MicroVision,
Inc. (NASDAQ:MVIS) Q2 2023 Earnings Conference Call August 8, 2023 5:00
PM ET
Company Participants
Drew Markham - General Counsel
Sumit Sharma - Chief Executive Officer
Anubhav Verma - Chief Financial Officer
Conference Call Participants
Anand Balaji - Cantor Fitzgerald
Operator
Good afternoon, and welcome to the
MicroVision Second Quarter 2023 Financial and Operating Results Conference
call. At this time, all participants are in a listen-only mode. [Operator
Instructions] Please note this event is being recorded.
I would now like to turn the conference
over to Drew Markham. Please go ahead.
Drew Markham
Thank you. 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 will hear in today's discussion will include forward-looking statements,
including, but not limited to, statements regarding our product development and
performance, comparisons to our competitors, market opportunity, product sales
and future demand, business and strategic opportunities, projections of future
operations and financial results, availability of funds, as well as statements
containing words like potential, believe, expect, plans, and other similar
expressions. These statements are not guarantees of future performance. Actual
results could differ materially from the future results implied or expressed in
the forward-looking statements.
We encourage you to review our SEC
filings, including our most recently filed annual report on Form 10-K and
quarterly reports on Form 10-Q. These filings describe risk factors that could
cause our actual results to differ materially from those implied or expressed
in our forward-looking statements. All forward-looking statements are made as
of the date of this call and, except as required by law, we undertake no
obligation to update this information.
In addition, we will present certain
financial measures on this call that will be considered non-GAAP under the
SEC's Regulation G. For reconciliations of each non-GAAP financial measure to
the most directly comparable GAAP financial measure, as well as for all the
financial data presented on this call, please refer to the information included
in our press release and in our Form 8-K dated and submitted to the SEC
today, both of which can be found on our corporate Web site 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 Web site at
www.microvision.com.
Now, I would like to turn the call over
to our CEO, Sumit Sharma. Sumit?
Sumit Sharma
Thank you, Drew, and welcome, everyone,
to this review of our second quarter 2023 results. We're very pleased with the
accomplishments of our team during the second quarter towards and annual and
multiyear goals. I'm happy to report that the strategic changes we initiated in
Q1, the completion of our acquisition and planned integration, proceed
smoothly. With our combined global team and expanded LiDAR and software
portfolio, we could address the needs of our OEM customers with a wider range
of solutions. I would like to elaborate on this a bit later. We continue
developing our revenue streams for strategic and other channels, and I am very
happy with the progress we've made so far.
The biggest opportunity for the company
remains in strategic partnerships with automotive OEMs for our LiDAR products.
First, I would like to start by updating you on our progress on RFIs and RFQs.
We remain engaged in multiple RFQs with multiple OEMs that are expected to be
nominated in 2023. We are the only LiDAR company that offers multiple
technology nodes, from highest resolution, smallest form-factor, long-range
LiDAR in our MEMS-based MAVIN, as well as a small form-factor short-range
sequential flash-based MOVIA LiDAR product lines.
Our teams remain engaged with multiple
OEMs who are looking to identify their next LiDAR partner for expanded ADAS
safety for their passenger vehicles and commercial trucking product lines to be
nominated in 2023. The combined lifetime volume of all the programs up for
nomination in 2023 are for millions of units. This, of course, is the most
exciting part. We have the right products that are targeted to supply ADAS
safety for higher-volume passenger vehicles and commercial trucking. We remain
very excited about where we are in the nomination process.
In case of a program win, we expect two
phases for the engagements. In the first phase, we expect to customize our core
technology with the specifics of each OEM's needs under a development
agreement. And in the second phase, we expect to supply parts as an ADAS Tier 1
with our contract manufacturing partner under a master supply agreement with
each OEM. For the first phase with our core technology remaining the same, we
expect modifications will be required for the product mechanicals, thermals,
and some custom perception software features, security, and interfaces. All of
this would have to go through extensive validation and verification on our
side, and more so from our potential partners.
We don't expect customization to be a
high-risk path for our team. We also expect multiple production lines will be
required at our contract manufacturing partner to support customer production
sites in North America, Germany, and Asia in this phase. In case of multiple
nominations, all OEMs will want to validate that we have dedicated engineering
resources for their programs. I am very confident in the size of our global
team and our capability to add talent as needed to support multiple program
wins. We are heavily engaged in financial due diligence as well. The continued
strength of our balance sheet and capability to fund operations until the start
of production is a requirement in all possible nominations.
