hallam. And number three, 30 million of the remaining capital commitment under the convertible note facility. With the new ongoing OPEX rate, run rate of 48 to 50 million, we believe we have further extended our runway into 2026 with our current liquidity profile. Microvision continues to stand out in the marketplace, having one of the lowest cash burn rates. This further positions the company as the leading contender to be on the path to achieve cash flow breakeven faster than all its peers. We did not sell under the current 150 million ATM facility in the third quarter. We believe we're on track for 8 to 10 million revenue this year. The Q4 revenue is expected to come from, number one, sale of LiDAR sensors to automotive, OEM, and non-automotive customers. And number two, NRE, or one-time development fee for customization projects for customers in both automotive and industrial. Since some of the components of the expected revenue streams are related to NRE, revenue recognition is subject to customer approvals. From a cash burn standpoint, our new annual OPEX, including R&D and SG&A, is expected to be $48 and $50 million in next year. To summarize, we're really excited about 2025 and beyond. Operator, I would now like to open the line for questions.

Thank you. 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 button on the left side of your viewing screen. Analysts who publish research may ask questions on the phone line. For analysts to ask questions on the phone line, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Casey Ryan with West Park Capital.

Good afternoon, everybody. Thanks for the update. I had a few questions. I think everyone's happy you're focusing on the industrial market. Two questions. Do ASPs have to change to get the market moving for you from current levels, let's say? And the second part of the question is, I think in previous comments you talked about 10,000 to 30,000 units being available, maybe in 2025, but can you talk about what you think the reasonable unit TAM might be, not guidance or anything, but just sort of a a sizing of what the opportunity could be in 2025?

Timothy, do you want to take that? Oh, you want to take it? Okay. Okay.

Go ahead. So, thanks, Casey. So, look, from an ASP standpoint, we believe that ASPs would be in the $1,000 to $2,000 range. And the range is primarily driven by the software offering that these industrial customers are looking for. Which, by the way, is lower than the ASP if, you know, obviously we do not get the volume because, you know, the customers that we are targeting are looking for volumes in the ranges that you described. That would be the ASP for this particular application. The second part of your question is the range. The range for the volumes, because we have a few customers which are looking to roll these sensors into their fleets, which could again be their new robots or new vehicles, and could also be a case of retrofit. for the existing inventory. So, we do believe that this number would be reasonably in the range that you described between 10,000 to 30,000 units for next year.

Okay, good. Great. That's very helpful. I think on the 2Q call, I think maybe you guys had referenced sort of thinking that the non-automotive opportunity could be 8 to 10 million, maybe in calendar 24, but it sounds like maybe that shifted a little bit and bled into 25. But does that feel like the right pacing of revenues from non-automotive opportunity, maybe something in that $4 million a quarter range? And I also just point out that inventories are at 4.8 million. So does inventory tell us something about the opportunity within one or two quarters in terms of what this customer could, could consume, I guess.

So, so I think, uh, I think that's a great question. I think, and I think Casey, you, you picked on the right, uh, uh, metric on the balance sheet. And I think that's sort of also why this capital raise comes in at that at this time, right? Because we are, uh, beginning to build inventory to, uh, uh, service or to prepare for the revenue commitments for next year. I'm a bit hesitant to give you a quarterly run rate because the ramp is actually going to be dependent on the customer because typically what ends up happening is the customer will have to deploy this at multiple sites, et cetera. So that would be obviously something which is dependent on the customer. From a revenue recognition standpoint, we obviously only recognize revenue when the sensors are delivered to the customers. But I do believe that the numbers that I described for the total number sounds about the right way to look at 2025 with maybe, you know, the ramp really happening mid 2025 next year to maybe Q3 when the revenue builds up. But again, like I said, the ramp is typically driven by the customers in this case.

Right. Okay. I think that makes sense. I think that makes a lot of sense. How many, so sort of the one customer that we're talking about and sort of talking, and you mentioned that it's in the ag space. Let me ask you just for all of us investors thinking about how big the opportunities can be outside of automotive. How many players are there who look like your customer? And obviously I'm asking like, is this sort of like a duopoly type customer or is it a market where you're serving potentially five to 10 type customers who look similar in size and they're sort of a multi-customer opportunity within the segment.

