DataSpeedInc Describes Creating MVIS LIDAR Jeep

MVIS - Cantor Call Transcript

 

Transcript: MicroVision, Inc. - Special Call


[Minor edits for accuracy where mistakes are found in the transcription -- Editor]
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Presenter Speech
Andres Sheppard-Slinger (Analysts)

All right. Good afternoon, everyone, and thank you for joining us today. We are here for a fireside chat, which is the management team of MicroVision, Symbol MVIS. Now as many of you are aware, MicroVision is a high-tech software and hardware lighter company and is currently focusing on developing lidar sensors for Level 2 and Level 3 autonomous vehicles. We are here today with Sumit Sharma, CEO; and Anubhav Verma, CFO.

And before we get started, I just want to remind any investors on the call today that if you have any questions that you'd like to ask, please either e-mail me those to me directly or ping me on Bloomberg, and we' l be happy to ask those on your behalf.

And so with that, we are ready to get started. Good afternoon, Summit. Good afternoon, Anubhav.

Presenter Speech
Anubhav Verma (Executives)

Good afternoon.

Presenter Speech
Sumit Sharma (Executives)

Hi Andres.

Question
Andres Sheppard-Slinger (Analysts)

Thank you again. Thank you for joining us today. Maybe to get started, Sumit, I know you've spent a lot of time in Europe over the last few weeks, and you've had several great meetings out there. So maybe to kick off maybe you can just give us some of the feedback you've gotten in from some of those meetings.

Answer
Sumit Sharma (Executives)

Yes. I think I've actually spent quite a lot of time in this over actually in Germany. I think the feedback in general, our message that we went to the market with early on this quarter, I think it's been received pretty well. Consistently, our path is very different than what other lidar companies are focusing on, and we're focused more on solving the key problem that the OEMs themselves are facing right now, which is how to actually deploy a true Level 3 ADAS system, and then, of course, expanding that into Level 2+ and perhaps if possible with a right cost structure to Level 2.

And we have a very unique approach. And of course, it's because of our core technology, how we do everything inside our ASIC, and how our software actually is also inside the ASIC. And specifically, what really resonates with them is the fact that there's a cost advantage that they can see even as they start the conversation, and the feature set that they're talking about, the kind of scenarios in a driving situation that they face that their teams are not able to solve right now that we are actually focused on that, and we are working on test track testing to demonstrate to them that with lidar and radar combination pipeline through our ASIC with our software that we can actually get them much closer to solving those and if not, solve them all the way. So I think like the feedback has been really positive.

Consistently, I'm pleasantly surprised. We started this journey, I would say, in 2019 when we talked about it publicly actually before that. And we've had OEM engagement or at least input and engagement since then. And even to this day, the specifications of what's required to solve the problem. Our hardware and our management stay in line with what they expect. So that's always a good confirmation. Every time we go back that nothing has changed. If anything else, they're coming -- almost all of them are coming closer to closer to where we are. And that is -- that's a good confirmation that the hard work that we went into to developing the hardware, this is going to drive other companies as well, our competitor specifically to try to find a way to get to these kind of performances. 

So, positive feedback so far. RFIs has been like -- have engaged to get more information about our technology, about how we would do solve certain specific problems. We've had a couple of, actually several RFIs, so we continue doing that and positioning the company for a future RFQ that, as we mentioned last time or a couple of calls ago, in early 2022, they're preparing for. So things are moving along and I'm very happy with where we are.

Question
Andres Sheppard-Slinger (Analysts)

That's great. Now, that's great to hear that the feedback has been overall actually positive so far. That's great to hear. Now what do you think are some of the key characteristics that OEMs are looking for when they're making a decision of who to partner with? And maybe in addition, what are the key differentiators in MicroVision's lidar products?

Answer
Sumit Sharma (Executives)

So I would say, I'll just go from -- I'm going to summarize all the different meetings of what my impression is. Number one is they actually want to make sure that the people that are talking to they have a pedigree, the company has a pedigree. And our MicroVision is 20-plus-year history of being in this field with our MEMS based technology for several different areas, actually goes pretty well because they know it's substantial. Year after year, decade after decade, MicroVision has been able to engage with top tier OEMs and deliver technology.

The next one that actually gets the most smiles and positive response is when they finally wrap their understanding around why our cost structure is so predictable at such an early stage. And I would say those 2 things are the biggest -- the strongest pillars that they start with to get confident to dive into the technology. Then you can ask the question about what's differentiated about you. So those 2 ones that establish a premise, which is always very easy for us.

The next one is now we start diving into our features in the lidar and of course, the software. And then the conversation gets easy. And I can just state very clearly that some of the scenarios they talk about, we describe exactly how in our technology, that scenario is handled, and the lightbulb moment, I mean the reason I go to these meetings is just to make sure that you go -- face the potential customers in the future and get the feedback of what's really necessary, right? Just not second or third hand. And I feel pretty confident that the path that we have described to them, their concern is not that we're going to deliver it. They want to see the data from our track testing from some of the other milestones we described. So that's the positive part of it.

