Good day, and welcome to the MicroVision Second Quarter 2020 Financial and Operating Results Conference Call. [Operator Instructions] 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. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Drew Markham. Please, go ahead.

Thank you, Matt. I'm 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'll hear today will include forward-looking statements, such as, but not limited to, statements regarding our product development, testing and performance, comparisons to our competitors, market opportunity, potential 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, expects, 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 Sumit Sharma. Sumit?

Thank you, Drew. Good afternoon, everyone, and welcome to our update on progress made during Q2 and into July. I would like to cover this in three areas. First, I will discuss all that we accomplished through the second quarter and into July. Second, an update on how our progress is being received by OEMs and Tier 1s. And finally, I will talk about what our 2023 may look like. Let's dive right in. This quarter was one of the most eventful in our company's history. Our team completed our MAVIN dynamic range LiDAR product, delivered automated line, pilot line that would support serial production in the future and supported OEM engagements. In our design, not only were we able to successfully include all of our target features, but we were also able to incorporate additional enhanced features tailored to the particular needs of OEM. This last point is an important one, as it allows OEMs to tailor our base product for their specific use case. Furthermore, this level of flexibility was previously viewed by OEMs as unachievable based on the limitations of competitor solutions. This is a big win for MicroVision. The hard work of our team has put the company in a great place, as our potential customer engagements start heating up. Our dynamic range LiDAR, MAVIN DR, is a game changer. It allows high resolution at all ranges and deliver this at low latency. Prospective customers have given us feedback that this represents significantly higher performance than the current LiDAR solutions, OEMs have been working with. I will elaborate a bit more about this later in my remarks. Our team also achieved success in completing automation for our pilot production line. This paves the way for supporting serial production in the future. This is an important achievement.…

Thanks, Sumit. As Sumit discussed earlier, we are really pleased with what we accomplished in the second quarter of 2022. The launch of MAVIN brings together our product that have short, medium and long-range sensors, all combined into one to provide a dynamic view of the road ahead. The 905-nanometer LiDAR optimizes power output while ensuring safety at all times. The low latency point cloud 30 hertz enables the OEM ADAS systems to make split-second decisions and take actions at high speeds. We believe that this product offers OEMs, the following two key advantages; number one, with the improved sound profile, MicroVision LiDAR enables flexible deployment options for OEMs to place it inside the cabin behind the windshield. Second, built with materials known to OEM supply chains, MicroVision hardware is scalable, sourceable and inevitably had a lower cost structure. We are very excited about the meetings and the positive feedback received for the demo cars fitted with our product. Additionally, we completed testing for some more complicated highway driving scenarios as well. We remain on track to achieve Class 1 certification and also expanded our R&D and production infrastructure as we ramp up our pilot production lines to start some sample sales in the second half of this year, as we outlined. Now, before I jump into the next section to discuss the financial performance of the company, I would like to recap that our go-to-market strategy remains the same. We continue to market our product, primarily to the OEMs to suit their needs and price points and work with them. Using the estimated number of cars to be produced through 2030, we believe the revenue opportunity for MicroVision could still be between $2 billion to $4 billion with a corresponding cumulative EBITDA profile of $1 billion to $2 billion…

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

Hi. Good afternoon. Can you hear me, okay?

Yes, we can.

Wonderful. Thank you. Good afternoon and congratulations on all of the accomplishments this past quarter. I'd like to maybe start with a couple of macro questions. Given the rising interest rate environment, what impact, if any, do you anticipate that to have on the business?

So let me take this question, Andres. So obviously, at this time, if only anything, it gives us an extra yield on some of the investment securities that we have shifted our liquidity position to. So we are fairly confident based on our cash burn rates and our balance sheet strength, we are very well positioned to navigate the next four to six quarters.

Got it. Okay. That's very helpful. And maybe following up with the continued supply shortages in bottlenecks, do you anticipate that to have any sort of impact?

Not right now because, obviously, we do not have any direct impact from some of these supply chain shortages because obviously, we feel confident of where we are with our engagement with the OEMs. And hence, that's why we do not expect any effects from these supply chains.