Now, let me take that. So I think when you think about this opportunity, let's think about just microvision in general, right? Think about in tranches. The top tranche is customers that need more than 100,000, less than a million annually. This is primarily our strategic sales to automotive OEMs, right? So there's a bunch of customers in there i would say a bunch of potential customers in there and we continue working on them the next tranche is let's say uh annually more than 20 000 less than 100 000. in there you probably have customers that you can the number of customers you can count on two hands right and there's a very varying amount of segments that they work in but that can aggregate to something big. But again, it does not get as big as the first tranche. Tranche number three is customers that have more than 1,000, less than 10,000 sensors per year. The list goes bigger. So instead of two hands, maybe three or four hands are needed now. But again, they aggregate to something bigger. Then below that, now you start getting into more than 100, less than 1,000. And in this category, of course, there's like a massive group of people, right? But if you add them all up, they will probably come up to about 50 to 75% of the tranche above them. And the last tranche is of course, like more than one and less than a hundred. So this is like, you know, how we think about, like, as you know, we engage with different customers, right? We put them in different places and they all have different needs. When you think about the Movia L safety rated sensor, for example, it comes with some standard software. So we don't customize it, but it's going to be standard software that's qualified. And that allows them to get up and running very, very quickly. because as you go to the lower tranches, you can imagine, you'll probably end up with more salespeople than engineers because to address so many customers, to get to those big revenues that we would need, you would need quite a lot of team. So we've developed a product that allows us to say there's a standard product and you can buy it and here's the map pricing. And we work pretty hard to incorporate all the different interfaces and all the things they need down below. The middle tranches is where the interesting part happens where we have the opportunity to upsell a software and the software is something custom that they would need. So the hardware is exactly the same, but the software content part of it, right, allows us to really extract value from the product. So instead of thinking it about like, you know, is it like five customers, 50 customers, there is a, you know, I mean, our Salesforce, we have quite a lot of customers, but we look at them in tranches because to get to like any kind of like, you know, future breakeven target, with industrial by itself. You know, we have to have a visibility of how do you get to some annual run rate that's respectable first, and from there, you know, how you would have growth. Does that answer your question, Casey?

Yeah, actually, that's a very helpful framework. So, just to be more efficient with everyone's time, I guess the last question, I'm just wondering about capacity. I'm like, I understand it might not be an issue today, but Sometimes when people are talking about what their ability to support is, it's helpful for investors to understand, you know, how many sensors could you produce? I understand you have multiple products, but what's the, you know, what's the flexibility around production? And, you know, if orders outpace what you expected or something, would there be any issues on the other side of the house in terms of fulfilling those orders, I guess?

There will be no concern about operations. I think our current capacity is, you know, I'll average it out about 45,000 units a year. And that's on a single shift. You know, we can certainly ramp it up. If you can think about if you were actually shipping that in units. So if you think about the production line that was developed for automotive qualified by Bayo that we acquired through the transaction, which is a fully qualified PPAP line, very high quality work. you know, at those kind of volumes, right? I mean, it can run much faster if we needed it to be. But these kind of volumes for industrial, they're, you know, would be a very significant player if you can fill up the entire capacity. So everything we've talked about so far, we believe that we can cover with this capacity. And as I mentioned, the Movia L product that runs on that production line, there's no other product that runs on that production line. The hardware remains the same. The differentiator is the firmware and the software that gets put. So you can do a low volume, high mix product without having to do a lot of configuration management except the software that has to run in there. So it gives us the flexibility to address multiple customers and, you know, get to a decent grant rate.

Okay, great. That's very helpful. And, yeah, it sounds like you're making terrific progress. So we'll look forward to see how things develop the rest of the year and into the new year. So thank you for your time. Thank you.

Thank you, Casey.

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

Thanks, Mike. So the first question is, management mentioned on the latest conference call 15 ongoing non-automotive RFQs. Trying to get a sense of where we are making inroads or seeing a greater appetite for our solutions. Please further describe the composition of those such as, you know, 5 for AMR or warehousing or 10 for heavy equipment. Are they primarily in agricultural and heavy equipment, or is there more interest in warehouse and forklift applications?