What's differentiated about us is to solve this problem, if you think about -- I'm going to -- I'm going to give you a scenario. Let's just start with that. Think about you're driving on a 3-lane highway, you're in the middle lane. There's 18-wheeler, right at like 2:00, and there's another 18-wheeler, probably 40 feet in front of that first 18-wheeler that's next to you. And in the left most lane, you can see about 100 meters out as a driver that there is like either degree or there's like some like Jersey barriers that are coming up. So that lane is getting funneled into the middle lane, all right? Now suddenly -- and you're driving, let's say, 130 kilometers an hour or 60, 70 miles an hour. All of a sudden, a car appears instantly between the 2 18-wheelers. So if you think about it, it was hidden by the 18-wheeler, you could not see it, but it suddenly juts out, all right? A human driver would do what? Slam on the brakes, but sometimes that's not the safest option available. And an average driver, so let's say, when I was an inexperienced driver in my teenage years, you have not seen this. You don't know what to do, right? You panic actually. You don't know if you want to go in the left lane and slam the brakes or slam the brakes where you are, or just sort of coast along. To solve that problem, this is where the lidar really comes in, and this is where our software really will benefit how we take care of the situation. And an average driver, so let's say, when I was an inexperienced driver in my teenage years, you have not seen this. You don't know what to do, right? You panic actually. You don't know if you want to go in the left lane and slam the brakes or slam the brakes where you are, or just sort of coast along. To solve that problem, this is where the lidar really comes in, and this is where our software really will benefit how we take care of the situation. And an average driver, so let's say, when I was an inexperienced driver in my teenage years, you have not seen this. You don't know what to do, right? You panic actually. You don't know if you want to go in the left lane and slam the brakes or slam the brakes where you are, or just sort of coast along. To solve that problem, this is where the lidar really comes in, and this is where our software really will benefit how we take care of the situation.

So if you think about that problem, deterministically speaking, there's actually only one solution, and the solution is apply brake even though the left lane is open 120 meters out, there is no option to go to the left lane slowdown and come back in. That's more dangerous. It's a dangerous move. This is where the computer systems really get all this stuck because the amount of time they have to make a decision like that to plan the maneuver is very little. And so instantly, these scenarios are very hard to find a truly deterministic solution, truly say that every time the scenario comes up, this is what's going to happen.

But with our solution, since there is no big amount of machine learning algorithms required to classify things and recognize them, this is just drivable, not drivable space. As something appears, it knows that 120 meters out there is another object, knowing the vehicle dynamics, you have to start applying the brake, but you don't have to slam it. You can feather the brakes, so you can be stopping or slowing down at a reasonable rate. That could be done with the lidar directors. So this is one of the test in are I'm describing that our team is actually going to be testing in a test track in a little bit right now.

These are the kind of scenarios, and there are several of these that we actually share with the OEMs, but this is what we're focused on. And they find this because this is their list of scenarios that they have never found a solution. And any driver can tell you these are realistic scenarios that happen quite often actually on a highway speed.

So if things that are typical on driving in any given week, you could be faced with some of these scenarios that we talk about, is current solutions, current sensors cannot provide that. And here comes a company that's not just in lidar, but with a software solution that can identify drivable, not drivable space and help them mitigate these kind of scenarios. That's an actually very important step forward.

So this is why I really believe MicroVision is so differentiated from everybody else. There's lots of lidar companies, a lot of people talk about software, but nobody is talking about what's the problem you're solving that you have to replace an experienced driver, a very good experience driver with a computer system that is incredibly fast compared to a human being but has to be more consistent like a human being. That's what we're focused on, and that's the response that I get, how differentiated we are is always very positive.

Question
Andres Sheppard-Slinger (Analysts)

That's great. That's very helpful. Maybe to elaborate a bit further there. So two of the very unique and superior characteristics of MicroVision's product is that it has the high resolution on the lidar piece, which in addition to the proprietary software on custom ASIC. So maybe can you just simplify to investors, how do those 2 kind of work together and complement each other to ultimately provide what's a superior product?

Answer
Sumit Sharma (Executives)

Yes. So the hardware is very important. This all starts with the hardware. Ultimately, we are going to sell a lidar, a piece of hardware into the OEMs and Tier 1s that ecosystem. So the hardware is unique based on our proprietary technology. And some of the features that we're doing, it's because of the way the hardware design that we've done and matured over 20 years. So -- and that's what people can count on. We've done this before. We've demonstrated before.

The software part, we've also done before, but this software part is focused on the automotive side of it. What we do, our software runs fully pipeline in our ASIC. And our ASIC does not have massive amounts of GPU, massive amounts of CPU. It is specifically focused on MCU and DSP, which is a lower-cost system. We can add more things to it, make that more sophisticated, but to get a very cost competitive system to be able to enter the big volume market of Level 2+ and Level 2, this first ASIC is targeting to run our software fully pipeline in our ASIC, which is inside our lidar, so this is coming from inside our hardware. So the lion's share of the work, the heavy lift that is required to do all the work and the domain controller, that heavy lift is done within our ASIC within our lidar. And so therefore,

So the hardware, yes, absolutely it is very important. Without that getting this high resolution at range, at low latency, that's a function of our hardware that is not done by software. But the software takes that the point cloud. And again, in very fast turnaround and very low latency, is able to output it is drivable, not drivable. So you're not going through different stacks and going to a GPU and taking a lot of time, you're running at what's called fully pipeline, meaning that when I'm operating the point cloud, all the tags are already in point cloud as undrivable, not drivable. You don't have to wait. It's not a separate data stream. The point cloud is fully packed and segmented. This is actually a pretty big thing. And this is what most people in this field will say, well, that' s like the heavy lift that you have to do. And if your heavy lift is done and it's coming out streaming, that solves a lot of the problems, and this enables our OEMs that want to build even more sophisticated features on their domain controller enables them as well.

Question
Andres Sheppard-Slinger (Analysts)

No, that's, I think that's very helpful. I think that will be a key differentiator, no doubts. Maybe switching to strategy a little bit. Can you remind us of what is your go-to-market strategy? And what are the 3 pillars that you are looking to develop partnerships with?

Answer
Anubhav Verma (Executives)

Yes. So let me take this question. Our go-to-market strategy essentially is around this ecosystem, which consists of the end customers, which are at the OEMs at the top which are in turn being serviced or provided these parts, these components by the Tier 1s. And then ultimately, the chip providers, which is the silicon in all these systems, which are being put together or assembled together by the GMs, which is ultimately consumed by the OEMs. So as you can imagine, our strategy has to be focused around these 3 very important players in this ecosystem.

