MicroVision, Inc. (MVIS) Q3 2021 Earnings Report, Transcript and Summary

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

Thank you. Good afternoon and welcome everyone to MicroVision's third quarter 2021 financial and operating results conference call. Joining me on today's call are Sumit Sharma, Chief Executive Officer, and Steve Holt, Chief Financial Officer. The information in today's conference call includes forward-looking statements, including statements regarding product development, potential product sales, scalability of technology and designs, expected performance of products, comparisons with competing products or technology, market opportunities and future demand, advantages of our technology, business and strategy opportunities and execution, expected customer and partner engagement, product development, applications and benefits, commercialization of our technology, strategy per customer sales, maximizing shareholder value, managing costs, future royalties, projections of future operations and financial results, availability of funds, as well as statements containing words like potential, intend, believe, expects, plans, could, likely, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. We encourage you to review our various SEC filings, including our annual report on Form 10-K, filed on March 15th, 2021, and our Form 10-Q, filed on April 30th, 2021 and August 12th, 2021, as well as various other SEC filings made from time-to-time in which we discuss risk factors associated with investing in MicroVision. These risk factors could cause results to differ materially from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC’s regulation G. For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as for all of the financial numbers presented on this call. Please refer to the information included in our press release and in our Form 8-K, dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com under the SEC filings tab. This conference call will be available for audio replay in the Investor Relations section of MicroVision's website at www.microvision.com. And now I'd like to turn the call over to Sumit Sharma, Sumit.

Thank you Lindsey. Good afternoon, everyone. I would like to start off by walking you through our progress in the last quarter, including our product introduction at the IAA Munich mobility show, and our priorities to frame the year ahead of us. We have made progress since our last call. In September, we introduced our LiDAR sensor at the Munich mobility show. It was a great opportunity to showcase our technology alongside our competitors. ADAS safety, and the need for LiDAR has a central sensor, was part of the story for every OEM and Tier 1 that exhibited at the show. The largest volume opportunity and recurring revenue resides in OEM programs for automotive lidar sensors, which has been our focus for the last several years. I can say with confidence that the rates to secure an OEM program for level 2 plus and level 3 ADAS systems with lidar as the central sensor is still wide open. No lidar Company has yet secured an OEM deal that is recorded on its financial statements as meaningful backlog. I believe MicroVision is ahead of all of our competitors in several key areas. Based on our work with a leading global consulting firm, we expect OEMs to make partnership decisions after careful and thorough evaluation in the next 16 months for launch of new EV models with more advanced ADAS features, which we'll start to shape 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 1 meetings. OEM 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, the each of these categories. And we have received acknowledgment of this in our meetings with OEMs and Tier 1 companies. Potential customers and partners have consistently been impressed by CapEx size of our sensor and the number of features packed inside. Our capability to provide highest resolution net range with dynamic field-of-view and velocity field while running at 30Hz is a major accomplishment of which we are very proud of. The 30Hz could enable higher-speed operations of automatic emergency braking, forward collision warning, and automatic emergency steering ADAS features that are expected to be the centerpiece features for future vehicles. Our technology will also provide larger system cost savings than competitive solutions, an important factor in OEM's final decision process. An ADAS solution integrated with our lidar would require a lower number of sensors to meet ADAS' safety requirements and result in a lower overall system costs compared with the center stack utilizing lower resolution and lower frame rate lidar solutions. Working with a leading global management consulting Company has allowed us to confirm this, enabled us to more widely start introducing our products to OEMs. As previously stated, we expect to demonstrate our integrated software and hardware ADAS solution by June 2022 that will demonstrate higher levels of ADAS safety features that OEM desire. As I recently discussed, our technology is built on well-known technologies for lasers, for detectors, , and custom silicon components. There are no exotic materials in our sensor, so we can quite easily show our cost scalability to OEMs. MicroVision know-how is combining these standard materials with our algorithms, software, and custom silicon in what creates incredible value through our intellectual property. Additionally, with our history of delivering products for world-class customers, like Microsoft, for challenging applications, demonstrate 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 1 partnership remains our focus. Our team is working around the clock and polishing our sample for OEM evaluations that are expected to continue well into 2022. The OEMs require a more specialized product for automotive ADAS and a product for the general market. Because of the large invaluable OEM opportunity ahead of us, we have decided to focus our attention on the OEM business, what we call strategic sales. We will continue to prepare a product for direct sales, but at a slower pace. We expect it will be available in the middle of 2022. I believe we need to maintain our focus on strategic sales given the time frame for OEM decisions and the value this tragic could represent to our investors. One of the questions I often get from investors is MicroVision's plan to go it alone. Let me clarify my thoughts on this. The opportunity for an OEM program is tremendous and represent significant value for our shareholders. But no Company can go along in this space for such a safety critical system. Partnerships will be required to the OEMs Tier 1 s 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 where 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 8.5 years of dedication to MicroVision and helping the Company navigate through challenging times to the most financially secure level it has been in its history. Steve and I have worked closely to my time at the Company, and I'll miss his focus and friendship. We also announced Anubhav Verma who'll be joining us on November 15th as our new CFO. I'm excited that he brings with him great energy and solid experience from years executing in capital markets and investment banking transactions. I'm looking forward to working with him and expertise he will bring to our management team. In other news of interest to our shareholders. Gabe Alan, MicroVision's long time IR consultant, is retiring at the end of November. I am very appreciative of Gabe's work over the years supporting the Company's communication with shareholders, he will be missed. I would like to end this update by thanking our shareholders for their enormous support and confidence in the Company. I would also like to sincerely thank our employees for their continued hard work and dedication in getting us here and remaining focused on important work ahead. Let me turn the call over to Steve to discuss the third quarter results, and then I'll be back to provide some additional perspective. Steve.