Management has articulated this to our
investors and the broader market clearly in the first quarter, as you may
recall. Again, I believe we are well-positioned for this item, being a publicly
traded company on the NASDAQ with no debt, control of our expenses, and a clear
understanding of how to grow proportionally to meet the needs of multiple
potential customers. Just to summarize my assessment of the engagements.
Our technology and products are being
well received; our solutions offer the higher technology in the smallest form
factor with long-term cost stability based on our custom silicon. I strongly
believe we remain on target for our 2023 objectives for strategic sales.
Second, I would like to update you on our direct and software sales efforts.
These segments will contribute meaningful revenue on our path to mass
production for LiDAR products. In order to start our revenue cycle with MOVIA
direct sales, we expect to place a large order for MOVIA sensors. With this
inventory in place, I see its accelerating paths to revenue.
With our team in Germany and our new
team in Detroit, we expect great things in the future. As you may recall, Ibeo
partnered with ZF Autocruise with a production line that was qualified to
automotive C-sample level. The custom silicon from MOVIA's sensor was developed
and owned by our Hamburg team. This product and the partnership were part of
the Ibeo acquisition, and we expect to provide a mature product to support our
direct sales markets. Having inventory will allow us to expeditiously enter a
wide range of markets looking for LiDAR solutions.
We still experience many moving pieces,
including macroeconomic factors for direct and software sales. We have great
contacts and a good sales funnel for these segments. In general, I'm very
confident that, in the future, we will have stable direct sales of our MOVIA
sensor and our reference software suite to generate meaningful revenues. Third,
I would like to update you on the broadest and the most comprehensive LiDAR
product portfolio that MicroVision offers and the advantage it represents. We
are a unique LiDAR company. We offer a long-range dynamic-view LiDAR with
unmatched performance, size, cost, and immunity.
We also offer a sequential flash-based
short-range LiDAR with unmatched validation performance, cost, and silicon
maturity. We will remain competitive with a wide range of RFQs every year with
our LiDAR products. I believe this will allow us to scale our business faster
than anyone else on the scene. In addition, we will offer various levels of
perception from the LiDAR products that eliminate the need for additional AI
ECU, and instead integrate with the computer platforms developed by companies
like Nvidia and Qualcomm. This remains our go-to-market strategy, and I can
say, with confidence, it is the preferred I have seen in feedback from OEM
engagements.
This will remain one of our biggest
advantages for a long period of time. This is a testament to MicroVision's
foresight on products. Beyond that, we continue investing modestly in sensor
fusion system development. This represents a future opportunity to expand our
LiDAR sensor sales and supplement with software.
I want to conclude by thanking our
global team for their hard work that has allowed us to be well-positioned for
an incredible year ahead of us.
I would like to now turn over the call
to Anubhav to talk about financials. Anubhav?
Anubhav Verma
Thanks, Sumit. I'm really pleased with the
progress we have made in the first-half of 2023. I'm proud of the company we
are building in MicroVision, especially with the integration of our teams in
the U.S. and Germany. Our acquisition has positioned MicroVision to become one
of the most experienced and technologically-advanced LiDAR hardware and
software companies in the market, with over 50 years of combined operating
history and 735 patents.
Let me talk in detail about our progress
on RFQs on the technical front. Well, let me discuss some of the key financial
items that the OEMs are looking for in their due diligence on perspective LiDAR
suppliers. In particular, it is important for suppliers like MicroVision to
show strength in the following two areas: number one, sustainable existing cash
burn, allowing a longer financial runway; number two, ability to scale up
operations to handle multiple high volume RFQs, both in terms of dedicated
engineering resources and production capabilities.
On point number one, MicroVision
continues to demonstrate one of the lowest cash burns out there. Our
publicly-disclosed operating history shows that MicroVision has been
consistently disciplined about deploying capital for growth. Point number two,
MicroVision has the strategic advantage when it comes to quickly and
efficiently scaling up operations, as we consider multiple RFQ wins we have the
ability to add dedicated engineering resources at the customer's preferred
locations in either North America or Germany. In addition to the maturity of
our technology and superior technical specs, the above advantages are also
positioning us well with these RFQs. Our customers and potential partners,
including contract manufactures appreciate MicroVision's strong and deep IP
portfolio, and our industry experience, financial discipline, and technical
know-how, all of which are key differentiators for us. We are thankful to our
shareholders for supporting us and presenting our best foot forward with the
OEMs in the RFQ processes.
