Good day. And welcome to the MicroVision Third Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] At the end of today’s presentation, there will be an opportunity to ask questions via a chat line. [Operator Instructions] Please also note this event is being recorded. I would now like to turn the conference over to Drew Markham. Please go ahead.

Thank you, Operator. I am pleased to be joined today by 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 today will include forward-looking statements, including, but not limited to, statements regarding our product development and performance, comparisons to our competitors, market opportunity, product sales and future demand, business and strategic opportunities, customer and partner engagement, projections of future operations and financial results, availability of funds, as well as statements containing words like potential, believe, expect, plans, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. We encourage you to review our SEC filings, including our most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q. These filings describe risk factors that could cause our actual results to differ materially from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC’s Regulation G. For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as for all the financial data presented on this call, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com under the SEC Filings tab. This conference call will be available for audio replay on the Investor Relations section of our website at www.microvision.com. Now, I’d like to turn the call over to our CEO, Sumit Sharma. Sumit?

Thank you, Drew. Good afternoon, everyone, and thank you for joining us today. Q3 represents another quarter of tremendous progress at MicroVision. This includes delivering on a number of critical milestones in our go-to-market strategy. As we approach the end of calendar 2022, MicroVision is better positioned than ever and offers a complete hardware and software solution that exceeds the expectations and requirements of OEMs for their planned RFQs in 2023 and beyond. I will cover this topic in more detail later in the call. I would like to start by highlighting three important accomplishments in this quarter that have put us in a leadership position heading into 2023. First, we delivered on our commitment by achieving Class 1 compliance and beginning to sell samples to OEMs and Tier 1s. Class 1 compliance is a critical milestone, the importance of which cannot be overstated. MicroVision has more than 20 years of experience and expertise in developing products based on laser beam scanning, so the Class 1 compliance process is not new to us. We have taken an incredible amount of engineering and technology to develop a solution that meets Class 1 safety criteria, while also meeting the performance standards set out by OEMs. We view our patented Automatic Emissions Controls system as one of the numerous key differentiators that make the MicroVision solutions superior by combining safety and performance. Thanks to our experience and our innovative approach to safety to our patented AEC system, we are proud to be the first LiDAR product to achieve Class 1 compliance at a unit level offering pixel-by-pixel safety. This news was well-received by OEMs. This shows our commitment to safety and how it will further enhance the functional safety OEMs can offer to their ADAS system in a cost-effective 905-nanometer laser LiDAR, the…

Thanks, Sumit. I am pleased to report that as of this date, we have achieved all the milestones we had laid out earlier this year. To remind investors, with the track testing of our highway pilot feature for our integrated LiDAR solution with perception software in both the U.S. and Germany for complex highway driving scenarios. As Sumit described earlier, we achieved pixel-by-pixel Class 1 compliance, which we believe is a first in the industry and positions our MAVIN product well to be adopted by OEMs for their safety standards. These two achievements further helped us begin sample sales to OEMs and Tier 1s in the fourth quarter. The continued engagement with OEMs, highlighting the capability of roofline integration, because our product has one of the most streamlined form factors on the market, along with a low latency highway pilot solution, positions us well to compete in the upcoming RFQs. Now, let’s discuss our Q3 financial performance. Revenue, our current customer, Microsoft, communicated to us that there were no units delivered in the third quarter. As we have stated previously, our revenue recognition is directly tied to the number of units delivered by Microsoft. Hence, no revenue was recognized in Q3. As a reminder, this revenue is attributable to the contract executed in April 2017, with Microsoft for using our technology in their AR display product, HoloLens 2. As of September 30, we have an unapplied $4.6 million balance left on this contract liability. We gave revenue guidance last quarter based on the information provided to us by our customer. However, at the end of the third quarter, the customer revised its statement and communicated to us that there is no forecast available. Our agreement with Microsoft continues to be an effect with an expiration date of December 2023. Please…

Thank you, Anubhav. [Operator Instructions] And the first question will be from Andres Sheppard with Cantor Fitzgerald. Please go ahead.

Hey, Sumit. Hey, Anubhav. Great to hear you. Congrats again on the quarter and all the milestones. I guess, first question I am wondering is in terms of revenue. Now, I know you don’t guide Q4, but can you give us a sense of kind of how we should be thinking about Q4, particularly given that the sample sales have begun, should we expect a larger ramp up in Q4? Thanks.