The first most important element is -- the pillar is the OEMs. Now obviously, as Sumit described, the OEMs has the specifications or problems that they're ultimately trying to solve. So our goal is to market the product and its specifications to these OEMs so that there is a clear partnership or what we call a "directed buy" agreement where the OEM has locked in the features that they would like to have in their cars, in their fleet from the lidar unit, the perception unit, which would ultimately come from MicroVision. Now once that's done, you can probably realize that those units would have to be produced in hundreds of thousands and perhaps millions for that particular OEM. Now this is where the partnership with the Tier 1 comes.

So now before I even get to that part, I think one thing that Sumit pointed out is lidar or lidar is part of the ADAS solution that the Tier 1 is ultimately providing to the OEM. Now what that means is we are simply providing the lidar perception unit and the associated software and the sensor fusion with just with the radar, which will ultimately be taken by the OEM to build a world model, which would be in combination with the camera modules that they already have.

Now Tier 1 has these very strong deep relationships where they are manufacturing on a mass production scale, these units -- these ADAS components for the OEMs. Now this is where the manufacturing partnership with the Tier 1s will come into the equation because as you can imagine, it's going to be very hard for anybody else to make these production units in those, at that scale. So obviously, Tier 1s have that advantage with the OEMs. So this is the second pillar of the go-to-market strategy that we believe will be a very critical element of the go-to-market plan that we have.

And lastly, the silicon partnerships because, obviously, like I mentioned, the part -- the chips that are ultimately part of the CPU, the domain controllers, et cetera, that's what is part of the chip companies. That's a partnership we are looking to strike with them because we are ultimately going to be using their chips in which our software will be coded as part of the lidar perception unit, that will ultimately be used by the OEMs.

Question
Andres Sheppard-Slinger (Analysts)

Thanks Anubhav. And can you maybe remind investors how the profit-sharing agreements will work?

Answer
Anubhav Verma (Executives)

Yes. So I think the way to think about this is our revenue will consist of 2 streams, the hardware stream and the software stream.

Now what I mean by that is the hardware stream would be the lidar unit that is ultimately being supplied or provided, which is capturing -- or which is enabling the point cloud, which would ultimately be processed by the software, that is on our perception unit.

Now this is the hardware stream, we'll have a manufacturing partnership once that directed by agreement with the OEM is established.

Now I'd like you to recall all hardware products go through the same life cycle where initially, the cost of the hardware is high and then it tapers off as the hardware becomes more commercialized on a mass adoption basis from that standpoint.

Now the hardware side, the profit-sharing agreement would be, we believe the ASP in our model or in our framework for the next decade until 2030, we believe that the price or the average selling price would be $500 and the hardware stream would be a gross profit-sharing agreement with the Tier 1 because ultimately, Tier 1 is taking on the production risks to manufacture these -- the hardware, which will ultimately be used by the OEMs. Now we believe there could be a 50% partnership of the sharing of the gross profit just on the hardware piece for this every lidar unit that would be produced by the Tier 1 and installed into the OEM.

Now we believe that this revenue stream should be approximately 1/4 of the total revenue of $2 billion to $4 billion that we have estimated. And the second biggest or rather the biggest revenue stream would be the software because I think as Sumit described, this is the core engine that is enabling the processing of the point cloud, which ultimately is feeding the decision to the CPU of the car as to whether to slam the brakes or ease the -- reduce the speed whatever the decision that's been conveyed by the lidar unit to the motherboard of the car's computer.

Now this is the software, which we believe will command about 20% to 25% of the ASP for every lidar box or perception unit that would be shipped by the Tier 1 and used in the OEM.

Now if you recall, we have estimated that every Level 2+ car will have 1 lidar unit and every Level 3 car -- Level 3 autonomy car will have 2 lidar units. Now this what is -- has been the basis for estimating what would be the total number of lidar units that would be needed to be provided to the entire automotive market, and this -- the 2 hardwares -- the hardware and the software streams will be the components essentially, which will correspond to every lidar unit that is used on these L2 and L3 cars that will be rolled out until 2030.

Question
Andres Sheppard-Slinger (Analysts)

Got it. A lot of great information there. Thanks Anubhav. And we'll follow up with some of the financial questions. But maybe before we get into those, can you remind us of and maybe walk us through your timeline currently? When do you expect to achieve the certification through third-party testing? And when again, do you expect to start selling these strategic samples?

Answer
Anubhav Verma (Executives)

Safe. So we have 3 milestones laid out for this year 2022. In June, we expect to complete the track testing that Sumit described, which is specifically the scenarios -- one of the scenarios that he talked about in which the track test results would be demonstrated to the OEMs because this is where -- and as you can imagine, this is part of the RFQs that the OEMs are currently in the process of -- to ultimately select the lidar partner, they would be using to make sure to, which would be their partner in all their cars when they get rolled out in 2024, 2025. Now that is our milestone #1.

Milestone #2 is the Class 1 certification, which we expect to complete by this year -- sorry, by Q3 2022. Now this is where the safety, as you can imagine, is very critical because, again, we have talked about this, the power and the safety of lasers is of extreme importance here because we are using 950-nanometer lidar and our Class 1 certification by a third party will certify that this product is safe for being used in environments like at crossroads where pedestrians are and it's - - the harm that the lasers can cause is not -- it's not going to be as much -- is below the levels that is needed for lasers of this power.

And lastly, we would be -- we have some strategic sample sales by the end of 2022, which we intend to sell to some of the OEMs as well. So these are the milestones that we have and we are on track for them in 2022.

Question
Andres Sheppard-Slinger (Analysts)

That's great. Sumit, maybe to turn it back to you. I wanted to talk about the competitive landscape a little bit. So maybe to start off, how competitive would you characterize the lidar industry today?