I think, you know, for all of us, we need to keep in mind the way I described the different tranches of how we think about all the different customers and how we sort them out. I would say primarily a lot of the focus right now is AMR. warehouse management and other industrial applications, but there is motion involved in the robots. Therefore, these are higher volume applications. Nothing compared to automotive would be, but still pretty high volume. So we're focusing on that first.

Thank you. Next question. What are the main use cases for MicroVision's product with these new industrial business opportunities? What problems are they solving? And how are we solving these issues in a way current solutions are not performing? What is the low-hanging fruit from business efficiency and performance upgrades to MTBF ratings? How are we locking in these opportunities? Are these through demos, NRE agreements, samples?

Yeah, I think if you think about what the problem is, that's a great question, actually. We have technology, but we have to understand what problem are we solving? Is it a big enough problem? So if you think about, you know, forklifts and other kind of equipment have been around for a long period of time, humans work in close proximity to them. You know, in all this space, it's hard for those OEMs to actually provide technology, you know, with safety, because most of the focus is always going to be on the automotive kind of application where there's much higher volume. So the kind of systems that have been able to field you know, they don't have the kind of capabilities and the kind of safety that is required nowadays. And as you can imagine, you know, everything is getting somewhat automated. So safety is one of those things that's expected, even in an environment where things are moving at a slow pace, but the payload is pretty high to get some level of safety. So as you think about the perception that was developed, the perception techniques that were developed for automotive can be adapted and applied to address these spaces with the same exact sensor. The real benefit is, think about it's no longer a LiDAR sensor. The hardware looks like a LiDAR, but the software inside it makes it a pretty incredible solution where the solution goes directly. The LiDAR, when it's mounted, that piece of hardware and software interacts directly with their domain controller. That's actually controlling whatever device, whatever motion controls that they need. And things like stopping and recognizing an object in the path, something cantilevered, you know, things that would be very hard for a 2D sensor, you know, to infer from a scene that a full 3D sensor is allowing them to create safety kind of magically. So, for example, you know, can you imagine a forklift with a full payload moving at, you know, full speed and the user does not notice that there's something on the ground that can actually get jammed up and, you know, you could even cause an accident. Or worse yet, that as you're going down an aisle, the way that things rack, that something is hanging in the aisle so it can't lever it over. And if he misses it, he runs into it and, you know, things start falling on top of him. This is real situations where, you know, the operator could get hurt, you know, serious bodily injury. With the 3D LiDAR, all those things and the software, effectively, you can stop the forklift independent of, you know, how much attention this person was paying. So recently I actually saw a demo of this running and, you know, conceptually you always think about, yeah, this is how it's going to work. But I saw it working live and I was amazed that they were completely jamming down on the accelerator full blast. And, you know, our sensor actually brought it to a low speed and kind of nudged it next to it. So couldn't find a way to make this accident happen. And this was, as you're asking, like, you know, how do we actually engage? We start off with making custom software, custom development samples that we give them, that we give them interfaces as well, communication interfaces, work with them to create these demos so their executive team can see how well it will integrate into their product roadmap. And from there, of course, we just talk about how commercial rollouts will happen, what their timelines are, what our capability is, the strength of the balance sheet of the company, our production capabilities, our team, give them confidence that we can support this for many, many years to come. Because in almost every case that I've been to, they look for a partner that's going to be around for seven or eight years because whatever technology they incorporate, they rely upon it. They cannot have switchovers every so often. So that's the focus area.

Thanks, Amit. And if I can just add, and our agreements, because obviously, as I mentioned, part of our Q4 guidance as well, This is the project in which we are actively performing the work for our customer. And when we get the approval, that sort of, you know, also triggers a rapid recognition. So just in line with the way we believe about the 2024 guidance. All right, next question. As investors parse the business aspects of these potential new partnerships, What's the best way to understand the hardware and software margins on these prospective deals? Can we talk about the return on investment for both customers, meaning how is industrial autonomy shifting the business models and warehouse logistics, farming, mining, et cetera, and how do they value this technology in their own businesses?