Thanks, Andres. Let me take that question. So in Q4 -- I want to break this question into two parts. So the first is revenue from our new MAVIN products. So we have made some sample sales, so we expect to recognize revenue in this quarter. However, as I mentioned, this won’t be a significant number. As we ramp up in 2023 our engagements, we would have meaningful streams of revenue coming from the sale of samples. The second stream would be non-recurring engineering projects with OEMs, where we would -- the OEMs we would be working on would have customizations or whatever they need for the product to be included in their fleets. And obviously, direct sample sales that we would be accelerating as our MAVIN product is Class 1 certified and we can expand the streams into research labs, universities or whoever is interested in buying our product. So this would be the three streams of revenue from the automotive LiDAR that we expect in Q4 and next year. Now, obviously, I think, I touched base on this in my prepared remarks. Microsoft revenue, obviously, it’s in autopilot mode. They send us volumes of our MEMS models shipped at the factory and we simply report and reduce our contract liability. They had given a volume forecast earlier, and then at the end of quarter, as late as last week, they came back to us and reported zero shipments. At this point, we do not have a forecast from Microsoft for Q4 and beyond for this stream of revenue, but obviously as and when we get the forecast, we will convey that to the market and that could also be added to the revenue forecast of next year. So hopefully that covers your question.

Yeah. No. It does. Thanks, Anubhav. And I guess maybe just a quick follow-up on that, and so I think in the previous call, you had mentioned something about closer to the $1.5 million in revenues for the year. Now, obviously, revenues for this quarter were not -- what you were expecting given the Microsoft. So should we still look at that $1.5 million as a framework or just given the reduction in this quarter, should we maybe foresee a little bit less than that?

So I think at this point what Microsoft has told us that they do not have a forecast for Q4 and like I said, we are on autopilot. So we simply get volume data from them and we report the units -- we report that data back as revenue. So at this point, we do not have any visibility into what the Q4 volume will be and hence -- the $1.5 million I think you are referring to was based on the forecast we had received last time and hence, that’s why the number has changed given the latest communication.

Got it. Okay. No. That’s helpful. Thanks for clarifying. In terms of milestones, right, so obviously, congratulations on achieving Class 1 compliance and on completing the track testing of the highway pilot. Can you just remind us folks on the call what are the next milestones, what should we be focusing on both for the remainder of the year and also for next year?

I think -- I will take that one, Anubhav. I think for remainder of the year, I think, we are just building out samples for our A-sample sales that we have talked about, but as Anubhav mentioned, they are limited. They are targeted primarily towards folks that are going to be evaluating for RFQ, which OEMs have their own timeline and the RFQs are in first half 2023 timeframe. It’s not solid, right, but they have a process they are going to start with. So our priority of course is getting those samples ready and having them -- getting them access to them. It makes it much easier now because we can make handful of samples here in Redmond and the balance of course as we scale, we are going to talk about that a little bit in a few seconds here. As far as next year, our primary focus is of course these RFQs and achieving them, but as you can imagine, right, there’s not a milestone that we can discuss milestone will be. If there’s an award, we are going to announce to the market. So we will update on the earnings call how things are going as we go along, right, if we are allowed to and if we can actually give any clarity on the process. But as you can imagine, right, it’s a long-drawn-out process. You have to become very comfortable with the company, the technology roadmap, manufacturability and we just have to go through the process. And I am pretty confident that we are going to get through it. As far as other milestones that market can actually track. As we mentioned early on -- as I mentioned early on, our analog and digital ASIC programs would have to start going there sort of…

Yeah. No. Absolutely. That’s very thorough and insightful. Thanks, Sumit. Appreciate it. Maybe a quick follow-up there is, you are reaffirming guidance -- cumulative guidance, which includes securing more than two partnerships with OEMs by 2030. So I guess my question is, when do you think -- what’s the earliest that we could see an OEM partnership announcement?

I think that’s -- really based on that process it will be hard for me to comment, but I can give you a general idea. If I had a specific time I would be more specific. But I think we expect some time process to start, and based on their timeline and their comfort level is that they will make a design win nomination sometime in the summer. So I think that’s the best I can give you right now without divulging too much.

