MicroVision, Inc. (MVIS) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us at this Investor Summit Group webcast. I'd like to introduce CEO of MicroVision's, Sumit Sharma; and CFO of MicroVision, Anubhav Verma. We will get right to the Q&A. [Operator Instructions]. And we will begin.

Okay. We have one here. Any update on the highway pilot feature track testing on MicroVision's LiDAR technologies in Q2 of '22 in the U.S. and Germany?

I think we continue on the path of testing. Most recently, we did some testing in our test site in Michigan, and it continues on track. I think we're looking forward to presenting the data for publicly after the June testing is complete, which is some specific features that we want to make sure that we complete for OEM review ahead of schedule. So yes, things are going as planned, and it's looking pretty good.

Great. What specs are most important to OEMs and Tier 1s? How does MicroVision differentiate from the competition on those specs? And how should investors evaluate that?

I think -- so there's 2 things to talk about when we talk about Tier 1 or OEM. The activity is all driven by OEM consistently. OEMs are very, very involved directly. They expect Tier 1s eventually to step in and provide the parts to them when it goes to production, but the OEMs are hands-on on these things and on the features. There's 2 aspects to what's very important for this product. Number one, of course, is the hardware, and I'll cover that in the specifications. And the number 2 item that I've talked about a little bit, and I'm going to elaborate a little bit more on today, is the software. So as far as the hardware is concerned, cost is number one. They really want to see that even though the other technology, is there a path to be commercially viable. That's number one, let's be honest. Number two, the size of the device is actually very important. 100% of the meetings that we've had so far, and we've had all the top-tier OEMs I'm talking about, they're looking at sizes that are significantly lower and more in line with where our size is, the size of the device. So they need to fit it inside the body of the car. They cannot have the grill or the headlight shape changed. But the ideal place to put it is actually behind the windshield, inside the vehicles. So it has to be quiet and very, very small and low power. The actual specifications that are very important to OEMs is resolution at range. Meaning that they have a high enough density point cloud, not just near the car, but all the way up to a couple of hundred meters of targets of small pieces of tire perhaps. So to do highway pilot systems -- high-speed highway pilot systems, that's what's required. You need range, you need high resolution and you need low latency, so you can plan and maneuver around these obstacles. Beyond that, the next feature that's actually very important to them is velocity, understanding what the velocity of objects can be seen are at any given time, the maintenance in every frame is very, very important. So that's on the hardware side. There's a bunch of other specification underneath it. But those are the big main hitters that are always -- you have to meet it. In every conversation, again, they always, always talk about what is your perception software solution. And they're expecting that the LiDAR companies are going to be software companies as well, and they're going to provide a perception software solution. And this is where we're truly differentiated, and we really get great marks. The software that we provide, what we'd give them is drivable, not drivable space, as I've mentioned before. And this is the most simplest form of perception. But it's very complicated, right? So we've taken a complex problem, broken it down, and we have it inside our ASIC eventually when we launched the ASIC. We're in FPGA right now. So the perception software is important. And of course, the hardware is important. And the other layers of software for classification, that stays on their side. So those are the 2 areas, I would say, are very important to OEMs that we consistently get asked about.

Okay. We have a few more questions in. What specs have OEMs conveyed to you that MicroVision solves for that the competition does not? How does the company's custom ASIC for automatic LiDAR benefit OEMs and differentiate MicroVision?

Okay. So I can't really talk about specific -- specifications. What I can tell you is, all the RFIs we've done, they always have a chart of the specifications that they need. And as I've said before, in every RFI we've done, we meet and exceed their expectations. So no feedback has come back that there's a hardware feature that's required or a software feature that's required. So I think I've been pretty consistent about that. But yes, every RFI, no surprises so far. As far as the strategy we have of everything in our ASIC. ASIC is -- putting it in our ASIC is effectively the higher end of the problem set. If you think about from a silicon standpoint, you've taken the problem and you've solved it down to the basic mathematics. And it's a very, very reliable low-cost solution. So it's got a significant advantage to them because everything is low cost to begin with, but it's also going to have incredible amount of IT baked into the individual digital ASIC that can last for a very long period of time. And its low power and it is in the LiDAR. So this does not require complicated architectures or architecture changes on their side. We give them a fully baked solution in our LiDAR that is going to do perception directly from the chip.