Answer
Sumit Sharma (Executives)

I think if you look at the landscape of companies that are out there, right, I think it's important to see the content of what they're saying. And the premise that I described earlier on, the two important premises, the pedigree of the company, their core technology and the cost. If you were to apply that across all the companies, right, this is where the shift thing starts happening. So I think it's great that there's a lot of smart people out there, right? And these smart people have actually developed a piece of hardware that warrants some level of notice, right? And they've done some early work on there. But again, a product that's going to end up in a vehicle, and these -- the kind of volumes we're talking about -- vehicle designs, vehicle costs, these things have been known for decades, right? So we have to be all in line. So when we look at the competitive landscape, what I always see missing is, there is nobody with  decades worth of pedigree, of IP of delivering to OEMs, at cost in a very, very tough environment. So the shifting starts to happen very, very quickly, of IP of delivering to OEMs, at cost in a very, very tough environment. So if somebody has to actually evaluate and say, is there a company, on one side that can be counted upon to deliver or what they're saying like Class 1, like what Anubhav stated. But we have experienced delivering Class 1 for many, many years. Even if you go to 1550-nanometer, there is no competitive way 1550-nanometer at a price point has been delivered to the automotive industry. 

There's lots of new technologies like Flash-based and all the different techniques people are talking about. But think about those subgroup of companies, those cohorts, if you go to a wedding, there's 2 photographers with a flash camera, they stand next to each other and they flash it what happens, they blind each other, right? So that shot, you never see in the wedding photos. Well, think about it in the traffic situation where you can't avoid, you can't miss a frame or several frames. That's a pretty deep issue, right? So perhaps for like parking applications, which are, again, not that important, you can have a flash-based lidar, all right? But when you get to highway pilot speed, that's pretty challenging at that point. And there are going to be a very small group.

So take the 70-odd companies globally that are in there, you can start shifting them. Some of them, their technology is adequate and sufficient for parking type application, like sort of like a valet parking kind of thing, right? Some of the technologies are okay, which will not give you the look and the feel of a high-speed vehicle like a truck where you can have a bump out, right, that it's more delivery services and things like that. That they don't care the way it looks like, it's a service that they care about that they're trying to monetize, right? Some companies will participate there.

But what we really wanted to make sure everybody understood what the big prize is, of course, the nearly 100 million, 85 -- 87 million to 100 million vehicles that are sold annually and lots of them on the road. And for a decade long, the input is going to be for ADAS safety car targeting that very big market. So when you think about all the companies, the competitive landscape shrinks even more, there's only a handful of companies already that can actually address what I'm just describing the high-speed highway pilot.

So the landscape is, yes, there's lots of names in there, right? But it's to start putting them in subcategories of what is specifically area that they're targeting. Now everybody says it's this big of a market TAM or market SAM, but they're not specific where they're competing. And where we're differentiated is we are competing in the one, the big price. We've clearly stated it and we continue talking about how we're going to compete there. And so far, not a single company has actually come out and said that they are in the same place that we're competing. So I feel pretty good where we are. But again, I acknowledge lots of smart people out there, and we welcome the challenge.

Question
Andres Sheppard-Slinger (Analysts)

Got it. That's great. And maybe to follow on from there. Who do you consider your most direct competitors? And do a lot of them offer a proprietary software solution to the best of your knowledge?

Answer
Sumit Sharma (Executives)

I think it's important to be humble, and I'm always humble about this, right? Who do I consider a competitor? They're all smart. They all have access to capital. Who knows what they're working on, right? So I can just talk about ourselves. For as far as direct competitors, yes, I would think there's a short list in my mind. But right now, until somebody starts talking about ADAS, I would not call them a competitor openly. Right now, I would not say there's a whole lot of people talking about it. So once they do, I'll be happy to point them out. Until then, we'll just cut me some slack on that on Andres.

As far as the software, this is a very, very big question. This is a very important point. So the word software, it sounds very general. So I think as I earlier described, when others so far in their public comments, in their corporate decks, what they're communicating to Wall Street, right, I read all of that. it's kind of confusing to me because they're not being very specific, because they have a lidar hardware, but the software they're talking about would be running on the domain controller.

I think one of the other lidar companies, I'm not going to mention them by name, but they just said that "Oh, yes, that software is on the domain controller." Well, the software that's on the domain controller is controlled by the OEMs and Tier 1s, so you would be actually -- your software is in direct competition with your customer. So it's dubious to me like what's the probability or possibility that anybody would actually adopt their software solution. Us, again, we differentiated our software with the right buy sides is on edge computing, within a lidar, running pipeline and significantly enables all the features. So therefore, you may need, today, you may need a super duper team of like 5,000 software engineers to create domain controller software. I'm sure there -- it's smaller number,

What we're saying is the thing that we do on our edge computing, our software does the lion's share of the work that any company that wants to do a software on domain controller, like any OEM that wants to provide it. Like for example, think about some of the German OEMs, of the US or the Asian OEMs, the top Tier 1. They have big teams. But what if there's a smaller OEMs that are competing in that space? So smaller OEMs do not have a way to compete. But with our software, their teams can produce features and safety features in line with what's required by regulation. So we would be enabling a wider range of OEMs to participate into this.

Now imagine what our software would enable a top-tier OEM to do beyond that. So if you're going to produce some really high features, it's like the precursor. It's the kind of stem cell, the software, what we do, what it outputs enables them to do something even more incredible. You get me? So that, again, is a differentiator and so far, not a single company has been so specific and so clear about their software strategy. There's lots of words on software and classification, and they kind of jumbled up in there, right? But I think I let it be until they can provide clarity, I would not consider them a competitor.

Question
Andres Sheppard-Slinger (Analysts)

Yes. No, that's a great answer. And I think investors need to be aware that that's one of the key differentiators, right? It's this proprietary software, this edge computing on custom ASIC really helps to complement the high frequency of the hardware lidar product. And so far, that is a big advantage in the industry. We have a call -- a question here from an investor. What is the earliest you could foresee announcing a partnership with an OEM?