Got it. Okay. Thank you. Maybe my last question if I may, in terms of your capital needs, right? So, obviously, you have that $70 million ATM facility. Although I am wondering at these levels, issuing shares might not be preferable as that will dilute shareholders. And so I guess my question is, do you foresee going into the market to pursue any other sort of capital raising opportunities, perhaps, a pure debt offering in the future?

Yeah. So let me take that question. So, Andres, I think as I pointed out, our cash burn is $9 million and our balance sheet has $83 million. So obviously it’s more than nine quarters of runway from that standpoint. So, obviously, we have historically stated that we will be using the ATM program as a strategic tool to raise capital as and when needed. So obviously that strategy still remains. Now regarding debt, obviously that’s something that I think LiDAR industry as a whole would be looking to do so, because obviously, we would like this industry to move towards a cheaper cost of capital from that standpoint. So as and when opportunities present themselves, we would be tapping into or looking into these alternatives as well, because at the end of the day, we want to create shareholder value and have the lowest cost of capital for the company.

Wonderful. Thanks, guys. That’s all my questions. Really appreciate it. Congrats again on the quarter and I will pass it on. Thanks again.

Thank you.

Thank you.

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

Thanks, Chad. All right, so I think the first question we have is, what does the company have to say about the Chariot Group recent announcement for selecting a partner for some of their brands and similarly Stellantis’ selection, is MicroVision too late?

All right. I will take that.

Sumit, do you want to take that. Yeah.

Yeah. I will take that. So that’s a great question. I think I get this is quite often, most recently in Seattle airport. So I think we have kind of answered this before, but let me just highlight this and get a little bit deeper today. So if you go just do public data search where you will understand it, what they have actually selected is a single software platform and there’s no guarantee or applicable across all platforms. As you can imagine, a OEM of that size for every vehicle or different classes of vehicle, they are different software platform and they have not unified all their software platforms under one. As you can imagine, they have endeavored to do that but in several years, I mean, a CEO recently got fired from that company. So kind of just puts in context that -- those brands, all the different brands under the big umbrella, they all have their own software platforms. So it’s not so straightforward. Now, I think, I will allow other people to say what they want to say on their earnings call and describe the market. I think at least our shareholders know a little bit about me. I tend to be pretty straight about these things. I am not going to be cute about it. These are the facts and they cannot be disputed, plain and simple is public data, all right? And if you think about it, the other -- you mentioned Stellantis as well, right, and of course, Chariot. You think about these other sensors that are publicly announced, they have like high profile and when I say high profile is the front face is kind of tall. There’s only one location it can be mounted, somewhat lower to the ground so it…

Thanks, Sumit. I will take this next question. It’s about revenue. The U.S. Army has reportedly been accepting the first tranche of 5,000 units of IVAS units valued at over $190 million from the $22 billion contract with Microsoft. Given that IVAS is based on HoloLens 2 and MicroVision provides the display engine, can the team comment on how the acceptance of IVAS units by the Army may affect MicroVision? That’s a great question. Look, we have the current agreement with Microsoft in effect and expect that to continue through the next year. At this point, however, we cannot comment anything on Microsoft’s future plans regarding HoloLens 2 or the IVAS project. The next question is, I am getting is for Class 1 compliance. So Class 1 compliance was achieved with patented AEC methodology. Can this be monetized via licensing or would we use it solely to maintain competitive advantage in capability and cost, and are there other licensing possibilities MicroVision is exploring in LiDAR ADAS with this unique approach?

I will take that question.

Sumit, do you want to take that.

Yeah. Yeah. Yeah. This is a good one. All right. So our AEC methodology is proprietary technology that gives us a huge advantage in selling our sensor. Our core business model, as we have talked about multiple times is to monetize our technology towards profitability of the company with sale of our sensor and software license. So this is a key stone that allows us to be extremely competitive and have a very nice competitive moat in the market. So that’s context, all right? The other thing that people have to understand, AEC is not a software feature that can be implemented everywhere else, but instead it’s a more elegant implementation of our future digital ASIC, where the compliance module is inside the silicon at gate-level running. This is real-time, this is unbelievable. So that will be inside our ASICs, so they would have to buy our ASIC, which of course drives our system. So this creates a very nice competitive moat for us as well on the hardware. And to be fair, like to be intellectually honest, right, could we license in the future? So I think this is my thoughts on that one. If the volumes were ever in the tens of millions and we had a substantial market share of that, we would consider licensing it. But at this point, when this market is just starting and you are looking at only a handful of million units as the total annual volume at some point in the near future with all the OEM programs combined, we have an advantage. We want to win as many of these design wins as possible, and we are going to continue focusing on them. We have something very unique. This took a lot of blood and effort and ingenuity on our company’s and our engineer’s part to actually develop and we expect to monetize it.