Yeah, if you think about margins, I think I'm going to have you talk about that so people can model it correctly. But the opportunity we have is clearly quite a lot was invested to create the hardware. We've spent, since we've taken over the acquisition, we've spent quite a lot of money to transition this product ready for production for the industrial space. It's taken us over a year. Quite a lot has been invested. So, of course, we would like to recoup our costs in there. So the hardware margins are going to be your typical hardware margins that customers, expect. I mean, some of them or almost all of them listen to our earnings call and read it. So this is something that they already know. Our big differentiation comes in with the level of software that they want. We're building upon a body of work that was done and we do something derivative for them. But in some cases, the derivative projects are small. In some cases, the derivative projects are pretty massive. And then it comes down to, you know, do we, you know, we would rather have volume commitments from them and happy to amortize the R&D cost over the volume. So the software volume is, of course, the big part, right? Because what we're helping them do is take away costs from their system when they don't need an extra ECU and cables and their software team to create the application. We provide them the software that goes directly to the domain controller, and it is to a high level of qualification because the team is very capable, coming from a discipline of automotive software, to have well-qualified software to be provided to them. So I think it gives us an opportunity. I would say that what's exciting to me is we have software content in here, and it's a problem that they need solved. And we can get them up and running years in advance of their team actually being able to deliver based on somebody else's sensor without the software existing right now. So the overall solution margins, I think, could be favorable. And Anubhav, I'll leave it to you of how you'd like the market to model it?

Yeah, no, I think the way to think about this is the value proposition for the customers is really twofold. A, with our solutions, they can actually deploy their robots faster, so which helps them in turn collect revenues faster if these companies are actually using the, are in the warehouse distribution or logistics business where they can deploy more robots efficiently and obviously, you know, at their end can typically grow their top line faster with more of these robots coming in the supply. The second aspect is the cost because obviously, as Sumit mentioned, when there is a downtime, it actually costs money for these providers, not just in terms of idle time or the opportunity cost, but also the loss of inventory, which I think which happens when, you know, pallets can crash over and which again leads to downtime, et cetera. So the way our customers are looking at this solution or the business problem that we are solving is helping them deploy these robots faster and secondly, reduce their costs of operating these robots as well, which is sort of what our customers are looking to extract from our solution, which in turn helps them Now, in terms of margins for us, like Sumit described, you know, I would like to sort of, you know, obviously have a more detailed guidance once sort of we have visibility into 2025 and the ramp, which I think Casey also asked about. But like Sumit described, the way to think about this is hardware would have a standard margin, but the software would have a higher margin because given obviously we are using a standard product perception software, and then really customizing it for the particular application, and then amortizing it over the piece price of the customer. Next question. How does Microvision balance pursuing high-volume long-term automotive contracts with generating near-term revenue through industrial LiDAR applications? I think let me take that question. I think this is a very interesting question because I do believe that any company which solves this problem will be the last standing LiDAR company given the state of the industry we are in. Because obviously, as we have been discussing over the past few many calls, the OEMs really have only low volume projects and really are requiring all LiDAR companies to put an investment on their own end at their own dime until the volumes really ramp up and take off until the later part of the decade, given where the LiDAR adoption is in their economic cycle. Now, obviously, this makes LiDAR companies really strategic to make sure that they can survive or invest prudently to be around to be able to capture the volume because Like Sumit described, that's where the economies of scale will kick in. And that's where you sort of, you know, you get the benefit of a company with a big order backlog running into billions of dollars over several years. But until that time, the bridge between now and at that point is going to have to come through industrial, which not only helps reduce the cash flow, but also build confidence with the automotive OEMs because they understand the company has diversified revenue streams and which is able to sustain itself in the absence of high volume projects because what the OEMs want is their suppliers to have longevity and the visibility to be around for a long period of time and be able to withstand these economic cycles that go on. So the way we believe that we have positioned the company well is executing on this near to short term industrial applications while we continue pursuing the automotive. And like I said, some of the industrial factors I described others, the competition is going to turn out because obviously that's sort of how the economic cycles are playing out. But ultimately, that's how we believe that we're going to be the last standing ladder company, given our strategy to execute on these opportunities and wait for the automotive revenues to ramp up in the later part of the decade. Next question. What is Microvision's strategy for navigating the evolving landscape of tier one suppliers in the automotive industry? How do you plan to leverage relationships with Tier 1s to secure high-volume LiDAR contracts? Are any automotive RFQs still expected to be awarded this year, or will they be in 2025? I'll take that.

