Welcome to the MicroVision Third Quarter 2023 Financial and Operating Results Conference Call. At this time, all participants are on a listen-only mode. At the end of today's presentation, there will be an opportunity to ask questions via a chat line. Investors can submit their questions within the meeting webcast by typing them into the Q&A button on the left side of your viewing screen. Analysts who publish research may ask questions on the phone line. For analysts to ask a question on the phone line, please press star one on your phone to enter the question queue at any time. Please note, this event is being recorded. I would now like to turn the conference over to Drew Markham. Please go ahead. Thank you, Matthew. 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 customer and partner engagement, product development and performance, comparisons to our competitors, market opportunity and program volume, 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, plan, 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 report 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 day of this call, and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC's Regulation G. For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as for all the financial data presented on this call, please refer to the information included in our press release and in our Form 8-K, dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com, under the SEC Filings tab. This conference call will be available for audio replay on the investor relations section of our website at www.microvision.com. Now, I would like to turn the call over to our CEO, Sumit Sharma. Sumit? Thank you, Drew, and welcome everyone to this review of our third quarter 2023 results. I'm excited to be presenting today and will provide color on progress made on our 2023 objectives of securing multiple nominations for our LiDAR products. I will keep my update concise to allow for more time for questions today. I'm happy to report that we remain on course on our main 2023 objectives of securing multiple design wins with nominations from OEMs. We remain the only LiDAR company that offers multiple technology nodes with highest resolution, smallest form factor LiDAR with our MEMS-based long-range MAVIN, as well as small form factor, short-range, sequential flash-based MOVIA LiDAR product lines. We continue developing our revenue streams from strategic and other channels, and I'm satisfied with the progress so far. The biggest opportunity for the company remains in strategic partnerships with automotive OEMs for our LiDAR products. Establishing a predictable level of direct sales from non-automotive customers is also very important for all LiDAR companies to be successful. I would like to start by updating you on our progress on multiple opportunities for LiDAR nominations, target launch timelines, and the magnitude of deals we're looking at. Our teams remain engaged with multiple OEMs, 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 and be ready for start of production as early as 2027. The combined lifetime volume of all the programs up for nomination in 2023 are for millions of units, with accumulated revenues of between $1.2 billion and $950 million over the life of production. We believe these first nominations would have a lifetime of up to seven years, with multiple passenger vehicle models added incrementally to their fleet. These are predominantly for vehicles with internal combustion engine powertrains. Based on these engagements, we remain confident in the timeline to sustainable revenues from strategic sales opportunities. In addition to the current nomination cycles that we work diligently to close, we are starting to see additional opportunities for 2024 nominations with a new potential list of OEMs. These new opportunities would require limited modifications for additional customers that would be covered by NREs in potential future projects. This is an important step, since this allows us to establish stable product lines that will address multiple OEMs with shared core development costs, instead of individual projects for OEMs. We remain very excited about where we are in the nomination process. As I've mentioned before, after a successful OEM design win, we expect two phases for each engagement. In the first phase, we expect to customize our core technology to the specifics for the OEMs needed under the development agreement, while maintaining our investment in core engineering. 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 the OEM. As I mentioned before, the financial 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, as you may recall. I would like to repeat what I mentioned at our last earnings call. I believe we are well positioned for this item, being a publicly traded company on the Nasdaq Exchange, with no debt, control of our expenses, and a clear understanding of how to grow proportionately to meet the needs of multiple potential customers. We are also confident in our long-term product outlook that will continue fueling customer engagements. In our product strategy, to focus on lighter products with embedded perception software, is the right strategy for the LiDAR product lines. We are seeing this in our current and new engagements. With this strategy, we provide a stable hardware and software product to our potential customers, with object-level interface possible at the lowest power and smallest form factor. Our embedded perception software will do the heavy