Got it. That's great to hear. And maybe in regards to the ATM program, would you be able to give us any kind of sense on timing or how do you anticipate to use it? As you know, the market to raise capital right now is not the best. And so, I'm just wondering any thoughts around that anything that you could share?

Yes. So, like I said, I think ATM programs just offer us flexibility, given where we are. And maybe I can just tie it up with some of the numbers here, right? So approximately second quarter was$9.7 million used in cash and operating activities. And given we have $93 million. So obviously, this gives us a very comfortable position. We use ATM programs as more of a tool or a flexibility, which offers -- which is offered to us compared to some of the peers, who raised obviously significant amounts of capital during their IPOs. So, we believe this tool to be – only be used strategically as and when the market offers opportunity. And I think that's sort of what is illustrated in the last 12 months, we didn't use this ATM facility because obviously, we didn't have the strategic need to do this. So hopefully, that sort of gives you a perspective of how we view the ATM program and where the balance sheet strength stands today for the company.

Yes. No, absolutely. That's very insightful. Thank you. And maybe one last question for me is, I think it's great you're starting to sell the strategic examples this year. Is the expectation for revenues still begin ramping up in 2024 or is there maybe an opportunity to ramp those up a little bit soon or maybe in 2023, maybe even pursuing some nonautomotive verticals? Thank you.

Yes, let me answer this one. So I think…

Go ahead.

So Anders, I think we talked about this before. I think we purchased this pilot line, and that's going to turn to a steel production line. Our intention of course, is once we have these sample sales this year, starting next year, of course, we're going to fulfill the needs for any potential OEM or Tier 1 development requirements. But also, since we're going to have extra capacity on the line, we are looking at different options to sell devices in other industrial and other markets, and we are developing that -- those channels and pipelines now as we speak.

Got it. Thank you very much. That's all I have. Congrats again on the quarter, I'll pass it on. Thank you.

Thanks.

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

Thanks, Matt. So I guess, we have another question about what are the normal levels of cash you feel are necessary to support the business and plans for the ATM? So probably I'm just going to reiterate some of the points. We used $9.7 million in cash from operating activities, which was a sequential 11% decline from Q1, again, driven by continued financial discipline. With around $93 million of cash and cash equivalents, we feel comfortable given our burn rate is one of the lowest in the industry with our competitors having three times to five times our annual burn rate. We pride ourselves in being a traditional public company with over two decades of operating in conservative public markets that has successfully navigated quite a few economic cycles unlike our peers. And addressing the second part of the question about the ATM, our SPAC peers raised significant amounts of capital at their respective IPOs. And our remaining $70 million ATM program gives us ample flexibility to raise capital as and when needed in response to all our publicly listed peers. The company has not executed in the past one year as broader weakness in the LiDAR sectors as all other SPAC companies in the LiDAR sector have come down significantly in their market valuation for their all-time IPO highs. The next question is, how do you think Microsoft MicroVision is going to be impacted by chips bill? MicroVision works on a fabless model. Hence, we're not directly affected by the chips bill as the chips bill is fundamentally focused towards fabs and other chip providers. However, if chips bill does get passed in the house and signed into a law, it will certainly boost the semiconductor chip production and reduce the stress in the supply chain. I think this should bode well for all the players in the automotive ecosystem, including OEMs, Tier 1s and us. Sumit, this one's for you. You said that you're on track to achieve Class I certification in the third quarter. Is Class I certification needed to use LiDAR in public or with potential customers?