Thank you, Sumit. Good afternoon, everyone. For the third quarter, revenue was $718,000 down slightly compared to last quarter's revenue of $746,000 000. All of the second quarter's reve -- third quarter's revenue was royalty revenue, and attributable to our augmented reality customer. As I pointed out before, royalties related to this customer will be credited against the non-refundable prepayment the customer made in 2017. Once the prepayment is exhausted, the customer will again making -- begin making cash payments for royalties due. At the end of Q3, the balance of the prepayments stood at $5.8 million. The $5.8 million is on the Balance Sheet as a contract liability. I'd also like to point out that there is no time limit within which the prepayment must be used. As long as the components we developed for the customer are in production, royalty revenue will continue to be generated. Third quarter cost of revenue included a $10,000 credit related to the reversal of a warranty accrual. The result is the third quarter gross profit of $728,000. In comparison, gross profit was $777,000 in the prior quarter. Operating expenses were $10.8 million in the third quarter, which was considerably lower than our guidance of $14 million to $16 million discussed on August 4th and lower than the $15.7 million in the prior quarter. The decrease in operating expenses from Q2 was primarily due to a decrease in share-based compensation. Share-based compensation was lower in Q3 because Q2 had a one-time expense of 4.2 million and some employee awards earned in Q2 were not repeated in Q3. If we subtract share-based compensation expense from operating expenses from both Q3 and Q2, operating expenses would be 8 million in Q3 and 7.8 million in Q2. Our headcount at the end of September was 83 up from 74 at the end of June. We're a little behind in our hiring plans due to the very tight labor market. But we're pleased that we're 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. Expect by the end of the year, we will have a 110 people, a little lower than our prior guidance of a 110 to 125. Our net loss in the third quarter was 9.4 million or $0.06 per share. In comparison to second quarter net loss was 15 million or $0.09 per share. Because of the large swings and share-based compensation, we think it would be useful in making comparisons if we provide an adjusted EBITDA number. Adjusted EBITDA is earnings before interest, income taxes, depreciation, amortization, and share-based compensation expense. For the third quarter, adjusted EBITDA was negative $6.2 million, and for the second quarter, it was negative $6.7 million. Third quarter cash used in operations was $10 million. In comparison, cash used in operations in the second quarter was $6.7 million. The increase is due to adding a million dollars in component inventory for our long-range lidar. Also in the quarter we paid security deposits and prepaid rent for new lidar testing and office space. Those deposits and rent came to about a million dollars. And additionally, in July we renewed our D&O insurance, our insurance premium increased substantially due to our increased market cap and general conditions in the D&O market, and that accounted for about $900,000 in increased cash usage. Cash and equivalents at the end of the third quarter was a $125.1 million, down from a $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 17,000 square feet of space that will be used for both lidar testing and office space. Start paying rent on this space in November. Additionally, we have placed a deposit for a lease on a building next door to the testing facility. If we are unable to complete a negotiated exit from our current lease, with a positively returned, if we can negotiate that exit, we will likely move our main office to the new facility in late summer or fall of 2022. The new facility is around 36,000 square feet and the facility we would be leaving is around 31,000 square feet. Now I'd like to get some thoughts on our expectations for the fourth quarter. First, let's cover revenue as Sumit mentioned; we're focusing on the automotive OEM business because of the opportunity for high levels of recurring revenue. In the short-term, this effort will consume a lot of engineering resources. As a result of this focus in the timelines that come with it, we have pushed back the startup production of LiDAR units for direct sales from Q4 of this year to the middle of next year. So we expect Q4 revenue this year will continue to be royalty revenue in the range of 500 thousand to $600 thousand. Now, for operating expenses. Q4, again, will have a significant amount of share-based compensation in the range of $3 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, including the share-based compensation. Finally, cash used in operations. In addition to the increased expenses I mentioned, we'll continue adding inventory of long lead time components for our long-range lidar, so I expect to see cash used in operations in the $10 million to $11.5 million range. Finally, let me echo Sumit's excitement about our competitive position and the reception we received at the IAA Mobility tradeshow last month. That show was really the first chance we had to show our hardware, and the response we received was 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. That strategy that are described today, though ambitious, is built on MicroVision's well-established technological debt and maturity, including our proprietary asic, our cost-effective components. And our demonstrated ability to productize at scale. We expect that our engagement with OEMs will continue as we support evaluations of our sensor in Q2, 2022, and of our software features in Q3, 2022. We believe that MicroVision will be well-positioned to support OEMs as they roll out new vehicle programs built on next-generation technology. We remain confident in our ability to successfully execute in our strategy and unbullish on our future. Let's open the call for questions.