lifting and enable our OEM customer software. This will potentially offer system cost reductions to our customers and an opportunity to reduce other sensors like radar and camera modules. I also see us making progress in establishing realistic foundations and key target customers for our direct sales. Our objective is to build a sustainable business. Unlike others in the market that are conducting direct sales at low single-digit gross margins, we are focusing on target customers in industrial space that see value in the LiDAR product. Partnerships with low single-digit gross margins are not the right product strategy, since expenses are not even covered. We see an opportunity for our industrial segment to focus on factory and warehouse automation, as well as SIL qualified safety sensors in the future. Our focus is building sustainable and profitable revenues while controlling our burn rate and finding a path to sustainable business as soon as possible. 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. We continue working hard to push across finish lines on our primary objective of securing long-term sustainable revenues. I would like to now turn the call over to Anubhav to talk about our financials. Anubhav? Thanks, Sumit. Before I dive into the Q3 results, let me first discuss what our first few potential RFQ wins could look like, and how they might impact our financial results, especially in 2024 and soon after. We expect any near-term RFQ wins to translate into the following two revenue streams. Number 1, NRE, or Non-Recurring Engineering revenue from OEMs related to the customization of our sensors. This revenue would likely be payable upon us hitting agreed milestones. Number 2, revenue related to the sales of LiDAR sensors as the volumes ramp up at possibly multiple locations in EU and Asia from the customers in line with their expected production schedule. Later in 2024, we would work towards potentially securing additional customers for similar products with minimal customization to achieve economies of scale. In this case, the LiDAR sensor, once it achieves maturity and has gone through the PPAP process, we would then be scaling similar products with multiple customers. Now, let's talk about modeling the expenses. With design wins, we would expect our revenue mix to include both NRE revenue and serial production revenue from OEMs at a blended gross margin of 30%-40%. We think all successful LiDAR companies will trend towards this blended rate as OEM volumes ramp and economies of scale begin to be achieved. We believe we are well positioned to be a successful LiDAR business and are on our way to achieve these goals. Upon reaching this point, we will plan to further improve gross margins by offering our perception software to OEM customers along with our hardware. Now, let's talk about production. From a business model standpoint, we have always stated that partnering with an established contract manufacturing partner will be most capital efficient and importantly, will be required by OEMs. As we navigate the final rounds of RFQs with OEMs, customary visits and quality audits at production facilities have been important for customer confidence. In our experience, OEMs want to see multiple manufacturing locations around the globe, including in the EU, Asia, and North America. Of course, key points in our RFQ negotiations center on the allocation of liability and product warranties. In terms of operating expenses, including R&D, MicroVision has a meaningful strategic advantage when it comes to quickly and efficiently scaling up operations. Scaling operations with multiple customer wins will not require us to add proportional headcount to our engineering teams. We do not believe that we will need to add more hardware engineers, as we expect to just need more dedicated project managers, along with quality and operations team to manage multiple relationships as we increase volumes and enjoy the resulting economies of scale. We have the ability to add such resources at OEM's preferred locations in North America and Germany. We see no need to double or triple headcount to support potential revenue growth. That said, in the event of increasing volumes, we would anticipate the need to continue to add software engineers to work alongside our dedicated hardware engineering team to advance our product roadmap. The resulting economies of scale would be expected to add significantly more revenue, with limited addition to R&D expense, thereby translating into faster growing operating profits. Our customers and potential partners appreciate MicroVision's strong and deep IP portfolio with the industry experience, financial discipline of managing expenses and technical knowledge, all of which are key differentiators for us. I think both Sumit and I covered strategic sales in quite a bit of detail. Let me now talk about our focus on direct sales as well, which will be over and above the strategic sales. These direct sales channel include the sale of MOVIA to non-automotive customers and MOSAIK software to automotive customers. While revenue from direct sales is not necessarily recurring, the associated revenue stream tends to have shorter sales cycle as compared to strategic sales that have longer sales cycles. In the near term, we expect the revenue contribution from the direct sales channel to be meaningful and drive high contribution margins, especially in the initial few quarters. In fact, in this third quarter alone, we saw adjusted gross margins of 