Now, let's dive into the Q2 2023
financials, for the second quarter we recorded revenues of $329,000. This
revenue is both from automotive as well as non-automotive customers. The
revenue in this quarter is lower than the first quarter as some of the
non-automotive customers pushed out the delivery of units. We expect the
momentum in revenue to pick up in the third quarter. At this time, we are
maintaining our $10 million to $15 million revenue targets. Over the past
several months we have invested in our sales team by bringing in some highly
industry-talented veterans, especially in the Detroit area. I expect some
opportunities especially in the direct sales business to ramp up in the
second-half of this year as our sales team puts their experience and energy to
work for the company.
To remind investors, our direct sales
model includes the sale of MOSAIK to automotive customers and MOVIA to
non-automotive customers, and this obviously has a much shorter sales cycle. To
that end, we have placed an order to build new MOVIA inventory with ZF Auto
Group to help satisfy the demand from non-automotive customers. We expect this
strategic investment and inventory build up to drive the revenue growth of the
company in the near-term. We expect the revenue momentum to pick up in
second-half this year, and into 2024 as our RFQs progress and software sales
materialize.
In 2024, we expect there will be NRE
revenue associated with RFQ wins related to specific customizations required to
product's mechanical, thermos, and custom software for security. Coming back to
this quarter, the split of the quarter's revenue is approximately 45% hardware
and 55% software. The customers in the hardware revenue stream include
customers in the industrial and agricultural sectors. The customers in the
software revenue streams include major automotive OEMs.
Before we move on to expenses, a quick
recap on Microsoft, we received communication from Microsoft that no units
reserved in this quarter. As a result, we still have an unapplied $4.6 million
left on the contract liability. Our agreement with Microsoft continues to be in
effect with an expiration date of December 2023.
Expenses, it does have expenses we had
approximately $24 million OpEx, including R&D and SG&A. This includes
$3.9 million of non-cash stock-based compensation and $1.6 million of non-cash
depreciation/amortization. Besides this, this also includes about $2 million of
one-time transaction expenses and related integration expenses that occurred in
this quarter. We expect the run rate of the expenses going forward to be approximately
between $16 million and $17 million a quarter. For the second quarter, $16.6
million cash was used in operating activities, which was well in line with our
2023 full-year guidance. To remind our investors, we continue to show
discipline with our cash burn being on the expected trajectory.
In these times of uncertainty and weaker
macro economic conditions, MicroVision stood out and beat competitors in terms
of maintaining one of the lowest burn rates in the industry, with a highly
talented pool of engineers in both the U.S. and Germany, and a strong balance
sheet. As expected, CapEx in the second quarter was $0.9 million, in line with
our expectations. This quarter we also received $3 million of incentive payment
we were expecting to help us recover the build out and tenant improvements
associated with the move into our new headquarters in 2023. This payment hits
the other income line item on the P&L.
Well, let's talk about our cash
position. As of June 30, 2023, we have made the majority of the payments
associated with the Ibeo acquisition. We have an expected liability of €2.7
million, those on our balance sheet related to the acquisition. We expect to
pay this to t seller later this year once both parties reconcile and agree to
the amounts. Our total liquidity was $94 million as of June 30, including cash
and cash equivalents and investment securities.
As an update, we had announced a
follow-on capital raise in June to strengthen the balance sheet. We chose to
withdraw the offering, and instead proceed with the ATM program. This was a
strategic decision intended to ensure the best possible outcome for the
company, while minimizing shareholder dilution and fees related to the capital
raise. Based on our current operating plan for 2023 and beyond, we anticipate
that we have sufficient cash and cash equivalents to fund our operations to at
least the end of next year.
Looking ahead, we are excited about 2023
as we march forward on our paths to $10 million to $15 million in revenue this
year. We believe our three product lines, MAVIN, the perception software LiDAR
sales with non-recurring engineering revenues from OEMs; MOVIA the sales of
flash-based LiDAR for non-automotive customers; and lastly, MOSAIK, the sale of
auto annotation software for automotive OEM validation, should be able to drive
momentum in the remainder of the year. To summarize, we are really excited
about 2023 and beyond. With our milestones and key focus on winning RFQs we
will be proving to the market our value proposition as a unique well-positioned
LiDAR company.
I would now like to open the line for
questions.
Question-and-Answer
Session
Operator
Thank you. At this time, we are
conducting a question-and-and session. [Operator Instructions] Our first
question does come from Andres Sheppard with Cantor Fitzgerald.