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

Hi, thanks for taking the questions. Just first, let me most importantly start off with just congratulating Steve on, I guess, his retirement, and just say what a pleasure it's been working with you all these years. So that out of the way, Sumit, first, I know it's off topic a little bit, but questions about -- get your thoughts on Facebook's big thing today talking about changing the name to Meta, and the big move in the metaverse, and just whether or not you think that spurs investment by some of the other competitors there in terms of just the AR world? I know that a lot of the AR and VR stocks got a boost today as a result of the news. So just the opinions on whether or not that spurs further investment from your one big customer or from other interest from other parties in the AR space?

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

Great. Yeah, thanks and on the products out today and focus more on OEM versus direct sales of sensors. On that front, just little move more on the color. I mean, I guess obviously longer-term now OEM is the bigger opportunity. I guess the thought would be seeing 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 just get a sense of the acceptance of the products in the marketplace. I don't know if that would be helpful in some sense, but ancillary to the big mission who is to get into large design wins and things like that. So just a little bit more on the give-and-take on your thought process there. And then, thinking about the fact that there's -- you talked about having product available middle of next year now. Is that -- so should we start to model in thinking about not seeing any product revenue until that point in time, or should there be some sample revenue for some of these OEM opportunities that are out there?

Yes, I think that's a good way to think about it. And I think the sample revenues is like incidental. Think about what I just talked about, that there is working with a global management consulting firm, making sure that all the data as the market has that we're up to speed on that want to make sure that we're aligned to kind of minimize, reduce had me surprised as they come and these endeavors. So 16 months ahead of us is where some of these key decisions are getting made. And it is important for us to focus on that and not let that opportunity pass us by. Now, strategic sales represent the biggest revenue, recurring revenue for any Company in this space. All companies are hyper-focused 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 or I think a common term that people are coalescing around is spot sales. Those are incidental, right? They go up and down and they have market acceptance. We're going to that as well. But to start something like that, you have to focus the team on addressing that for the market. It's not just something -- software that you're selling. You're selling hardware and software and partnerships. So it will take quite a lot of effort. And I want to make sure that the Company focus on the strategic side of it because we do have a significant advantage. And I'm just more enthusiastic about it after Munich . 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'd really have all the things that everybody was looking for and anybody that read anything about it or visited the Munich show, can probably attest to this, where our competitors are showing things that are the size of like a VHS recorder. And here we are a VHS cassette to the sensor side, the cost, the technology. We actually are ahead than our competitors and it's obvious to the market right now. So therefore for us and focus on the biggest opportunity in the world right now in this space. I think the most prudent thing that we're doing, as far as the sales, yes. Those are things that are there, but we want to focus the team on the big thing given the fact that next 16 months are going to be very, very active.