80%. While we're expecting revenue from direct sales to have consistent growth year-over-year in the near to mid-term, potential revenue from strategic sales would be significantly higher than direct sales revenue once OEM serial production volumes have ramped up. Now, let's dive into our Q3 results and discuss them in more detail. For the third quarter, we recorded revenue of $1 million. As we have previously indicated, revenue in 2023, and for a good part of 2024, will primarily come from the sale of software and MOVIA sensors to non-automotive customers. The majority of this third quarter revenue is related to our MOSAIK software product and is from a leading OEM. We expect continued momentum in revenue in the fourth quarter and expect sequential growth to hit our updated 2023 revenue targets of $6.5 million-$8 million. Now, this revenue is slightly below our previously announced range of $10 million-$15 million. The reduction in our revenue expectations is primarily related to direct sales, with some revenue opportunities appearing to have moved into 2024. In connection with the integration with Ibeo, we have tightened our forecasting processes with some smaller legacy Ibeo customers to better estimate their sales cycle and predict revenue from the sale of hardware and software. Since these are smaller dollar opportunities, we're beginning to have better visibility into the sales funnel as we integrate the two companies, bringing together our sales force and coalescing them around common platforms and processes. To further support momentum in direct sales, we also placed an order to build new MOVIA inventory with ZF Autocruise to help satisfy demand from non-automotive customers and drive revenue in 2024 and beyond. We expect this strategic investment in building our inventory to drive revenue growth in near term and beyond. Coming back to this quarter, the split of this quarter's revenue is 80% software and about 20% hardware. The gross margins profile this quarter resembled that of a typical software business, as demonstrated by an 80% gross margin, primarily by MOVIA, MOSAIK. While we expect these high gross margin s to continue in the next few quarters, we expect the blended gross margins to normalize as the revenue scales up and the mix changes to more strategic sales, including NREs. Expenses. In terms of expenses, we had approximately $24 million of R&D and SG&A, which includes $4.7 million of non-cash stock-based compensation and $2.1 million of non-cash depreciation and amortization. For the second quarter, $20.4 million cash was used in operating activities, which included a $3.1 million payment to build up the MOVIA inventory to support the near-term momentum in direct sales. Removing these one-time items, our cash burn for the quarter is around $17 million, which is in line with previously communicated expectations. To remind our investors, we continue to show financial discipline, with our cash burn being within our expectations and on a healthy trajectory. As expected, CapEx in the second quarter of 2023 was $0.5 million, in line with our expectation. Now, let's talk about our balance sheet. As of September 30, 2023, we have made most of the payments associated with the Ibeo acquisition. A liability of EUR 2.7 million remains on our balance sheet as the final expected payment relating to this acquisition. We expect to pay this amount to the seller later this year, once we and Ibeo reconcile and agree to the amounts. Our total liquidity was $78 million as of September 30, including cash and cash equivalents. We have one of the cleanest capital structures amongst our peers. In these times of uncertainty and weaker macroeconomic conditions, MicroVision stood out and beat competitors in terms of maintaining one of the lowest cash burn rates in the industry, with a highly talented pool of engineers in both the U.S. and Germany, and a strong balance sheet. We have a $35 million ATM on file to strategically raise capital as and when needed. To date, we have only raised approximately $4 million under this facility. That leaves about $31 million available on this ATM facility. Both these facts are indicators of financial stability to our potential customers and important attributes in the due diligence reviews conducted by OEMs as part of the RFQ processes. The ability to strategically and opportunistically raise money via ATMs positions MicroVision very favorably as compared to our peers, some of which have had to resort to structured financial transactions to raise capital at significant discounts to their stock price. We believe that with our current cash on hand and our ATM facility, we're well situated to deliver to the OEMs. Based on our current operating plan, we anticipate that we have sufficient cash and liquidity to fund our operations through at least the end of 2024. As described earlier, with the relationship between revenue and operating expenses that we have modeled out, we expect to see reduced needs for additional capital as the company grows and focuses on achieving economies of scale. To summarize, we're really excited about 2024 and beyond. With our first commercial wins within reach and key focus on winning nominations, we're strongly marching towards proving to the market our value proposition as a unique, well-positioned LiDAR company in large and growing automotive and non-automotive markets. With this, operator, I would now like to open the line for questions. Thank you. At this time, we're conducting a