Thanks, Sumit. The next question is about competition, so a competitor recently filed shelf registration and another competitor is on the verge of becoming shareholder equity negative next quarter. When conveying MicroVision’s financial results this quarter, can you give more content on how well positioned we are versus the other SPAC companies and what will be the need for capital infusions to progress and when will the company exercise the ATM? Yeah, so let me take that. I think I addressed this question with Andres as well, so let me reiterate. We believe MicroVision is very different from the SPACs or a slew of companies that emerged out of the SPAC IPOs. I think they overspent in the name of growth. The investors saw some of these companies had raised a lot of capital and had projected much lower cash burn at their IPO valuations and while the actuals turned out to be much higher than what was projected. We on the other hand have been a mature public company and have been very financially disciplined. So obviously this advantage positions us as industry consolidators, and especially based on the price-to-cash ratio metric that I also discussed in my prior remarks. Again, we use ATM as an efficient tool to fund growth. I think the last time we used ATM was in June 2021. So, obviously, I also mentioned this to Andres that our cash burn and the runway positions us well and we would use this tool strategically only when the opportunities present themselves. The next question is what is the timing of OEM and Tier 1 LiDAR production decisions? Others have stated that they expect two OEM product selection designs to happen by the end of this year, Q1 2023. Is MicroVision hearing the same from the OEMs that they are in discussions with?

I will take this. Yeah. We are hearing the same thing. We expect to engage RFQ in Q1. And any design win decisions, those are expected by summer 2023 at this point.

Thanks, Sumit. I think the next one is interesting. Luminar made the statement that 905-nanometer LiDAR is good for traffic jam assist, but is not appropriate for highway speeds. Do you have any comments on that?

This is a good question. I think first of all, I am going to start off saying, yeah. I think you have to be disciplined not talking about other people’s technology and things like that, but this is a direct comment about our technology, so I think I want to address it. I think this is an educated statement in my opinion. I will let the Luminar management defend that. I have no interest in actually parsing it. But I think it’s important for me to state the facts, all right? So I think it’s important for -- because we here all today, I want you guys to know the facts. We have been showing our LiDAR running on a demo car with 200-plus-meter range plus one, resolution at low latency, specifically for high-speed highway pilot. And the OEMs that you are talking about, that RFQs that are going up, they are for our high-speed highway pilot. What the final system becomes that’s unclear, but they are clearly looking for a high speed highway pilot, all right? My personal experience being part of these meetings that not a single one has been nothing but smiles because they see everything. So I have no idea what they are talking about. And if you really think about like 905-nanometer laser, I think they are referring to the Mercedes S-Class announcements that would happen I think about a year ago, that was the traffic jam assist. But that was based upon the technology, of course, the Valeo SCALA, which is the one that’s been commercialized so far. So nobody was on that one because that decision was making long time ago. But in general, 905-nanometer laser is embedded where their comfort level with that technology node is significantly higher. Our MEMS-based LiDAR, of…

Thanks, Sumit. The next one we are getting is, can you comment on the recent announcement of Ford and Volkswagen shutting down Argo and what impact does it have on the LiDAR industry? Let me take this one. This is a good one. Look, I think this further validates our strategy. We have always maintained that the path to a profitable business is really tapping into the L3 ADAS applications, which are poised to be commercialized by OEMs in the next few years. L4 is still the future, but we believe that the path to L4 will indeed go through L3 and it cannot be skipped. And I think this also validates the value of being financially disciplined from the beginning and focused on building a profitable business model in the near-term. And that’s why I think it’s a combination of our strategy and financial prudence, which actually positions us well and positions us well as compared to some of the over spenders that probably would exit the market, given what we are seeing with Argo.

With this, I think we are out of time. Thank you everybody for joining us on our Q3 call. We hope to see you again as we provide our full year fourth quarter results next year in February. Thank you so much.

Thank you. This conference has concluded. All parties may now disconnect and have a great day. Take care.