Right. I think so. The last question for me, so you talked about burning $10 to $11.5 million next quarter, I imagine that's going to quarter as of hiring picks up pace and the investment in this sales and in engineering everything else. Talk -- that equates to somewhere to the tune of $50ish million between now and the end of next year in cash burn. 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 in the Balance Sheet serious and then here for the long term or whatever. What level of cash is necessary and just maybe some of the thought process on why you didn't tap the ATM in the current quarter? Thanks.

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

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

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

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

Okay. Thanks, Glenn.

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

Hi, guys. Thanks for taking my question. I just thought I'd ask 1 or 2 on lidar to start here. You guys probably saw the GM had Investor Day the other week and they talked a lot about their new Ultra Cruise product, which I believe is going to standardize lidar, at least on certain models that are featuring Ultra Cruise. So I was curious if you could just talk about any more -- I guess just in the industry broadly. Are you seeing more OEMs wanting to adopt lidar? Can you talk about how the trend is changing there over the last few months, specially that GM announcement the other week? Thanks.

That's a good question. I think the eye-opening part is actually public. Munich was one of the first auto shows since COVID so let's not forget that. Every OEM, every Tier 1, if you visit with them, every model they were showing, they would show where the lidar would be placed inside the car. And in most cases some of the lidar they were showing, were not even operational they were just showing like a marker. But it clearly shows that every product they're talking about that will have these higher-level ADAS, safety features, there’s a lidar at the central feature as part of that. And now you're talking about OEMs that ship in the tens of millions of units per year. Their strategy is pretty well known and OEMs everyone goes OEMs. That the top tier 1 OEMs and the mid-tier, Tier 1 OEM s, they all had a lidar as part of their product offering. So it's everywhere. I think you know ADAS safety is coming as more battery-operated electric vehicles become commonplace. Higher levels of safety is a central feature that is the real value proposition for them. And lidar will be required for that. So I think like the Ultra cruise the interesting product you say it's standard, but yet it's selected lidar. But if you look at the feature of the standard cruise -- the Ultra cruise, I mean, the Ultra Cruise is nice. In the lidar actually. So again, it's starting to happen in the premium models. But over the period of the next several years, we'll start seeing it across the board on different programs.

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

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

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

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

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

Thank you.