Answer
Sumit Sharma (Executives)

I think I'll take this one Anubhav, if you don't mind, right? And I think Anubhav has got some comments on this one also probably. I think the -- we talked about this publicly what our steps are in 2022, but I think Anubhav touched upon that, right? And I think last year, in one of the earnings calls, I talked about like the timeline. So the big prize, it's the RFQ, when OEMs start their RFQ cycle, you want to be prepared for that. You want to be in line with that, okay? And so far, everything we've done, as Anubhav mentioned just in his previous comments, we remain on track in 2022, what we're -- where we're looking ahead, we're feeling pretty confident about it.

So I think to be specific about when a partnership would happen, right? You can't talk about that because OEMs by themselves have their own timelines, right? You have to be respective of that. So I think I will just acknowledge that when the time is right, we will talk more about it, but OEMs will control what they want to announce.

Question
Andres Sheppard-Slinger (Analysts)

Got it. Alright. And then maybe on a macro landscape here, a question for either of you. Do you see any consolidation in the sector -- in the lidar sector via M&A? Is that something that you think investors should be mindful of. I'm just curious about kind of your thoughts there on the general sector?

Answer
Anubhav Verma (Executives)

Yes. So I'll take this one. So look, I think, obviously, there are quite a few public companies in the lidar market. And I think as history has sort of -- we have seen in history, there are always consolidation opportunities available whenever there are more than 5 or here in this example, more than even 10 big players. And ultimately, I think this would be sort of a very obvious conclusion that there probably would be only a handful of lidar players, let's say, 5, 6 years or again, down the line, the time there is obviously, which will depend upon the OEM adoption, the rollouts of the lidar units, et cetera. But ultimately, we feel that, again, being by the virtue of these many public companies available, the M&A or the consolidation would always be something that the lidar industry will go to.

Question
Andres Sheppard-Slinger (Analysts)

[Operator Instructions] Maybe switching to some of the financials a little bit. I know we've talked about the 2 different revenue streams, the hardware and the software. And I think investors know that the software is really going to represent the larger portion of those two. Can you maybe just help again and remind us of and just quantify what you foresee that breakdown between the software revenue and the hardware revenue to be going forward?

Answer
Anubhav Verma (Executives)

Yes. So we expect, as I mentioned, the hardware becomes more and more commercialized over the next phase of this lidar product. The software will remain the key engine or the key growth driver or the major contributor to the revenue streams. The split, we believe, is approximately going to be 1/4 and 3/4, respectively, for the hardware and the software. And the software we think about this is going to be very similar to what we have seen previously that what happened with Mobileye as well when they were -- when the camera modules were getting more and more adopted by OEMs towards the early part of the last decade.

And I think we would see something similar happen in the lidar space as well because I think as we talked about, the software remains to be the key engine here, and we expect the software to approximately command 15% to 25% roughly of the average selling price because that's, again, to make it to simplify for everybody it's the nervous system or the engine, which is actually running the lidar and ultimately taking the data at the point cloud and then communicating with the controllers on the car for, I think , as Sumit described free space cluster versus obstacles, which come out from the point cloud.

Now that's what we believe to be the major revenue contributor to the revenue stream of MicroVision. And as you can imagine, the cost associated with developing these, the product and the software is mainly going to be the engineering head count or the engineering team that we have which will be leading the engineering software or the development of the software that will ultimately go into the hardware. So as you can imagine, the revenue will be contributing to a much higher contribution margin to the bottom line just by the virtue of the cost structure of the company and the way it is delivering the product to the customer by the virtue of the go- to-market strategy.

Question
Andres Sheppard-Slinger (Analysts)

Got it. Maybe let's talk about the guidance that you've announced early this year, right? So you've guided cumulative revenues between $2 billion and $4 billion through 2030 and $1 billion to $2 billion in EBITDA also through 2030. So what are some of the assumptions that are embedded in that guidance?

Answer
Anubhav Verma (Executives)

Safe. So I think the $2 billion to $4 billion revenue, the cumulative revenue under 2030 is premised on the fact or by estimating what we -- what will be the number of L2 and L3 cars that will be produced every year all the way until 2030. And I think, as I mentioned earlier, we have estimated the L2 is going to have 1 lidar perception unit and L3 will have 2. And what we have estimated from a $2 billion to $4 billion to estimate the $2 billion to $4 billion revenue and ASP of $500. This is a bit on the conservative side because I think when we pull the industry executives and experts, we got the response that the ASP would be more close to $800 at the beginning. And then obviously, as I mentioned previously as well, the hardware product as it happened with camera modules, the price always comes down. So just to be on the conservative side,

There are 2 more assumptions that actually bench into making this estimate, which are that we would have 2-plus partnerships with the OEMs, and we believe that our market share will gradually rise from 15% to the end of -- to 40% by the end of 2030, which again is, I think, again, just sort of reiterating my prior comment that probably the lidar market should have 2 to 3 players are dominating the market by the end of 2030 on a steady-state basis. So those are some of the key assumptions that went into estimating what would be the cumulative revenue in this example, $2 billion to $4 billion until 2030.

Now EBITDA, just if I could get down to the EBITDA because the EBITDA is truly a function of what would be our cost to deliver this revenue. And as I mentioned, the engineering team, which is responsible for upgrading the software, customizing the software as the need of the OEMs evolve over the course of the next 3 to 5 to 7 years until 2030, that's what we would need the team to scale up. And remember, there would be obviously some SG&A expenses associated with marketing, et cetera, but really the cost which will be driving the head count will be a function of the number of resources that we will need to have to deliver this product to the OEMs until 2030.