This is a good question. So let me just go back to my prepared remarks comments and just elaborate a little bit from there. We have a 20-plus year history in our technology. Our team builds last on safety into every product from the ground up. So that's actually a very, very important part of it. And I'm actually very proud of our culture on making sure from the ground of things are built right. We've been doing demos for customers and all the units we demonstrate are Class I safe, meaning that the features are implemented. Since we're in a demo phase, a MicroVision representative, our VP of BD or myself are always present there, in most cases, both of us are there. I can say with confidence that our team has done a great job of implementing our virtual protective housing for Class I. The safety -- the demos are going like going incredibly well actually, and OEMs require that the demo unit is fully conformed into Class I standards and the company representatives are present when we go to these demos. So that's part of a foundational piece you have to build out. And I think the question is, was the Class I certification in Q3? Is Class I certification needed to use a LIDAR and public, right? So as I just explained, for demo, that's the gap that they've created, right, or essentially, that's what the regulation allows. When you think about full certification, as move to sales, that's when you have to actually get the full certification done. FDA approval, go outside third-party, whatever other testing you have to do. But for that to happen, you have to have all your features locked in, everything is into the RTL, everything is locked out, and then you submit the final sample that comes to customers will buy. Once we start selling it, it has to have full conformance whereas OEMs and Tier 1s are very, very comfortable taking those samples, they needed to be Class I certified because at that point, there's no company representative, and they will do their other confidential testing that they will not discuss as a course. So, I think like to sell a product, we certainly have to have full certification. But to demo product, you have to have the full feature implemented operating in full safe mode with the company representative available. And this is not just new to us, every company has done any kind of deal in LiDAR or anything with a 95-nanometer laser or any kind of laser in the history of time, has to go through the same process. So, we're very comfortable with this process and I think we have this objective well in hand.

Thanks Sumit. Now, the next few questions, I think, are all about point cloud, so I'm going to summarize them. So, let's see, I think, is the point cloud quality posted most recently on the website coming straight from the LiDAR or is it simulated?

This is a good question. The point cloud that we just released recently, which was about the Nuremberg Drive, it is directly from the LiDAR. It is streaming. There is no post-processing to make it more beautiful. There is no stimulated data overlay. It is just an exact drive. If you think about if a customer is sitting and witnessing that, that's what they saw. So, this is exactly what our point cloud does, and that's why I wanted to actually post that. There's some little bugs here and there that our team is still fixing, but I still wanted them to just post exactly what's coming out because it is very, very impressive, and it kind of proof is in the pudding. It's easier to see even for people with no background in DSP or high-end mathematics to really see and you can start understanding how much more advanced we are than anybody else. I think for like an example that I was just talking about recently with somebody, if you think about detection of cycles, this comes up quite often in pedestrian safety. I think in the video, it just so happened that there were some cyclists on the road in front of us. And you could clearly see, you can see them heavily. You can see all the details. You can imagine how easy it becomes to segment that, cluster that and actually identify things and tag them drive -- not drivable. So, it's actually a very, very important to see how well it runs. And this is not even the best it will be. Our team is, of course, continuing to find bugs and fixing it. And a lot of the bugs are based on environmental conditions, based on the device, they learn, at the test…

Thanks Sumit. So, I think the next few questions, again, let me summarize it. I think broadly, how is MAVIN different from the prior product? And is there going to be a new data sheet with new specs?

Absolutely. Actually, if you go back to September 2021, when we were in the Munich IAA show, I think we announced four products. There was three products that were the static LiDAR, and of course, the which called the MAVIN now, which is dynamically back then is had much higher specifications. And we talked about, it gave us the flexibility to address different customer needs. But we always believe that MAVIN is going to take a lot more attention from everybody. And that's exactly what's happened. So in case that there is a customer that wants just a static LiDAR, we provide that. In those specific cases, we differentiate the product, the resolution is listed in the data sheet, as you know are the summarized data sheet that we have there. The performance in a single field of view is okay, but all three of them are not included. And it's a significant difference as far as the value one versus the other. If somebody wants just a long-range LiDAR, it is, let's call it, our A1 sample, which is what we talked about last year, which is the black body. And the new product, which is the MAVIN product, is the white cover as you see. And that has the resolution that we were announced last year. So these are two separate bodies of -- all the components, almost all the components are exactly the same. But as you can imagine, the housing and some other features inside are slightly different that allows us to give the higher resolution in all three fields of view in a single product with velocity, whereas, a simplified product if somebody wants, we can make the A1 staple for them as well, and they could experiment with that. So this gives us all…

Thank you, Sumit. The next question is about silicon. How does MicroVision view chip platforms like Qualcomm and NVIDIA for its design and current architecture?