Okay. Why the near-term focus on ADAS Levels 2 and 3 markets? Will MicroVision pursue Level 4 market?

That's a very good question actually. Actually, somebody -- yesterday I was asked the same question, I'll give a more elaborate answer here. Level 4 and Level 5 are years out. And the volumes that we see in that space is in the tens of thousands, and that's still stretching it. I think it's an important space to have our sensor -- sample sensor ready for sale, but we don't expect huge amounts of revenue from that segment of the market because it is still developing. For us, as drivers to give up control of our vehicles, I think that's -- there's a seismic shift in society that would have to happen. But yes, of course, our technology can support that. Our focus on Level 3 and Level 2+ and Level 2 is because the majority of the volume, of the 87 million to 100 million vehicles that are produced every year, are going to start transitioning to that. So the market segment where the most volume is for our hardware and software remains the ADAS space. And so therefore, we are choosing to focus on that because that's where the revenue is coming from. But yes, of course, we can support companies that are working on Level 4.

Okay. Great. Other LiDAR companies have signed partnership agreements with auto OEMs and MicroVision has not. Is that a concern?

I think it's -- let's just put it in context. I think, like, I would like people to think about the problem, the question they're stating slightly differently. There's companies that have announced those partnerships. They have not announced when their start of production is. While they were in the middle of partnerships and the product they said that they had lot to deal with, within 2 years, they launched a second product. Anybody that's in automotive will tell you, if you actually say to OEM, here's my product, that's going to go to start production. It takes 3 years to qualify just that product. So therefore, how certain are of those deals if these companies are changing their product offerings to the market? So I think there's announcements there and I think I respect every opponent. And I think it's great that competitors have these deals. We certainly work very hard to get those deals. But we've done deals with Microsoft and Sony and others in the past, so we know a little bit about it. It's very important to build the right product at the right price point with the right features and maintain your IP because ultimately, that's the value to the investors. I'm not so worried about it because I've actually personally, at meetings with OEMs, checked completely -- point blank asked the question, how should I think about this? How should I think about the business? And the very direct answer is, you would not be here if we thought for a second that the problem was solved. We're looking at solving a much bigger scaling problem, your specs, your size, your cost. The market is still open. So I'm pretty confident that as we go forward and the RFQs for the next round, for the big production rounds are starting, we're in the middle of it. And I think we are just in time.

Great. You provided guidance on cumulative revenue through 2030 of $2 billion to $4 billion and cumulative EBITDA of $1 billion to $2 billion. What are your assumptions in that guidance?