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

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

So I think I covered this in the call today and the last question with Sam, but let me iterate that. So let's think about 4 categories in which you want to sort all the sensor companies and figure out what's best about them. Believe it or not for OEMs, the number 1 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 then. So there's things from a cost standpoint, as I just said, things inside, they're predictable. So when we actually talk about some cost numbers, projection to the future to a level of economy at scale, it's much more believable. There's no fantasy. There's no -- these are things that we verify because there's fabs out there. These things are pretty easily reconciled. But the cost of a system is the interesting part. Think about when you have a vehicle like this, you'll have a lidar; you'll have some lower quantities of other sensor stacks including lidar and camera modules, and the ECU. Ultimately, our lidar with the higher resolution, some of the features, key features that we've developed, allows the system costs that they are forecasting today to be reduced. And through our partnership with our global consulting and management companies, what we found is that our system put inside a level 2 plus level 3, would be actually competitive to 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's technology could address is significantly wider than just what is in the future for level 3 or level 2 plus. So cost is a big one. So I would say, clearly, very, very confidently, I can say this and I check this, very confident. And when it comes to costs, best in class, hands-down. Next one is size. As I said, people still want to buy vehicles. And if they buy a vehicle, the design of the car is actually important. The beauty of it is still in the lines of the vehicle. So having a sensor that meets cost requirements and fits inside the body of the car in all different places based on what the OEM needs for flexibility, that's important. And 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 1 visited us, that one of the first response to them was like, wow, It's really is very nice and small and tiny. And we went through and talk to about it, and they were very impressed. Seeing the live demos, seeing some of the other road testing there that we demonstrated, and the hardware there, I think -- so clearly like the size of it actually makes a big difference and it's a big advantage for us. Anybody that's been in hardware in the industry will tell you that if you're showing hardware and like our competitors where that are significantly larger, to reduce that to take several years and significant amount investment. But for us we're already there, this is another big advantage that we have. So again, I would consider as best-in-class because of that and that’s demonstrated publicly as well. The third one, of course, it doesn't matter what the features are, doesn't matter that range and the point clock density and the frame rate, and things like dynamic field of the view. We have labored -- our team has labored on 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 features we intended to create with these OEMs, first of all, there was surprise that we actually had such a deep understanding of what was required. But after that, they were actually really impressed that anybody could even take on our dishes; go to produce something like this. We did it, we demonstrated it. And 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 allows reducing not just the future costs of our lidar but also their system, that's how they reach economies scale. That's how they'll have more models that they can actually put his on to. So that's an exciting thing. So this is how to think about features. It's not about this feature versus X feature. One OEM may value range more. The other one values resolution more. The 3rd one may value some combination. We can support all of them from the same hardware. That's a very, very big thing. We're not tied down. So as you mentioned, our team works very hard to polish the features and make sure that the OEMs, 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. So again, best-in-class. We don't have to develop a new product to satisfy their needs of understanding what's possible. The last one I would say, maturity technology. So as I said, things that I'm talking about, thing that these companies had have a long history. We have history with big companies like Microsoft and Sony and others that we have demonstrated that scale. So really, regardless of how much revenues companies generated in its history. The core technology maturity has been demonstrated, and that's actually a big part because that makes a believable, that makes something -- that's the partnership that people want. So again, I believe very strongly that our maturity of technology significantly higher for a silicon based system. People can have and other kind of beam strengthened technologies, but none of those are as mature as is cost-effective. So if you take all of these 4 legs up the table, you need all four to have a very, very secure product and to make the claim your best-in-class. And I'm very confident that I can say that we are best-in-class compared to any lidar Company out there at the moment.

Thanks. Second question. On a previous call, we talked about our ability to output Axiall, lateral, and verticals velocity of moving on objects. And other lidar companies seem do you make it seems similar claims about those abilities. So what can you tell us about MicroVision's capabilities and the capabilities of others movement space?

It's a good question, actually. The number one thing to think about is the latency we talked about the low-latency system. So the 30 hertz number is very important. For safety, you're going to have to do -- make decisions faster than a human would. And you need a system that's operating at like around 30 hertz where -- that's about 33, 34, maybe 35 milliseconds. And the refresh rate is so fast. It's important to see everything in the field of view and to be able to predict what will happen in the next 30 milliseconds, given that information to the central computer, allows them to predict what to do with the maneuvering that they're about to start. How much to steer? Which way to go? Slowdown? Speed up? These decisions have to happen at a very, very fast pace, so velocity 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 where the velocity of that cluster of points are going. You may not know if it's a motorcycle, or a Mini Cooper, or an Escalade, it does not matter. It matters that those cluster point clouds, if you predict where they will be in the next 30 milliseconds, 60, 90, and so on, as you're maneuvering, you could predict where you will end up and is there any way you can avoid them. So if you think about these prediction things, velocity is a big part of it. The way we do velocity, of course, is since we have high frame rate, we have our software that's going to be, of course, we condensed down into our ASIC eventually. Velocity output is happening continuously. Clustered velocity outputs can happen continuously. And we're also going to be able to get lateral and axial meaning, in the direction of the motion of your vehicle and 90 degrees to it. You need both of these components. The third one vertical is vital because cars don't bounce up and down too much, but it will be there but it'll be noisy. If you want to have one of those, your predictions all is going to be off so you need more sensors, so your sensor stack cost goes up. But from a single sensor we're able to do both axial and lateral, and that is a first, and so far we have not seen anybody talk about it at 30 hertz to be able to do that. I'm not really sure if I've actually seen any lidar Company claims that at 30 hertz they can do both, which is what the OEMs are required.