Anand Balaji
This is Anand on for Andres. Congrats on
the quarter, and thanks for taking our questions. I've got a few here, and I
just wanted to start with the recent reported revenue drop to $300 million. I
just wanted to check to see how confident you are in reaching the midpoint of
guidance, so about $12.5 million, that you just reaffirmed your range of $10
million to $15 million? And how do you guys expect the revenue to be spread out
in the back-half of the year, between 3Q and 4Q?
Anubhav Verma
Thanks, Anand. So, yes, I think as I had
mentioned in my remarks, we expect that the third quarter, the revenue momentum
to pick up. This was primarily because some of our customers pushed out their
deliveries, which we're expecting to happen in the third and the fourth quarter
this year. And primarily the growth is going to come from the sale of MOVIA.
And to that end, we have invested in building up the inventory, as I mentioned
in my remarks, that ZF Autocruise, where we have placed an order to stack up the
inventory that we can use to satisfy the demand in the second-half of this
year.
Besides that, I expect the momentum in
the sale of MOSAIK as well as to some of our automotive customers where we are
in the process of installing and implementing that software in their ecosystems
for that work. So, I do feel good that we should -- we are confident about
hitting the guidance in this year based on these factors. And lastly, we had
invested in bringing on some talented industry veterans, and especially in the
Detroit area, who have background in both in automotive as well as
non-automotive customers, to accelerate the momentum and get the shorter sales
cycle, which is again the MOVIA and the MOSAIK product to help us hit the
revenue targets that we have announced for this year.
Anand Balaji
Got you. Thanks, Anubhav, that's
helpful. And I just wanted to switch gears to the gross margin, and wanted to
see what the driver was behind the drop in gross margins? And how do you expect
margins to progress over the rest of the year?
Anubhav Verma
Yes, so gross margin drop was primarily
due to economies of scale, obviously as we sort of put more revenue through the
funnel, we expect the gross margins to be again what we had described earlier.
And we expect to hit the target of over 30% gross margins in this year because,
again, the margins are primarily coming from the sale of software and hardware,
from that standpoint. So yes, so we do expect to hit our numbers from a gross
margin standpoint.
Anand Balaji
Got it, sweet. And just to switch gears
a little bit, I know you talked about this a little bit. With OEMs, I wonder if
you could give us an update on discussions you're having with an OEM or when
you might be able to expect your first partnership with an OEM or how you would
potentially expect NREs to eventually materialize.
Sumit Sharma
I'll take that one. I think as I've
clearly stated, right, I think we stay on track for 2023. I think -- not just
us, I think it's -- everybody that's in the mix of it will tell you the same
exact thing. It's pretty clear that they want the nominations to be done this
year because want to get going. They have a very specific timeline for delivery
and SOP. So, I stay pretty confident that the nominations would be in 2023 as the
OEMs have -- and these different OEMs have indicated.
Anand Balaji
Got you.
Sumit Sharma
And after that, of course, think about it,
right, we have a core technology done, but every vehicle, think about a consumer
vehicle versus even a trucking application, you have to customize. And so the
core technology is the same, but they need some level of customization on the
software side or the hardware side or the thermals. So, there is that whole
customization part of it, but it's not a full-blown development, right, the
core technology is the same. The reason they're picking somebody who is ahead
is when they look at the silicon part of it or they look at the technology
development part of it, where is your level of maturity, and they don't want to
change that core part, but they want to customize what they need.
A lot of it is in software, true. And a
lot of it in the NRE is going to come from validation, verification has to be
done for their scenarios, right, so we have to give them a validated product.
And of course, they can do their own validation with themselves or with a third
party. But on top of that is like there's always some customization on the
mechanicals, right, so how do you mount it, which side is the connector, what
connector do they want, some other customization on the inside, on the thermal
side of it because of that, right. But I would not quantify this as something
that starts new development.
Some of our investors that I've known for
a long time, when they think about customization they may think about what we
did for Microsoft and what we did for Sony, those were full-blown development
programs, right. That's not it. We've already funded the core development to a
certain point; the NREs will cover the customization for each individual. And
as you can imagine, a production line has to be put into place for whatever
they want.
And you can't have a single customized
line -- a single line that's going to make low-volume high-mix, it's not going
to make one part for one, one part for the other because each and every one of
these product lines and RFQs we're talking about has pretty high volumes, so
you're going to need multiple lines done also in parallel. So, for all that
work to happen in the timelines that they have, they clearly understand, they
dove deep into it with our team, thousands of hours have already been spent by
our team on this, I can assure you that. They have a very good understanding of
how that has to be executed and what the timelines are.