Question
Andres Sheppard-Slinger (Analysts)

Got it. That's great. And maybe to follow up from that, you've mentioned as well that, that guidance translates roughly into 25 million to 30 million unit sales, again, cumulative through 2030. So when should investors start to see those ramping up?

Answer
Anubhav Verma (Executives)

Yes. So that's a great question. So I think the ramp will be towards the end of 2024 and 2025, and because that sort of when, even if you look at the chart, which estimates the number of L3 vehicles coming into the market in 2025, that's when the trajectory sorts of is expected to take off. And that's what we believe as well would be the year when the OEMs start to roll out lidars in their cars across the board, not just in the US, but in European markets as well as some Asian markets as well. So that's truly, we believe, would be the inflection point sort of when lidar would be adopted on a more universal basis across the board.

Question
Andres Sheppard-Slinger (Analysts)

That's great. And we have another question here from an investor, and I think it's a great question.

In your current guidance, and please correct us if we're wrong, you don't include any upside of your existing products, right? Like your interactive display, your consumer lidar. So what could -- and the question is, what could wins in those sectors? How could those affect guidance? And maybe before we answer, let's just quickly confirm that upside from those other verticals is not embedded in the current guidance, correct?

Answer
Anubhav Verma (Executives)

That is correct because I think we wanted to talk about the automotive lidar applications at this point because I think as Sumit talked about we are only focused on the ADAS component and not the autonomous driving because ADAS is -- ADAS sector is the one which we believe is more immediately monetizable and has broader applications across the OEMs until 2030. And this is why our focus has been on automotive lidar and hence, all the estimations that we have talked about ultimately trickle down from the lidar applications of these cars that we have -- that we estimate to be about $80 billion in cumulative revenue opportunity.

Now obviously, we have our existing business of interactive displays, augmented reality, AR, that we have.

Now -- and where we stand today, we do not see that, that market would have this kind of revenue or the opportunity that the automotive lidar, especially specifically the ADAS presents to us. However, obviously, since we have these products off the shelf, we would be ready to support our customers if this sector were to take off.

And I think the real challenge here, Andres, is if somebody, is there a market big enough where people are willing to pay $400, $500 for the glasses to -- for the AR features or AR functionalities that exists today. Now if that were to change, like I said, these are the products which we have already demonstrated with specifically with Microsoft, in the HoloLens technology. This is something that we can use to help our customers if this is something that takes off in the next 3 to 5 years. But at this point, to answer your question, the estimates do not include any contributions from that sector.

Question
Andres Sheppard-Slinger (Analysts)

That's great. Thanks for clarifying that. One follow-up from here from the same investor is, if revenues aren't expected to ramp up until '24 and '25, then what can investors expect top line in 2022 and 2023? And what part of that is related to the royalties from Microsoft?

Answer
Anubhav Verma (Executives)

Yes. So in 2022, we probably expect another $2.5 million to be recognized as revenue, as I think I had mentioned in my prior earnings call as well. This would be attributable to the Microsoft contract back in the day.

In terms of any additional revenue on top of that, I think as we described, there might be some co-development agreements. There might be some strategic sample sales that may be expected that we may expect to come in 2022. But again, they would not be as significant as when we expect the production to start because when the production starts, that's truly the software business model of the company comes into play where every lidar unit that gets shipped or used by the OEMs, we will be recognizing revenue because it could have our hardware and software in it.

Question
Andres Sheppard-Slinger (Analysts)

Got it. Maybe 2 follow-up financial questions and then Sumit, we'll turn it back to you. You mentioned in the last earnings call, your cash used in operating activities. In 2021, it was about $29 million or so. What type of annual cash burn do you anticipate going forward?

Answer
Anubhav Verma (Executives)

Yes. So I think I talked about this. In 2021, the cash flow used in -- the cash used in operating activities was about $29 million. We expect that this number would be broken down into 2 components, and in fact, even simplified even more.

So let me talk about the R&D and the SG&A expense, and I'll tie it back to the P&L of the company as well, so that investors have a much better clarity as to how we expect those numbers to trail.

For example, our R&D expense was about $24 million on the P&L, which included about $6 million of noncash stock-based component. So that was about -- that leaves us about with $18 million in cash expense for the R&D OpEx of the company. Now we expect this number to be slightly higher in 2022, partly because of some of the ramp in engineering resources in our software team and some of the resources that we are bringing on board to help ramp up our efforts as the RFQs that Sumit talked about that the OEMs sort of accelerates.

Now this number would be -- again, it won't be very different from the $18 million number in 2021, but it will still be a bit higher just because of these investments that we're going to be making in 2022.

Now the other aspect or the other major driver of the cash OpEx is SG&A. SG&A in 2022 would also be slightly higher than 2021. This would be because of increased some of the marketing efforts, some of the consulting firms that we are engaged with to get more visibility. And I think we talked about some of the tests that we are doing on these track testing, et cetera. So this number would be, again, a bit higher, but we expect this number to be in well below around the $40 million mark. So it will be somewhere between $30 million and $40 million this year.

Question
Andres Sheppard-Slinger (Analysts)

Got it. And maybe our last financial question here is MicroVision is in a bit of a unique position in that a lot of your competitors went through the de-SPAC IPO route, whereas you guys have been public for a number of years now, and you have this ATM program in place, which, again, we think is a big differentiator relative to the competition. So explain to us how do you expect to use this program? When can investors potentially see you using this program? And kind of what would be the purpose there?

Answer
Anubhav Verma (Executives)

Yes. So I think one of the key differentiators, as Andres, you pointed out is actually the cash burn that we have as compared to our competitors, which are, one of them is even 4x where we are on an annual basis. So obviously, we do not have as big cash requirements as some of our -- some of our peers, which did go through a very intensive capital raising process as part of SPAC and the de-SPACing process subsequently.