Next question is about just asking generally about employee morale at MicroVision. So first we had a really great team at 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're really thankful that turnover has not been a big issue for us. And so we think morale is good. The next question is on the ATM. Just lots of different questions about the ATM. As I said in my prepared remarks, the ATM gives potential customers, and suppliers, employees and the perspective employee’s confidence in our ability to be a long-term partner in the automotive lidar space. And that is important when we're 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 is not allowed to short MicroVision's stock. Okay. There's some general questions about the IAA Auto Show in Munich and any additional color you can provide about it. And the response we've received and we've talked about this fair amount and if there's anything else you have to add?

No, I think, I think Steve and his remarks you put it the best that the reaction that we had hoped that we expected to get. We received it across-the-board, very welcoming to short publicly and get a lot of praise from OEM and Tier 1.So it was a -- it was a great experience.

Okay. Next question relates to other verticals and when people talk about other verticals unless you are typically talking about augmented reality or interactive display of products. And what's the status of these verticals? Are you actively pursuing or investing in them now?

And as we have 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 it for the last 18 months. But I've also said that, we are -- I believe that we are so far ahead in those verticals to anything that the market is offering. We stand ready to work with any partner as they come along. We're -- we put together our BD team, as you know, we've just hired our first BPO BD under my tenure in Germany and, of course, we're also looking to expand that in the U.S. I think as these markets are developing, we stand ready. We know all the players, they know us. But right now our focus remains solely on the automotive lidar, given the fact the opportunity is so big and it is right in front of us.

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

It's a good question. So just let me give some context. If you think about systems that are shipping right now, they are at 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 feature. So because of regulations, right there, some limitations of what features, within what ways they can be operated. So those are part of today's reality. As you can imagine, that's not going to go right effectively if you're going to have an ADAS safety feature, it has to work always. Your airbags work all the time. Your abs rates work all the time so therefore, an ADAS feature has to work all the time. When you think about a lidar, so this question I got quite often also in Munich. Use your 9 or 5 nanometer laser, what happened in rain? I think I've answered this before. The density of point cloud is so high that if, let's say, there was a rain drop that hits one of our pulses, and that one is gone, there is still significant amount of other pulses that you can drive and you will still get very high-quality data. Unless you are driving a sheet of water, like a waterfall. That's not realistic. Let's be honest. So lidar by them are going to be able to operate that. There is no magic saying that 9 or 5 will not be there. What I can tell you is the most investment and the most interest people get is when I say the words that we have 95 nanometer lasers. OEMs that I looked at this problem are not shying away from that because they do understand that this is a sensor fusion problem that, once we have our software integrating lidar and then Integrating other parts of it goes products by themselves, that can be significantly more valuable, because they will solve the problems like redundancy, and you will still have the sensor that's able to provide it. When you think about range and resolution, those are actually big things. When you have a Company that says, well, a million points per second is good enough. We're looking good here. That's not true actually because that's not what OEM wants. And consistently I can tell you, we always get these RFIs and I recently saw one where they wanted even a high resolution, they want exploring. And of course, we want to support that and our system can do that when we respond to those. And it's amazing to me that whether its initial not would aid regulatory body ever left this system be operational in wide-out snow conditions? I can answer that. That's really for regulatory bodies’ right? But you can imagine that over a period of time, the sensor suites are going to be -- has to be 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 LiDAR software and what 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 a very bright jewel in the crown for MicroVision. This is something that all of us should care a great deal about, and I'm very, very excited about this. We're working on some things that would allow OEMs to start evaluating a system where more of the load from their computing can be shifted into our ASIC, to our algorithms that we've already developed, that we are going to develop and we're going to actually demonstrate. 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 our hardware component makes the Company a lot more valuable. So having our custom ASIC and software story getting solidified, that's important to all of us. So what endos features? I think it's more we're going to demonstrate it. I think we don't want our competition to listen to our earnings call and understand what features are coming in the future. But I can clearly say that I think I hope I've demonstrated over the last 18 months that I have good insight into what's happening in this industry. And I can say with confidence that we are on a very good path, and our global management consulting partner also has better this out without, of course, but also with OEMs. And they strongly agree with me that this is something that's going to be pretty impressive.