So, that's why I feel pretty
comfortable, and the NREs are going to be some magnitude, but it's clearly not
going to cover all our development, because it is our core technology and we
intend to not license it away or give the IP away to anybody.
Anand Balaji
Got you.
Sumit Sharma
Anubhav, I don't know if you have something
to add to this?
Anubhav Verma
No, I think you covered it all, Sumit.
Anand Balaji
Thanks, guys, that's very helpful. I've
just got one last strategy question. So, I was wondering if you guys have plans
for expansion in the non-automotive market with Ibeo if OEM revenues take
longer than expected to materialize. And if that were the case, what segments
would you be focusing on and how would you view the trucking market for this
purpose, like automated trucking?
Sumit Sharma
I think if you think about the trucking
market, let's make a distinction. And I want -- and this is a pretty important
one. There are actually two trucking markets. One, of course, is there are
trucking OEMs, that they operate -- I mean they have low volume, they don't
have millions of units per year or millions or units of outlook, right? Pretty
substantial volumes there, right, but they operate just like an OEM. They go
through an RFI, RFQ, they have very strict requirements. That's one piece of
business, right? That will always -- that's something, of course, people have
neglected so far, right, and so that in play always, I'm pretty excited about
that actually, more safety coming to 18-wheelers all over the world, that's
great.
Then I think what you're referring to is
there's other trucking applications or companies all over United States, and
Europe, and even in Asia that buy sensors, and they're developing their core
product, which is a software product, right? So, if you think about it, there
is two trucking partnerships there. Certainly there's the direct sales part,
that's where our team comes in, we can sell there, we can sell sensors, we can
sign deals, you deliver hundreds of thousands of parts to them, there's a
schedule to that. Whereas when you go on the other side, now you start looking
at like hundreds of thousands of parts because, in any kind of trucking
application, you are going to have multiple LiDAR.
I think in our deck we talk about -- we
show a simulation with real LiDAR data that was collected to show what coverage
you can get around, and how many sensors that would take. For a typical
trucking application, it could be depending on some configurations, it could be
from somewhere as many as five to six different LiDAR. And the one that I think
there, in that picture, we demonstrate is our MOVIA product. Now, imagine if
you want to do long-range, front and back, there's multiple in there. So, when
it comes to the OEM trucking, these are substantial numbers. They're not in the
millions, but there are several -- they're pushing in the high hundreds of
thousands, right, for the lifetime.
And there is multiple trucking partners
in the world, there's not 500 of them, but there's some -- a good amount of
them, so it could be a really good strong business, but it piggybacks on to how
they're rolling out their process, how the trucking industry is transforming. I
think perhaps the foundation of your question was what we -- U.S. companies,
like Aurora and others that are developing really automated trucking, but their
core product is software. And certainly I think about that as direct sales, we
have our teams that connect with them, we want to be their sensor provider,
right? They may make their truck with Conti or whomever they make it
with, right, and they own the software, but we want to be specified or spec'd
in as a LiDAR provider for that, right, so, certainly going to work on that as
well.
So, these are both applications. So, how
would that accelerate? Certainly that's why we like to call it direct sales,
because it's more like kind of a spot sale, you can get more clarity. It is a
key part of our strategy, and that's why we're ordering all these MOVIA sensors
for inventory because we see a path to that ahead of us. And having inventory,
I think, at this point we feel comfortable that the funnel has developed pretty
well. Just recall, a year ago, when Ibeo filed for insolvency, it was -- MOVIA
did not have -- or the Next sensor, they used to call it, right, did not have a
lot of path, [resulted in] insolvency, but we resurrected the product.
I really believe in it. I think it's a
great product. It does solve a lot of problems with short-range LiDAR when you
need multiple sensors around it. So, for trucking, that's been missing all
along, nobody has offered that. You have cameras, you have radar, but nobody's
been able to give a LiDAR that can give you 30, 40, 50 meters 360 around a
truck in a very stable form factor. So, I think we're new at that; we're the
first one in there. So, yes, absolutely direct sales will be there, and OEM
sales will be there. But direct sales is our bridge, from now till start of
production, for some of these programs we're talking about.
Anand Balaji
Got you, thanks, that's very helpful.
That's all I've got. Thanks again for taking our questions, and congrats again
on the quarter, looking forward to the ramp this year, and I'll pass it on.
Sumit Sharma
Thank you for your time.
Anubhav Verma
Thanks, Anand.