So I'll start with the last section first. Are any of the RFQs planned to be awarded at the end of this year? You know, we're in November right now, and I would, you know, cautiously optimistic, but I would say that the OEMs are working on their inner strategy. They're adjusting what they need and how they want to incorporate it. But this also goes into your question about Tier 1. And I think I mentioned this a couple weeks ago when we had our Q&A session. I'll just remind everybody. So I was in a meeting with an OEM. And they clearly indicated that it would be great that if a tier one would provide a solution, you know, you should partner with it. And, you know, we said, okay, we're open to that. And immediately the answer was, well, yeah, but we don't like those guys because, you know, they charge too much and, you know, really you guys are the inventor of it and, you know, we get better service from you directly. So this paradox exists with the OEMs, not the tier ones. We will collaborate with any tier one as a directed by agreement that an OEM would like us to do. But as you can see, the tier ones, if you just follow the news, they're retrenching in other technologies that is their core technology. So they are not looking to take on bigger projects. But the real issue is that if you were to think about just the LIDAR, every LIDAR company gets up, every CEO gets up, and they talk about how important it is, how much they're going to win. But this is my take on it. You've got to think about not just the LIDAR. You've got to think about the solution that they're providing. So I think I've talked about this maybe a little over a year ago, so I'll remind investors. If you think about it, it's a vehicle. When you're a customer, you don't care, you know, what the technology inside is. What you care about is the end cap rating. Do you have a five-star end cap rating in the product, and what's the piece price? To deliver that, tier ones and OEMs look at LiDAR, radar, camera modules, right, ECUs, and put together a system that's affordable so they can deliver at a very certain cost. So just the latter story is not complete. OEMs are looking at the entire system. So what takes so long is they're working through the evaluation of what they can do. This is where the tradeoff comes in, where people always ask the question, well, what do you think about imaging radar and what's going to happen there? Look, I'll give you my take. And this is not just my take. This is coming from talking to quite a lot of people. Imaging radar is not a threat to us. It is a rather large piece of hardware that is very hard to integrate into a car. Antennas are complicated. And it's nowhere near the performance LIDAR gives them at lower cost. So from a vantage point of how LIDAR gets adopted, you could actually think about the problems that OEMs are solving. What is an acceptable level of L2, L2+, or L3 features they want to incorporate? And what volumes in each one of those they can incorporate? One thing is completely common. Anybody that's trying to sell a LiDAR that's $1,000, $1,000 plus to the passenger vehicle, that's just hokey. There is no tier one that's interested in that. There's no OEM interested in that. So what we focus ourselves is, you know, solve the problems for scale, that at some point, if they want us to scale the product, we can place an order for 5,000 plus wafers. Everything's in silicon. Dice them up. Know how to assemble a fully automated line. Cost could be down, but we need to be able to put very, very large inventories at play. And that's how the economy scale comes in. And that's how the rollout is going to happen. That's how the investors should think about it, that when you think about this OEM space, these are all the forces at play. And we will work with tier ones. We'll work with anybody.

But there's other things in play beyond just the LIDAR or a choice that an OEM has to make. Thanks, Amit.

Do you anticipate the automotive OEMs will be selecting LiDAR partnerships in the near future? We understand that it's their timeline, but based on your knowledge of the product development negotiation cycle, give us your best estimate on that timeline at this moment.

Yeah, I think typically an automotive OEM cycle for any kind of development is three years. So as 2024 is ending, 2025 is coming. This is about the right time to have to make the selection. Then what happens is that we have to develop the product, you know, all the middleware, so the LiDAR can plug into the entire car system and the software works. You know, that work is done by somebody else, and, you know, we do our part of it. That goes in there, but what they really want is that they get sensors from us that have the final quality point cloud and perception that they need. And then, you know, they have a lengthy period of time where, you know, they take those B-samples, they have to do a lot of validation testing meaning that they have to drive these built cars around different roads all over the world to collect enough data to make sure they can validate that the solution not just the lighter the solution they're providing meets and exceeds the expectations that has been set forth by them so from a from a vantage point yeah you know the products you know will take about three two and a half years but a majority of that is the oem's validation cycle so um We work very closely to get to that final RTL, final ASIC, final image quality. So when we show things right now, they can see what the final point cloud could be and how stable it is and how much manufacturing you have in place. And that's what the schedules are dictated by is how much time do they need to develop. And it comes down to if every OEM is doing a slightly different variant of a feature, they will have their own timelines to go develop their part of the software and their validation planning.