Okay. So our current design, think about the LIDAR, the -- our ASIC are inside our LiDAR. The ASIC has to be co-located within the hardware because we have some very tight analog signals going back and forth, high speed, high density. So it's very important for our team to control that. So those ASIC cannot be put far away into the other box. Our digital ASIC, which of course, is the family jewels, again, has to be co-located because everything inside the device that are interiors designed for so many years, they have to have a very tight control of it. And the foundational piece of all of this is Class 1 laser safety that cannot be moved away into software. So we do this in real-time logic, put into an FPGA, lock it in and we can go to an ASIC. Some other competitors, they don't have real-time logic. They do it in an NVIDIA platform or Qualcomm, and they have all sorts of other software running that are extremely high power. So when we go to the ASIC with our features running fully pipeline, we have the shot of being the lowest power device. And that's -- we've discussed this in different -- several meetings that I've been in, and they totally acknowledge immediately that yes, absolutely the path you're taking. It is going to be the lowest power. And they're actually pretty amazed that all these features are running so well at such high speeds and that we actually have a history of making these ASICs, as we have fifth generation ASIC, as you can imagine. So I think if you think about Qualcomm and NVIDIA, those are application processors. Meaning that, that could be in a second box, which is a domain controller, where a customer could be taking a LiDAR data and running their software. But inside our design and the final design that the LiDAR product will be, when it goes to serial production in the future, that product by itself will only require the ASIC to run, and it could output the point cloud. The header file will have all the objects identified, driver are now drivable. And it comes to the customer, if they want to stream the entire point cloud or just the header file or whatever version of it, but we will not require an application processor inside. And this gives us a big cost advantage, because those processes are not cheap. So effectively, when we give a target of pricing, and margins in the model that otherwise was built out, we've sort of baked that in, and we're very confident where we are right now.

Thanks, Sumit. The next question is, will MicroVision's end customers be Tier 1s? Let me take this one. I think our go-to-market strategy remains solid, and there has been no changes to it. While we're focused on both OEMs and Tier 1s, we are demonstrating our products and capabilities directly to OEMs. Like, I've always maintained, for the series productions, OEMs need automotive grade optoelectronic devices that will have to be supplied by Tier 1s. The next question is, I think, again, a form of question that Andres referred to. So let me reframe the question. Is MicroVision still focused on automotive LiDAR only, will AR, VR market or other LiDAR applications be considered for expansion. As we stated before, we truly believe we have an industry-leading LiDAR sensor for the automotive LiDAR applications. Hence, we continue to focus our efforts only on automotive LiDAR, given our current cash burn and balance sheet strength. We believe that automotive LiDAR still provides for the largest total addressable market for LiDAR applications and have the appropriate size for us, as a company, to become a multibillion-dollar business once the series production starts. Now regarding AR and VR applications. MicroVision's technology that were used in Microsoft HoloLens already demonstrates that we are far ahead in the AR/VR space from a technology standpoint. We stand ready to help our customers, if they were to approach us for this technology. Additionally, we also believe industrial LiDAR applications will probably be another very attractive market opportunity to go after additional revenue and accelerate growth on top of the automotive LiDAR applications. Next question is, I guess, again, on cash burn. Which areas does MicroVision intend to spend their cash on and what are the extra capabilities that the company is looking to gain. I'll take this one as well, Sumit. We continue to expand our engineering team as we work with all automotive OEMs to demonstrate our breadth and depth of our technology. We recently expanded R&D and production infrastructure, with the delivery of our automated pilot line and continued construction of our new testing and lab facilities. We intend to expand our team to demonstrate our software capabilities that will enable our drive by wire with our LiDAR solutions in 2023. These are the primarily the three areas where we would be spending our cash on in the next few quarters to come.

I guess, we're out of time. We appreciate your participation in our second quarter earnings call, and your continued support of MicroVision. Thank you.

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