Operator
Thank you for those questions. I will
now turn the call back over to Anubhav Verma to read questions submitted
through the webcast.
Anubhav Verma
Thanks, Mike. So, I think one question
that we're getting is, can you talk to us about the product portfolio and how
it helps MicroVision as a whole, and the strategic rationale behind the product
portfolio, and how does it differentiate us as compared to the peers?
Sumit Sharma
Yes, this a good question. And I think
that we talked a little bit about it, in April, but I'm probably going to put
fewer accents on it. All right, so everything that we've been talking about at
MicroVision, and others talking about is really about the long-range LiDAR. It
is a big deal, it is really big. It is going to be a big winner, right? So,
yes, that's important. But if you think from an OEM standpoint, they're trying
to deliver not just a long-range LiDAR in your car, they're trying to deliver a
product, level 3, level 2, level 4, whatever level they want to go to, they
want to deliver a product with certain amount of safety.
I think the MOVIA product and the MAVIN
product, if you think about having two LiDAR products that are not exactly the
same technology node, there's two different technology nodes. It's a huge
advantage we have that nobody else has. We get into more RFQs and RFIs, in my
opinion, because we have multiple technologies, right? In some cases, even if
they had made a choice for a long-range LiDAR that may or may not be working
out, and we're promoting our LiDAR, just in this year, I've been very excited
about what we were able to achieve with our team. That same promotion, we
started showing them the MOVIA product, and we started getting traction.
So, this is great because they have
multiple needs, and there's very few people out there that can actually provide
all the LiDARs that they would need at a certain price point, at a certain
certainty of technology. So, an important thing if you think about the LiDAR
product only, as a standalone, it's -- like we're the one-stop-shop for all the
LiDAR needs that they have. And for a young company like us, for the
acceleration that we pulled off, I think this is a great thing, and nobody's
got that. Everybody is going to keep talking about their long-range LiDAR.
They're going to go from one victory or one loss or one victory to one loss,
that's going to be -- ebbs and flow of their business will be there; ours is
different because we are going to be in more RFQs every year. I'm pretty
confident about that just that 2023 is an example for me personally. So, I
think -- think about that as a LiDAR product.
Now, let's take it one step above that.
Perception we talk about; perception is something that every OEM, to a certain
level, wants, even if they don't want the name perception, is morphed into
different things for different people. At the end of the day it's how that you
take the LiDAR data, apply some amazing software to it, and you can extract
information and features, on the fly, at frame rate. This is really, really
hard. And if you think about, in frame rate, it is actually identifying what's
happening, it's extracting that information. And they want that, and that's
called like an object-level interface, right?
That's also very important to them, is
if that's what's coming from a ASIC or SoC inside our product, instead of some
AI product that is sitting between the LiDAR and the domain controller, the
overall system cost is lower, that has also been developed, and it's been
something very mature, and that's part of the Ibeo acquisition. That's one of
the teams that I've been very excited about integrating. But all our LiDAR
products, in my opinion -- not in my opinion, what the market is going to
require, you're going to need perception, and we have that. So again, different
people are talking different things, but none of us have to be geniuses, right?
If you're an OEM, what do you want? You want the highest possible technology in
the smallest form factor, the most -- the lowest power, and a cost they can
predict for decades. That's the point that everybody should know that if you
are sitting the chair that's the number one thing you look at are these guys
going to be able to deliver this product at this price at a long period of
time, can I trust them? So, people will try to increase their price point as
much as they wanted, ASP as much as they wanted, but all they talk about
software and core products and whatever, right? This is like bread and butter
stuff, everybody should know that, you are investing in LiDAR company, you know,
LiDAR you better have software that enables them do something better, faster,
cheaper.
So, by adding a perception we strongly
believe that the overall system cost can be reduced, and this is just the LiDAR
products by the way, this is not about sensor fusion, this is just the LiDAR
products. So, if you think about it, these are product lines that complement
each other, but the perception does not exist by itself, it exists inside the
LiDAR enabling these partnerships. Somebody can just give a LiDAR over the
streaming point glass or we can give a LiDAR with all the features that I
described, but on top of that, perception with object level interface will have
a huge advantage on top of the fact that we have multiple nodes based on what
they need we can give them the right technology instead of trying to shove in a
product with eight LiDARs or MOVIA when I can just have a MAVIN with dynamic
LiDAR do something very special. So, that's how we think about that product
line.