question-and-answer session. Investors can submit their questions within the meeting webcast by typing them into the Q&A button on the left of your viewing screen. Analysts who publish research may ask the questions on the phone line. For analysts to ask questions on the phone line, please press star one on your phone to enter the question queue. Please hold while we pull for questions. Your first question is coming from Andres Sheppard. Your line is live. Once again, your first question is coming from Andres Sheppard. Let's move to the next question, please. Certainly. I'll now turn the call back to Anubhav Verma to read questions submitted through the webcast. Thank you. Thank you, Matthew. I guess the first question we're getting is why are you confident that MicroVision will secure an automotive design win in Q4 2023? Yeah, I think that's a good question. I think the process, everybody that would be in it, right, by now, by this time has been informed if they're, you know, in the last phases of it, because now, you're in the middle of the commercial discussion. So typically, the process is, you know, you go through the technical engagement early, the alignment happens. It continues, right? But at some point, you know, technically you're aligned. You have solutions. They have seen the samples. They have seen simulation data. You know, all that work is done. The technical work, dominant part is done. You've given them your binding offers, you know, several rounds that have happened. And at this phase, you know, you know, get into the final phases when they go line item by line item, understanding the viability of the company, but also really, are they getting a fair deal? And, ... you know, the discussions are deep, as you can imagine, for the magnitude of the contract these would be, and these are binding offers for those period of times. So, you know, it's pretty detailed. And the amount of engagement, you know, visiting factories, coming and seeing our, you know, quality processes, all these kind of things take a lot of resources for OEMs, so they're very selective of who's in the final round. There's no certification, other things—I know there's lots of other terms that people are introducing, right? There's no certification. Those things are, they're already qualified as a supplier. They do quality reviews of you, and you just get down to the money, right? You know, how much is it gonna be for NRE? What's custom versus what's core? What they believe is fair, what we believe is fair. So as you get this deep, you kind of know where you are in the deal, right? You're negotiating the final items. So the confidence comes from that, exactly where in the process. Yeah, and if I can just add on the fi- Yeah. Yeah, if I can add on the financial side. Obviously, financial due diligence is one of the key criteria that the OEMs are undergoing, and this requires building detailed financial models of how will we support them in cases of multiple RFQ wins. And I think what's required from our side is to lay out a detailed plan of where will the resources be located, and how will the production and operations team work in tandem with the engineering team to ensure that the production and the supply chains are secured and intact, because that's something that they cannot absolutely falter on. So, just by the nature of the financial due diligence, I also feel very good about where we stand in the RFQ process with these customers. All right, moving on to the next question. What gives MicroVision confidence that they will secure a design win? As it seems like most LiDAR companies have all been saying the same thing about capturing a design win. If previous LiDAR companies already have wins, are they better positioned to win future contracts? Yeah, I think I'll take this one. I mean, that's a good question. Yes, all the LiDAR companies are looking for viability. Somebody's gonna win it, and it's gonna win a lot, right? But let's take a step back, and before you get into, you know, this question about, well, there's some incumbents out there, you know, how do you position yourself? Let me just make it clear. Somebody recently asked me the same thing in kind of a more casual environment, and, you know, this is the answer that you have to think about. Before there was the iPhone, there was Nokia and BlackBerry. Do you even hear about those companies anymore? So the right product will always win, okay? And you don't have to believe me of what the right product is. If you're a consumer, and you have ever bought a car, you know what the right product is. It's gonna be low power. It's gonna not increase the cost of the car by thousands of dollars. It's gonna give you the safety. It blends away. The technology blends away and makes the vehicles more secure. What we do know from all these companies saying simultaneously, there's all these OEMs out there looking for a LiDAR solution, that LiDAR is a product that they need. It's a technology that they need to achieve what the goals they have, and their production starts in 2027. You know, they will take many years to qualify, but the choices that they're making now are gonna last for a very long period of time, so they evaluate very deeply. All right? If the incumbents had such a big advantage, right, it'd be all done. They should just announce it and let's move on. But that's not the case. And I can clearly tell you, that is not the case, because you have technology solutions that people have out there, and they were early to