Thanks, Sumit. What is Microvision's perspective on the current competitive landscape in the LiDAR industry? How do you differentiate your technology solutions and business model from other key players? We see competitors facing financial challenges, which seems to place Microvision in a strong position. How does the company intend to convert disadvantage into profitability? Yeah.

How do we intend to convert to profitability? What I'm excited about is scaling. A great question that was asked by Casey is somebody comes and knock in, can you actually get to a certain volume, you know, to start going from where we are to start getting to like maybe 40, 50,000 units a year. That's really good scaling. And that's only possible because the products have been designed with mass replication as the bottom court. And you have to start with the understanding. I may have to replicate something. Our differentiation is when I think about the Movia L future, Movia S think about Maven. I think about in terms of wafer. To steer the beam for Maven, I think about a MEMS wafer. I don't have to think about prisms. I don't have to think about electrostatic mirrors. You know, there's MEMS mirrors, but, you know, we do electromagnetic, which is much more robust. We can actually scale, and we've done that. I mean, we shipped hundreds of thousands of units to Sony. We did, you know, quite a lot of volume with Microsoft, as you all guys know. So we know we can scale that. And, of course, on the other side is the sequential flash product, the Mobia product. That also can be scaled. It just comes down to the amount of silicon. So for me, that's, you know, that's the number one thing I think about that, you know, how would you actually scale it? And, you know, is there a competitive landscape? Everybody else is out there talking, right? You know, look at their steering. How do they steer the beam? How do they actually get the laser to the points there is? Then on the other side is, what wavelength are they using? We use 9.5 nanometer lasers, Vixels and, you know, electromagnetic lasers all combined. So again, this is in a space that can be scaled. Other people that are doing 1550 nanometer, huge cost there. They're not very clear about like really how are they going to get to the hundreds of dollars, you know, sub $1,000 for an automotive OEM and for industrial space, right? Can't charge, you know, five, six, seven, eight, $20,000 per sensor and think about any kind of scaling. There's a niche market there. If you think about those layers, those tranches I'm talking about, imagine the higher up you go, the economy skills have to kick in. So our competitive advantage to everybody is I can scale at price points that are very competitive actually. And we will enable them faster. Whereas others will have to do a lot more sales job as in like, you know, what value they have because their price is so high for an application and they're going to struggle with it.

And if I can quickly just recap, because I think the strategy is important as well, because to convert this advantage, to get the scarcity premium, which will ultimately end up happening for, any company that survives or is the last standing lighter company will command that premium. The way to get there is diversifying your revenue streams before the automotive volumes take off. And in that process, you have to keep your burn low as well because I think, especially now that we have an institutional investor with us as well, because I think making sure running a lean shop is very important because I think everybody is now going to be looking at LIDAR companies as the time taken to get to cash flow break even. And I think the way to think about this is what revenue will support each and every LIDAR company's cash burn until they turn the corner and become cash flow positive. And just assuming 30% gross margin, I think all investors should be looking at almost multiplying the cash burn by three is what is the revenue potential or the revenue quantum needed for LIDAR companies to be cash flow breakeven. And that's sort of how all the large financial institutions would be looking at this industry as this industry gets more mature and the time to cash flow breakeven gets closer and closer. Next question. Can you discuss the types of customizations OEMs typically request for LiDAR solutions? What are the implications of these customizations on MicroVision's development, timelines, and cost?