Now, when it comes to sensor fusion,
what's that about? Well, that's as I said, it's a very modest investment, once
you have a LiDAR, an amazing LiDAR, and you have this perception level
software, the next level above that OEMs struggle with is just a demonstration
even of like how sensor fusion can be done, how redundancy in the system can be
done better than what their teams are doing, which are integrating cameras and
LiDAR and radar altogether, but they have a different architecture. So, it's
like really great R&D to start demonstrating that. But it's not R&D for
R&D sake, because there is a product there actually. Long-term, we could
probably make it shift with our software running on it that sits inside the
domain controller next to the video chip or next to the QUALCOMM chip, and it's
an accelerator, where radar data can come in, and our LiDAR data can come in,
and without object level interface we could actually have higher level software
running inside there that seamlessly takes up the load that the chip over there
is running out for resources for. So, again, reducing overall system cost.
So, this product line eventually is also
going to compliment our LiDAR. So, again, it's building layers and layers of
stickiness to our products, to our customers, and solving their problems
efficiently, without requiring thousands of engineers. So, if you think about
it with 350 or less than 400 people we have in the company after the
acquisition, and we tons of capital we really build out some great products,
and I totally get people frustration like, "Oh, when you're going to
announce deals?" I think like we said consistently what the timeline is
going to be, and we are performing to that.
And then, the last one, MOSAIK software,
MOSAIK software is unique; it's sort of like a -- it's something that precipitated
from what the perceptions you have done, it's something that's needed for
validation anywhere, for validation and verification. And it turns out that
software is something that actually our customers, our OEM customers also want
for their own validation. So, it's kind of like sign hustle, and it's a pretty
nice one. And it's a great team that we have there that's actually supporting
them. We intend to just keep engaging with OEMs with that, and the benefit we
get out of it is that a very central part of our thesis, for our product thesis
is perception is very, very important long-term, okay?
Well, if I have the validation software,
if I have the reference suite software there, I get to learn about the
perception features that every OEM is thinking about years in advance to ever
put ink to paper on an RFI that any of my competitors see. So, it's total worth
shareholder money to keep investing in it, because it gives an advantage. Once
we have multiple agreements done, right, this will be moved, because then we
realize we are actually fueling our future development with the small pockets
that we have. These are pretty nominal investments right now. So, if you think
about every customer with their LiDAR, you know, it's all circular, right, but
if it's actually a Venn diagram and map it out what they're saying, you can
decide for exactly what me and Anubhav are able to do when we hear somebody
else's earnings call, right, aren't pretty straightforward, we have a product
portfolio that addresses the needs for the OEMs, and that is going to remain
the big price. Strategic sales is very important, absolutely, I totally
acknowledge that, but that will never be possible unless you have a high-volume
customer that gives you the economy of scale to reduce the price, and really
make a dent in that market with margin.
Any company that is doing direct sales
right now is not that successful, because the economy of scales are out there,
the margins are low, massive amount of efforts required to keep running it,
it's broken, right? The business we built out actually is going to work. Once
we get the strategic deals done, that's very, very important to get these
production lines up and running. As we are supporting our OEM supports, one of
the off-shooters we can do direct sales, we have software that gives us insight
into what is coming around the corner, and of course we have the perception
build out to a level that is significantly higher than where anybody else is,
and before we start investing significant amount of money and building more, we
are just focusing everything on getting these OEM deals done.
Anyway, that's a long answer, I mean
obviously I feel very passionately about it, but I hope that gives you a pretty
good understanding of how all these products are layered in, and story is the
same, consistently the same.
Anubhav Verma
Thanks, Sumit. And the second question
is also similar on these lines, I think you mentioned talking about the AI
chip, so, can you elaborate what's the difference between that and MicroVision
strategy? And related question is, have you completed the analog and digital
ASICs for MicroVision?
Sumit Sharma
As we said before, the analog -- that's
easy one, I will answer that first, the analog and digital ASIC, the analog
ASIC has been started, the digital ASICs no plans are started. I think the ASIC,
when you say the word complete, I think you may meaning that do we have the
production math done, and those chips in, that's not done yet, but that is part
of it, like, this is where we are and we have started those chips, and our
intention is to finish up the MAVIN. On the MOVIA side, of course they already
existed. So, that's not more mature.
Then I think the question is about --
let me get that right, what is it, the AI chip, I think I could not understand
it actually. Can you repeat your question, please?
Anubhav Verma
In your remarks, you had mentioned the
AI chip, the competition it's using versus what the MicroVision's value
proposition is?