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

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

Thanks. Hey, first of all, congratulations to Steve and also Gabe Alan for your impending retirement. So thanks for everything you guys have done over the years, that. Sumit, you in your prepared remarks, you referenced focus, which I think is on OEMs. I would say versus Tier 1s or even mobility as-a-service companies. Maybe you can help add some color to that. And also, I think you labeled it just in terms of the labeling, strategic versus direct, maybe you can also label from -- put some color into that -- those words as well.

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

Right -- right -- right but it's a little confusing. So ultimately, I guess it sounds like you picks to the OEMs. But then almost you -- they direct you to the Tier 1 for I don't know, manufacturing production. Is that right? Or how should we think about that?

Yeah, I'll comment on that because, you know, every Tier 1 think about there's a certain amount of margin they're going to pay. You think -- I think we've got some great work here our goal is to be part of that and make sure that the margin stacks in our favor right Ty? So that's where -- What you want to do is if you want to get and you got adopted, if they OEM believes that you have the right solution for what they need and they want to work with you and your technology, there's a thing called directed by. A Tier 1 will have to work with you and strike a deal. That makes sense. And none of these deals that anybody would do, or we will do in the future, will be exclusive with 1 Tier 1. So we will find the most favorable deal for our investors and OEMs notice as well.

Okay.

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

It sounds like you've got to convince --

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

Okay.

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

It sounds like you got to convince the OEM or OEMs that you're the right product and then they sort to direct the Tier 1’s to go and make it all happen. Does that --

That's correct.

Am I right?

Yes.

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

If you think about partnerships, I think how could people trade and partner with each other. Clearly we developed a hardware invest a lot of money in it, we develop software, invest lot of money silicon. A lot of this is in our IP and ultimately are looking for recurring revenue that supports significant multiples to their market cap, right? I'm just thinking, here, we're high-growth companies, that kind of important for us to strike a business deal -- set a business deal that allows us to actually stand up for that. So 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 are at it. But how will we participate of how letting has manufactured, how does revenue gets split. How does the margin get split right? But we want to be in controlling, I believe by us owning all our IP. We're in a controlling position and we have to just grow. Demonstrate to the OEM how we can partner with them and solve the problems and we already have solved the problems with them.

All right. Go ahead.

So both second-party question, actually, I just recall there's another part of the question I did not answer yet, but --

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

All right. MicroVision is a public Company. So at any given time, if somebody feels that -- if somebody is looking for a lidar Company, a big Company with lots of money, I think we're available. And the gravity of the problem you solve determines what the future growth of the Company would have been. I mean, think about thermal values to be established right now, but the market is just so big. So for us to work feverously hard and why focus all our attention to the OEM to get that recognition is more valuable to our shareholders than any spot sales or direct sales like I talked about. So why focus the Company on that? Because establishing that by doing that, our products, our technology would have a 10-year or multiple years’ decades’ worth of future that has more value to the shareholders. Direct sales, yeah, we're going to do direct sales are software, those are periodic and non-recurring.

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

I think we're just going to focus on the OEM business. And as things materialize, Ty, we're going to talk about it publicly. But if there was -- Honestly, if there was anything that I wanted the shareholders to track, that would be valuable, I would have put it in the call today.

Okay. Alright. Thank you. Appreciate it.

The next question comes from James Groninger with -- who's a private investor.

My question concerns any developments that you may have made to-date on non-recurring engineering. Does that look like in the area you can use to focus on the OEMs? And working on several non-recurring engineering programs, may be a way for you to develop some simpatico or some credibility as those move forward, or have you dropped that strategy?

No, as a go-to-market strategy is that we're going to face them. We're going to work with them, including the solution. I expect there maybe some non-recurring engineering programs that may come along. So I don't think that we have put it aside. I think we are actively pursuing any engagement with OEMs.

Okay. Thank you.

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