Customization, so let's start from the middle up. The real customization starts with the interface. Every vehicle, you think about it, It's got its own language. Every OEM has got its own language, how different things plug in together and talk. There's a significant amount of work has to be done in software development to get those interfaces right and get them automotive qualified. And this is all custom for them. So if you think about, you know, earlier this year, we're talking about a, you know, OEM and, you know, there was a lot of customization and they wanted to pay only a portion of the NRE. None of the work that we do is reusable for anybody else. So that's kind of challenging where you could have $45 to $55 million worth of software customization and they only want to pay $8 million for it. And you can't reuse any of the work anyway. So you have to find a way to amortize that and then get it done at the piece price. So that's the big part of it. There's quite a lot there. A lot of people have to work on that because you have a beautiful point cloud, you have beautiful perception, but it has to be able to talk directly to their system. And there's quite a lot of safety and security and stack that we have to go through. there's not that much customization of the hardware because when we work on anything, like for example, you know, for the longest time I said, you know, well, my provision Maven product is going to do up to 14.7 million points per second. Not every customer wants that. So some of them want, you know, only in a region of interest, much higher resolution. They want lower in the sides, lower up in the upper two quadrants, upper left and upper right, because that's just really pointing in the sky most often to save power. And that's a configuration difference that's done in the firmware that allows for them to get, you know, it's the same scanning that we're doing, but they get their customized point cloud in there. Again, software customization. But there's very little hardware customization, if any. You know, mounting holes and, you know, brackets and connectors, right, perhaps there. But I would say 80% of everything, even maybe 90% of everything, is really in the software side. internal and, of course, middleware.

And how much of the competitive advantage pieces of Maven revolved around dynamic view? Now the OEMs have requested the company to make it simpler, and this feature no longer seems to be a game changer. So what is left that keeps making Maven superior and outlasts any other LiDAR product?

Yeah, listen, the dynamic view LiDAR, if you actually take a look at it, and if you know what you're looking at, there's nothing out there that can actually fill in the point cloud as densely in the different fields of view as possible. So it establishes a very agile limitation of physics. You can't fire more pulses. You have multi pulses to think of it. Multi uniquely encoded pulses. That's unique feature to begin with. So here we have all these different high density work that's been done. Ultimately, the OEMs decided that great, but our software can't handle I mean, we didn't develop the dynamic view LiDAR just on our own volition. I mean, we always thought it was the right thing to develop. But we had OEMs that said they would want to see it, right? So we developed it. We've seen it. But on their side, it's just a massive amount of data, and their team would prefer more fixed pixels. We could do fixed pixels, right? I mean, we were a display company for the longest period of time. And, you know, we're very good at fixed pixels. So the latest demos that you may have seen the videos of that we put up, Now, those are fixed pixels, and they look really dense and really well done also. So it actually gets down to what they put in the specs we're also able to achieve. So what's the differentiation? Well, the differentiation still remains. It's a very high quality point cloud. It is low in profile, low power, and the cost. I mean, that's actually number one, that it is a predictable cost as they go through scaling. So even as they get in the Maven product, as I think about the future and, you know, what they're asking for is a significant amount of performance, right? To be able to get into the target prices that they have, that's very, very compelling. So I think like, you know, the technical people on the call, our investors, like sometimes, you know, they don't value this, but I would say our capability to maintain cost for our customers, scaling on silicon, it's actually a big differentiator, right? We can always do the dynamic through LiDAR. We've demonstrated it to them. We have it. If their teams ever needed it for a special application, you know, we can be that one-stop shop, LiDAR shop that can do it. On the Mobia side, you know, we have our current Mobia sensor. It's kind of large. You know, it was designed for a different time. It's good for trucking, I think. It's definitely good for industrial. But pretty soon, you're going to start seeing some marketing work we're going to do of what the future Mobia S is going to look like. And this thing is, I would say, a couple of – snicker fun size bar next to each other. It's tiny. And you can imagine putting into a car where it's not so obscene, you know, it would not be taking big portions of the car and it could give you a 360 degree cocoon, something that even a corner mounted radar, 180 degrees or 270 degrees can't do. All right. And this is, this is going to be a game changer essentially because it would be higher volume. And that product as well has the same principles of how it advances where you We have a certain high-resolution product that's been created, is differentiated, and the perception software is already provided to them. That allows them to, even the automotive space, to incorporate these features faster and at lower cost. So cost may not sound sexy to people, but it's actually probably the most important variable. The technology exists there, and I can talk to you about how our technology is better than somebody else, but it's technology at cost is a real metric if you think about it. It can be delivered at a cost. So if you go buy a car, is it only available in the car that's $100,000 or can you actually incorporate this in a car that's going to be 40 grand someday? So that's one of the differentiation that we control, which is the overall cost of the system. We can help reduce that.