Sumit Sharma
Yes, I think this goes back down to how
we do perception, how we think about perception, system cost is very important
to OEMs. They can do prototypes and they can do like demos and they can
computers all over the place, but at the end of the day if you are going to put
it into millions of cars, all of us know, it's a very, very cost competitive environment
with high technology, the cost competitiveness has to be demonstrated. What's
fascinating and amazing about our perception is, think about them as like more
classical algorithms that have been developed, okay? And they have been
validated through certain scenarios. These are more powerful actually. These
are equations, think about them as like more algorithms like equations, you
know, they're pretty straightforward in that sense, but it takes a lot of
elegance to get to a point where you understand the scene and what's happening
in it, where you can predict what will happen, and you can do object level
interface much easier.
AI is like a nice thing. I mean I have
Adobe Pro, and I can do genitive AI in our Photoshop, I mean it's all over the
place, right? But if you think about OEMs, you can't just put AI in the middle
of everything there. It's kind of really well-controlled. I can say with the
greatest confidence when we talk about perception it goes a lot further,
because they realize how it's been executed. It is not something like really,
really, it's a feature that is going to be delivered to a specification, to a
system requirement document, it could be traced, it is not -- nobody knows in
the Blackbox how it does what it does, they know exactly how it's going to
work. And they are going to trust it. So, I'm not a big believer that these AI
core boxes that people are delivering, right, things that in video and QUALCOMM
already do, that's not the best user shareholder resources to develop, right?
We have some things to develop. We have done really well in Hamburg to begin
with. Really the main reason why I was very, very interested in Ibeo
acquisition, I think that we're in great place, and the evidence of that is, I
mean I don't know how else to answer this, the evidence is based on the means
that I have been part of, or the things that I have seen so far from OEMs. So,
I feel pretty comfortable where we are. I can't really comment on what strategy
others are deploying and where they got that information. All I can tell you is
everything that I have reviewed and I have talked to everybody within the
company, I don't see anything where perception is going to be some AI box. So,
that's just our experience. And we are talking to multiple OEMs and multiple
RFQs, so --
Anubhav Verma
Thanks so much. Can you give us a little
more color on the financial due diligence by the OEMs, and how should investors
be thinking about these risks?
I think let me take that. So, I think
the first thing is I think perhaps OEMs have learned their lessons from the
past, and I think that's why they're conducting a lot more extensive due
diligence this time on suppliers. And this involve some extensive modeling to
fully model how the business and the revenue streams will evolve in the case of
multiple links over the next several years. They want to fully understand how
will the company be supporting these programs, and that includes modeling
headcount projection by geography. And I think if you recall, I had mentioned
based on OEM's needs their dedicated resources might be placed in the North
America or in Germany. So, modeling that is what we are right now in the
face-off. And obviously the cash requirements from a fee sample into
production, maintaining their silicon inventory, which remain the key critical
point of how will this all happen in the next three years.
And obviously I think what Sumit
described was the non-automotive revenue and the NRE, which is going to support
the cash flows from this. So, this is all what's going into the modeling. And
in the back-end, this is how we are moving towards going from lowering the cost
of capital from equity, moving all the way to fixed income base capital based
on the income streams that will be generated, and the receivable that will be
part of the balance sheet, which would ultimately make MicroVision a more
traditional company with the lower cost of weighted average cost of capital is
what the OEMs are looking for a model of how this will all happen in the case
of multiple RFQ wins in the next three years.
So, this is what the financial due
diligence entails with our customers, as well as our partners, so this is not
just OEMs, our partners are also evaluating us as we are modeling this out and
helpful them prove out why we are better positioned to evolve from where the
company stand today in two, three years from now from a cost of capital
standpoint.
Anubhav Verma
The next question is, is MicroVision
pursuing consolidation M&A opportunities as some of the weaker LiDAR
players filter?
Let me take that question as well,
Sumit, if you don't mind. Not at this moment, at this moment we are
laser-focused on our organic targets of multiple RFQ wins, and building the
business around that. But look, if some things come along that are strategic
and that accelerate our path to get there, how will consider that, right? But
yes, so if I were to answer this question on a short, long answer short, at
this point, we are laser-focused on our organic targets for the company.
Anubhav Verma
With this, I think we are bumping up
against our time. Thank you again for everybody joining on our second quarter
call. We looking forward to speaking with you again, and post you with the
company updates on our third quarter call next quarter. Thank you so much.
Sumit Sharma
Thank you everyone.
Operator
Thank you. This concludes today's
conference. All parties may disconnect, and have a great day.
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