We are a more traditional purest company, more conservative, just by our DNA because I think Sumit mentioned, we have been around for over 2 decades. And I think the ATM program just seems to give us that ability or that flexibility to compete with our peers that, if need be, we can access the capital markets to put more cash on the balance sheet. And I think previously, our ATM programs, we utilize it in the first half of 2021 when the lidar market was -- the prices -- the share prices of not just us, but even our peers were very attractive, and we made use of the capital markets to strengthen the balance sheet from that perspective.

In the second half of 2021, we did not use the ATM because we saw a broader weakness in the lidar market, so I think the way we think about the ATM program is more as a flexibility or a tool that we can use as a measure against some of our peers who have raised quite a lot of capital in as part of the SPAC process.

Question
Andres Sheppard-Slinger (Analysts)

Got it. That's great. Sumit, maybe I'll turn it back to you there. What are some important milestones that investors should be looking for MicroVision to accomplish both this year and maybe next year?

Answer
Sumit Sharma (Executives)

I think we've highlighted that. I think there's a June milestone that we have been very public about, yes, scenarios, talking about the high-speed pilots. It's actually very important because one of the foundational parts of the arguments are that highway pilot systems are going to dominate the big volume, the big margin, a big expansion that is going to see even more than autonomous driving. And in the future, the EV vehicle wave is coming, ADAS and the safety that it will provide is a pretty big reason why people are going to start choosing which EV vehicle they go with, not just the name brand because all of them will have the range. All of them will have the high torque, the nice speed features that others are seeing so far, but ADAS will make a difference.

So this June 1 is actually pretty important. It is something we'll demonstrate that will resonate. What we demonstrated in June, right, is going to sort of like resonate out in the market out into the ether for years and years to come that a company in 2022 demonstrated this and it is going to be part of the zeitgeist for a long time. So that's a very, very big one. I'm very excited about that and things look pretty good so far.

The other one is, again, the other piece of the premise has always been one of the pillars is cost. You can't do this business unless you know how to control cost and you can see what the margin is going to be in the future. And us achieving our Class 1 this year is an actually very important point for this hardware going to do because it demonstrates that the cost is contained because we can use 95-nanometer laser. A third party is quantifying that this is a product that is clearly Class 1 ready so it can ship out as just like anything else, right? It could be part of your normal day-to-day life and it needs no extra precaution. So that is a very, very big step ahead of us, right?

I think like our sample sales that we've talked about, yes, small but it's really targeted towards our go-to-market strategy which is OEMs. You want to get them some samples, you want to do test drives with them, use -- utilize the demo vehicles as the best possible and also start engaging with them on their demo vehicles, right? So I think the 2, the big ones are, as I mentioned, the third one is sort of sets us up for next year or as I've mentioned previously, RFQs will happen with OEMs with different horizons, and there's going to be cascading of who wants to be first as in with their features or who wants to be second. So I think it sets us up for 2023.

Beyond that, I think in 2023, as we get closer to 2023, I'll start setting out the narrative for them. But for now, I think I want us to just all remain focused on this. Once this is achieved, the base premise of our differentiation and our value proposition, our strategic advantage -- sustainable strategic advantage, right, will be demonstrated in 2022. So I'm pretty excited about this.

Question
Andres Sheppard-Slinger (Analysts)

That's great. We'd love to get your thoughts on the different levels of autonomy and kind of how you see that progressing over time, right? So you've mentioned in your guidance, you assume 1 lidar unit for Level 2 and 2, 4 for Level 3. I'm curious, how quickly do you see the EV space transitioning into the higher levels of autonomy. And what would that mean for MicroVision?

Answer
Sumit Sharma (Executives)

I think -- let me answer the second part first, and then I'll go back to your first part of the question. I think the EV space, I think the belief very strongly is that ADAS, these higher levels of ADAS features are going to be one of the base reasons why people will differentiate one brand versus the other. So yes, we have to double time. We have to work very, very hard. We have to finish our technology part of it, right, but also connect with these future waves because from the get-go, there are already EV vehicles out there, right? I think like years ago, right, think about the Chevy Bolt years ago, it was pretty affordable. It was a pretty nice vehicle actually.

So EV has been there. More than a decade now. Certainly, like what Tesla and others have done, right, it should be really regarded out has opened up the gate for the future for everybody. But as you think about more and more OEMs entering the market, more and more choices available to consumers, they'll have to decide how to differentiate, right?

And ADAS is a key feature. High safety at a very reasonable cost. Those are the kind of things, airbags are mandatory, they're there. Safety -- seatbelts, ABS, all sort of the features that are kind of mandatory or they are standard nowadays. The next round of features, why there's such a push for ADAS right now is because, it is the reason why potentially in the future, people will differentiate one brand versus the other, right, at a certain price point. So that's important thing to remember. And we believe very strongly that those kind of volumes in ADAS are actually much more compelling and more reasonable as EV starts taking more and more over the fleet of most OEMs, okay?

Let me answer your first question first about the features of ADAS versus autonomous driving, right? So anybody that's on this call today. I think I would like them to put aside if they're investor or a presenter or MC. Think about your general day-to-day life, how you make a decision about driving, right? How many of us are willing to give up driving our car? I like driving my car, right? I want my car to be safer. I mean I'm a pretty safe driver, but I want it to be safer, but people are not quite ready to give that up. Same thing with AR. AR is a big, big market. We all know it. It's sort of like what the cell phone was when people were describing, well, before the iPhone came out and totally changed the paradigm of what a smartphone is. People knew this is going to be big, but all they had was Nokia and Blackberry and others, right? But then things started changing and it was a revolution. So AR will be like that someday but not right now.