Thanks, Amit. The next question is the Mobileye CEO during their company's recent earnings call seemed to suggest that imaging radar may eliminate the need for LiDAR in the future. Possibly all LiDAR, but most likely in any case, short-range LiDAR such as Movia. How does Microvision view these comments and what impact this potential shift could have on Maven and Movia's future?

Yeah, I think, you know, he's running a, you know, company that's got like, you know, billions of dollars in market cap. You know, they have done billions of dollars with the revenue. Respect him. If you've ever seen an imaging radar, pretty large and chunky, and the number of channels that they would have is in the thousands, whereas the number of channels we're providing is in the millions. So the overall density of the point cloud and power at the low cost and the low profile, the small size of the LiDAR, it makes it pretty compelling. I do believe it was Mobileye also. I don't know who this was. I believe it was the CEO on the last call saying time-of-flight LiDARs. I mean, they got out of the LiDAR business, right? The time-of-flight LiDARs. are at a point and a cost point that really is very, very compelling and competitive, right? So clearly, where we are, imaging radar, the only thing they provide is velocity. While there's plenty of radar that may not have this massive pipeline of points compared to a radar, but it's nowhere near, it's orders of magnitude less than what a LIDAR is already providing. You know, velocity could be done, and again, you can fuse radar and LIDAR align these clusters and assign the velocity that a radar sees to a high density cluster from a LIDAR. And, you know, some of those radars can be as cheap as $40, $60, right? So they are on the cheaper side of it. So we get velocity that can be done at a very low cost compelling matter. And we know quite a lot of radars are sold, but if you really want to do safety and you want to do these kinds of high speed hybrid pilot applications, or, you know, low velocity urban applications, you're going to need a measurement device that's small and cheap incorporated in the car, make it affordable. And it's giving you a direct measurement on millions of points in the field of view. So I respectfully believe that LiDAR is, I mean, very, very competitive for the solution that is needed. And it is unclear if imaging radar is going to have the inroads that they want for the features.

If it was the same features side by side, I don't believe that imaging radar can do it without a lot of help. Thanks, Sumit.

We do have more questions, but I guess we're coming up on the top of the hour, so maybe I'll take one more question. What steps is Microvision taking to attract more analyst coverage and increase visibility amongst institutional investors? So let me take that question. So I think this convertible financing is actually I believe is a very transformative step in Microvision's evolution because what we have done is successfully as part of this process, like I mentioned, attracted several financial institutions which submitted their term sheets. And we ended up selecting the partner based on their track record. And what I think this does is this has actually improved our visibility quite a bit, because obviously now we are on the radar of, because of this strong credit profile, we're on the radar of almost all fixed income investors, given when one investor comes in on board, you can imagine all the other peers start tracking companies, their portfolio companies and their investee companies to track their return and performance. And I think that's sort of what I believe um has been um a very interesting um observation which i think which came out as part of the the process as well what i described is as this lidar industry gets uh becomes more mature and uh the the crowd is pinning uh the focus on running uh a very uh steady business with a clear site to achieve cash flow break even and not just promises and big revenue numbers being thrown around is going to be the key. So execution is going to be the key no matter what. And I think what I described earlier as the company which would be able to come out successfully and will command that premium, that scarcity premium and all others have sort of whittled out is going to be the revenue mix and the diversification of revenue of the portfolio, which in turn even bolsters confidence among the new and existing customers as you have multiple streams as a business, as you have multiple streams of revenue supporting your cash flow and your path to profitability. So I think all these are, we have already established quite a lot of success in improving our visibility amongst the financial community And this transaction is just a highlight of that, that such a reputed institution was able to partner with us on as a single investor. I think what investors should also appreciate as a single investor, putting in this quantum of capital to work is again, a sign of confidence and a vote of trust in the company's future and the sector. With this, what I do promise is for next quarter, we would be including some of these questions as well. And, again, we thank you for your time, and we look forward to speak with you next year as part of our Q4 earnings call. Thank you, everybody.

Thank you. This concludes today's conference. All parties may disconnect and have a great day.