Yes, I'll take that. So I think as Sumit described, our focus is on the L2+ and L3 markets. And the cumulative revenue of $2 billion to $4 billion is directly a consequence of targeting this market. And I think this is sort of what we wanted to make sure that the cumulative revenue is only focused on the L2+ and L3 markets that we know as of today. Now this revenue figure is based on the number of vehicles that are going to be produced for the -- having these features all the way until 2030. And the single biggest assumption in driving that $80 billion cumulative revenue opportunity for the entire market is based on the fact -- assumption that L3 vehicles will have 2 LiDARs, while L2+ will have 1 LiDAR box with the entire perception in the cars. Now if we drive down the -- if we come to the next biggest assumption and we have assumed that the biggest of the market for, the $80 billion market is going to have an ASP or average selling price of $800 to get to the $80 billion cumulative number that we have presented in our investor presentations. Now our number of $2 billion to $4 billion revenue is a conservative estimate, where the ASP is assumed to be $500 from an estimate standpoint. Now this is very important because this is essentially the fact that hardware tends to get commoditized. So while that ASPs will start out a bit on the higher side, they will come down eventually as the product gets more commercially adopted by the OEMs. So now going back to our $2 billion to $4 billion number of cumulative revenue, the next biggest assumption is MicroVision's LiDAR will gradually have market share starting from 15% to 40% by the end of 2030. And this will essentially start with the fact that we will be able to have at least 2 OEM partnerships by the time 2024, 2025 production starts. And this is where it's very important to understand this revenue stream will be broken down into 2 pieces, as Sumit described the hardware and the software. Hardware revenue streams would be on a gross profit-sharing basis. What that means is, the OEMs essentially need to have a Tier 1, which is right now supplying the broader ADAS solution, of which LiDAR will be a part of that ADAS solution. And hence, ultimately, Tier 1 would be our customer, which would be ultimately providing the end product to the OEM. Now we believe that the hardware stream is going to be approximately 1/4 or 25% of the total revenue stream. And this would be approximately on a gross profit -- a 50% gross profit-sharing arrangement with the Tier 1s. Now at the ASP of $500, we have estimated that the gross profit would be somewhere approximately be around 10%, and it would be shared -- 10% to 15% and it would be shared equally between the Tier 1 and MicroVision in this framework. The biggest component of the revenue stream is going to be the software, which essentially will be the brains behind the hardware. And I think, as Sumit described, the custom ASIC essentially contains the code that not only drives the hardware, but also processes the point cloud to ultimately come up with drivable, not drivable, free space clusters for the OEMs' main domain controller that our software would be connecting to from a connection standpoint. And this is where -- which is the IP, and I think as Sumit described, the perception is what we will command the pricing of MicroVision's LiDAR. And we expect this number to be 15% to 25% of the ASP for every LiDAR box that is going to be shipped by the Tier 1 to the OEM, which is ultimately going to be installed in the vehicle or in the production feed at the OEM. Now these 2 essentially are the biggest streams that will constitute the revenue -- the cumulative revenue estimates that we believe are going to be between $2 billion to $4 billion until 2030. Now let's go back to the EBITDA. EBITDA is essentially a direct translation of this revenue straight to the bottom line. The reason being is because as you can imagine from our go-to-market strategy, MicroVision is not -- is estimating the Tier 1 to take on the production for the LiDAR sensors. And hence, gross margins or essentially would be -- the cost of revenue would essentially be the engineers and the resources that we would need to bring on board to scale the software development for -- in the production. And ultimately, that's sort of what will translate into a very high contribution margin, which will drop straight to the bottom line as EBITDA from a contribution standpoint. And that's sort of how we come to $1 billion to $2 billion of EBITDA. Now obviously, there would be some expenses related to marketing and obviously, as the team grows and expands, we would have some SG&A expenses, but ultimately, the high contribution margin will reflect or mimic what a software company typically has in terms of scaling the business from an engineering resource standpoint.

Great. Thank you for that. And what is anticipated cash used in 2022 and '23? And how should investors think about the ATM?

Yes. So we ended this year -- or sorry, last year, 2021, with about $115 million cash balance. And our cash burn was around $30 million on an annual basis. Now 2022 would be higher than 2021 obviously because some of the investments that we have been making in the engineering resources and the R&D and the engineering team. And essentially, some of the infrastructure that we have grown or built to match with the increasing number of engineering resources, which are essential for scaling the business to essentially meet the OEM demands and specs that Sumit talked about. 2022, we'll have some higher expenses, and we expect 2023 to be -- again, we haven't provided guidance for 2022, but we expect that 2023 would be slightly higher than 2022 as well as the business scales from a headcount standpoint and also the conversations that we continue to have with the OEMs across the board. The ATM program is supposed to be as a tool or what we think of it as a flexibility that we have as compared to some of our competition who have raised quite a bit of capital through the SPAC IPO that they have gone through. Now we have been very judicious about the ATM program, and we would need -- we would use it as and when necessary to supplement the balance sheet with capital. But like I said, just to give you a few data points, our cash balance was $115 million, cash burn was around $30 million. And we feel comfortable as compared to some of our peers whose cash burn is 4 to 5x than us just from an operations standpoint. And given, obviously, where the companies -- where the OEMs are in their life cycle, we believe that we are very comfortable and well positioned in terms of what our cash burn is as compared to some of our peers and also relative to the balance sheet strength that we have at this point in time.