That's the same way I feel about autonomous driving. It will be big someday. It could be a generational thing, but not right now. And that's why if you think about most of the autonomous driving companies, they're focusing on trucking and delivery and some of these other applications where they can develop their product and deliver their strategies before they can actually say that our consumers are ready to give up driving their vehicles, like do they have systems, do they trust so much that it could be hands off. And so the answer most people on the call, if they were actually honest about the question I just posed, most people have ever talked, including when I go to OEMs, they all nod and say, yes, that's going to be hard because everybody likes driving the car in our generation still, even younger generation.

And if you think about the numbers that Anubhav has put together, it's not even the big portion of the amount of vehicles that are sold globally yet, which is growing, by the way. So we're taking a very small market segment part of it, right? And so there's huge amounts of growth in ADAS there. But yes, I acknowledge that autonomous driving, just like AR, the promise is there, when it will happen is unclear, but the big market is ADAS. And I do believe that the EV vehicles, the compelling reason why one person is going to pick one versus the other is going to be the ADAS futures that come with it.

Question
Andres Sheppard-Slinger (Analysts)

That's great. No, that's very informative. And our last maybe 5 questions here, I just want to ask a couple of quick questions, and then I want to give you the opportunity to share any closing remarks that either of you would like to say. So my last couple of questions are every company out there has some risk associated with the story. So what would you say are the biggest risks associated with MicroVision's stock? And are you impacted at all by the situation in the Ukraine?

Answer
Sumit Sharma (Executives)

Yes. I think as you think about what impact, so I'm going to divide the question into 2 sections, right? There's macro effects that are out of control. So MicroVision, like other companies, we're a high-growth company with a high potential, incredible results possible in the future. And we're doing everything possible to get to the steps to get to the point where we can start monetizing what we've created, right? And it's pretty clear that the market we're focusing on target customers, right, they're announcing timeline. So it sort of gives investors the understanding of like what's the risk factors down there, right? Those are -- you're in a high-growth area with a company with a differentiated product, okay? And us as a company, we'

On the macro level, if you think about it, again, being a high-growth company, what happens with the stock market interest rates, wars, right? Those are out of controls. But the way I look at it, that's like ebbs and flow of the general economy. All boats in the high-growth market will rise and fall with the tide that the market is going to take us, right? But the part that we can control, which is being very specific about our expense and capital, what are we working on, who are we targeting, our go-to-market strategy and how it's connecting, right?

We run a very tight ship on that and we communicate that directly to investors. So we want to take that uneasiness out of how are we modeling everything. And it has to be reasonable that other people can also acknowledge that there's nothing exotic about it. There's innovation that we have done, right, but the model that we're thinking about, how are we going connect, how are we spending money, how do we think about our logic of building the business out, it's not exotic. It is something that every investor should be able to put their brains around and say, "You know what, I can read the analyst reports, I can see what the management is saying, and they can build a model."

So I think like what we can control, we're going to control, but the other parts, including the war in Ukraine, right, I mean, those are the ebbs and flow of the market, and we're going to arrive, but we're going to make sure that we are well capitalized. So we are not any kind of jam.

As far as our exposure to Ukraine, I think we are early. And we're going to have our samples. We have actually desensitized ourselves early on. Because of COVID, we've purchased our automation, we purchased the key components. We've done all the key leg work ahead of time, so it does not impact any of the things we're saying for 2022. So I think so far, we do not believe we're impacted at all with the war in Ukraine .

Question
Andres Sheppard-Slinger (Analysts)

That's great. And maybe my last question is, what are the most important short-term catalyst that you think investors should be paying attention to?

Answer
Sumit Sharma (Executives)

I think the catalyst for the business is the argument that I try to make today. And the 2 catalysts ahead of us are our June milestones that we talked about, demonstrating our, these test scenarios and the Class 1, those 2 pieces, I would say, even years in the future, right, I will be able to remind investors , I remember those things in 2022, those 2 building blocks is going to enable several years' worth of differentiation and being cast as a one company that is focused on 1 area, the big price, whereas all the other companies, right, are still sort of shifting themselves through in different parts of the smaller market. So I think those 2, I think I would really encourage that investors should be tune into our earnings call, and we're going to try to give as many updates as possible as often as possible to sort of keep people going,

Question
Andres Sheppard-Slinger (Analysts)

That's great. Well, that concludes our list of questions. But maybe before we wrap up, I want to give either of you the opportunity to share any last closing remarks. Any last thoughts you'd like to share again with the investment community.

Answer
Sumit Sharma (Executives)

Anubhav.

Answer
Anubhav Verma (Executives)

Yes. So look, I think we are focused on, I think, as Sumit described the 2022 milestones, which will further solidify the foundation of the company, and we expect as some of these milestones come to fruition, we would be able to post more updates for the broader market, and we're excited about the future.

Answer
Sumit Sharma (Executives)

I think the only thing I'd like to add is that today, I try to cast the real story of how you can shift all the companies, and the investors should really think about it and look at all the data that the other companies that have made public so far, and really say, like, is anybody else, is there really competition? I think people have announced some partnerships with OEMs, but nothing of material where they can say where SOP would be. And nobody can really see that their current product without significant amount of investment, like Anubhav pointed out, like some time -- some of them 4x our OpEx. They're trying to catch up to 20 years' worth of work. So I feel like we're differentiated. And I feel like that we're liking a good path and steps forward, we're excited about.

Question
Andres Sheppard-Slinger (Analysts)

That's great. Well, thank you again to both of you for joining us today, and thanks again to everyone that dialed in. Maybe I'll finish off by saying that we do agree, and we very much like the hybrid solution, hardware lidar product combined with proprietary software in the custom ASIC. We truly feel like that is a big differentiator. And so we're very excited to continue the conversation and continue this relationship. So thanks again and have a good rest of the day.

Answer
Anubhav Verma (Executives)

Thank you so much, Andres, for organizing this.

Answer
Sumit Sharma (Executives)

Thank you, Andres. Thank you so much. Buh-bye.

Question
Andres Sheppard-Slinger (Analysts)

Thank you. Buh-bye.



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