Great. Do you anticipate any supply chain issues in the near future that may impact your timeline? What countries will be involved in your sourcing?

So at this point, we do not anticipate any supply chain issues because we are not sourcing any parts from Ukraine or Russia at this point in time. So we feel pretty good about where the things stand today. Obviously, the world is unpredictable. And obviously, we continue to watch the macroeconomic conditions. But at this point, from a supply chain standpoint, we do not have any dependencies from the affected region of the world.

Okay. What is the goal of MicroVision's participation and investor conferences. This seems like a new approach compared to recent years?

Yes. So I think our approach has been of the past -- in the past 6 months to sort of get on the radar of investors because I think it's very important that people understand the story and where MicroVision is from a spec standpoint because I think our efforts have been focused on investor outreach to demonstrate how the product is much superior than some of the competitors' products. And this is especially because of the fact that the IP that the company has with about over 430 patents in the laser technology. And essentially, the fact that this company has been around for over 2 decades, with relationships like Sony, Microsoft, in the past. And I think our goal has been to get in front of the investors to obviously tell our story or where -- what our history is and where we are headed from a future standpoint. And obviously, the specs and most importantly, the software is what gives us the edge to compete with the peers. And I think that's sort of why our focus has been to participate in as many investor conference as we can to get the story out there to the investors.

I'd like to add something on that one. So we clearly spent a lot of our time focusing on OEMs and Tier 1s and our products and developing our technology. We spend quite a lot of time. Of course, we have a very large retail shareholder base. So we communicate as often with the market as possible. I see these as opportunities to -- we are a public company. So it is important for our public company persona to be consistent with what we are actually doing within the company to build value. I see this as a great opportunity to just reach out with all investors, retail and institutional and make sure that the story that we have, the company story is actually well understood. And you're looking at a high-tech, high-growth company. High-tech, high-growth companies are working on things that will have significant revenue opportunities in the near future. And we want to just make sure that everybody understands that what are we doing and what the value could be as we look forward to the future.

Okay. We are actually almost out of time. Do you have any other remarks that you'd like to share with us?

No, I think that covers it all. I think it's -- what's very important for people to understand. I think one question I see in the chat here is like what is one thing that retail and institutional investors should keep in mind? So I want to address that. I like that question actually, in general. I think there's lots of part of the story. I think as you can see Anubhav and I, always talk about certain key elements over and over again, that are very important. But in a nutshell, as you take a step back and take a look at the bigger picture, you think about the size of the market we're talking about. And OEMs are openly saying that the whole size of markets are not hyperbole. Those are real what they're focusing on. And then on top of that is how is going to solve that problem and what the value is. And software, for the first time, is not the way you think about it. It is not running on a domain controller. It has to be something inside the LiDAR. So you have to have real IP and hardware and real IP and software and that will enable you, and you would have something that is very magical in that sense. So I think like what people have to focus in a nutshell is look at the market size, look at the opportunity that's there. You look at the differentiated companies and very quickly start sifting out of who will be there in the future. And of course, we believe that we're going to be the leader there.

Okay. Thank you. Okay. I think this concludes our webcast for the day. I know it seems like it was just a short time. But thanks so much for joining us. Thanks, everyone, for being a part of this webcast, and we will see you next time.

Thank you.

Thank you so much. Thank you. Bye-bye.