market. But if you look at it, that as a product, it's too big, too bulky, too expensive. I mean, if people are saying that they're gonna drive up the price for customers to $1,000, and that's often go even higher. If you know anything about the OEMs, and, you know, I, I know a little bit about it, I can tell you, that is absolutely not gonna land well, okay? They're always gonna look for an option where the technology can be delivered. Highest-end technology can be delivered at something that's gonna go to millions of units, and that's not gonna be thousands of dollars in the vehicle, right? That level of value added, right, takes a significant amount of compute power. So I'm pretty confident in what we're saying. I mean, clearly, like, it's not just, you know, we wake up and we start saying these things are vetted. You know, everybody in the company is involved, the board's involved, you know, everybody looks at it. So we're pretty confident in what we're saying. And I think, like, you know, folks that wonder about this, you have to take a step back and, you know, it's all playing out as you, as you know. We're not backing away what we're saying. I mean, I have not seen anything come across that clearly says that the decisions are getting delayed. For us, it is still on track. You know, we have to deliver samples for... You know, if any kind of nomination happens, right, some of the samples have to get delivered in, you know, first half of next year, early, you know, early first half. They have to make a decision as fast as possible because their launch timelines are not changing. And so we have a very detailed understanding of, you know, what are the steps involved to get, you know, them and get our technology qualified, and the engagement is pretty deep. So I feel pretty comfortable that better technology is always gonna win, better products are always gonna win. You know, it has to be small size, low power, cost competitive, all of these things, and a secure company that they can trust is gonna be around for the seven years of the contract to deliver on what they're about to sign. If you think about the magnitude of the volume and the ASP, like the dollar value that I, you know, I described in today's call, these are big numbers. These are big numbers that take some serious consideration and discussion. Thanks, Sumit. Let's move to the next question. It doesn't seem like the industrial market overall has been doing well for companies in general. Would love to get management's outlook and how they view the industrial market over the next few quarters? Yeah, I think I'll start with this, and Anubhav, perhaps you can add a little bit more to this. The industrial market, you know, as we looked at it, you know, we have, you know, we had our guidance. The more we look at the market, I think there's something there. So I still believe that direct sales is a tier of revenue that is very important for a LiDAR company. You need to work on this. You'll have to solve it. Any LiDAR company that does not have this is not gonna be able to, you know, stand on some legs in the future. OEM wins are there. Yes, you'll get NREs, but it does not cover your core engineering. Plus, on top of that, you have significant, you know, long contracts that, you know, once they materialize, you know, there's gonna be a ramp-up period, okay? Direct sales are important because if you have actually developed something that goes into the OEM market, like our MOVIA sensor, which is ready, and you can start addressing sales there, you wanna ramp it up, and you wanna actually make a dent into that market that's been stagnant. You know, there's hundreds of millions dollars worth of revenue to be made there, right? But you also cannot have a product that you give away for free at single-digit gross margins. So as we look at it, right, I remain very confident about this thing. I think this is important. You know, this has to be a substantial layer of revenue, year by year, they can count on, that you're saying, you know, you're getting an install base outside automotive, right? So you have a multi-market strategy. But you can't be, people should not be promising hundreds of millions of dollars worth of revenue because the growth in those markets is slow, but it's stable and predictable. And you learn a lot more about your product and features, if you're gonna be a dominant player in this space, right? So I still believe that this is an important thing, and I think, you know, yes, I think the numbers right now, you know, everybody's gonna get on their earnings call and talk about the, you know, the economic headwinds and all these things, right? I know, like, investors kinda sometimes roll their eyes and they don't understand this, right? Because they just want results. I just want results. All of us just want results. The reality is that industrial market takes a little bit longer. We have a great team. I trust the team. They have a plan. It's just a slow-moving behemoth. There are ways to make significant revenues in that market, and I'm excited about it. Anubhav? Right. I think one thing that I would like to specifically add to, you know, while pursuing revenue is obviously in the industrial markets is a strategy. But I wanna make sure our focus on gross margin is extremely important, right? Because I think we're out of the growth at all costs era, where money was free and, you know, everybody was growing by just adding cost to the system. And I think industrial market is just exactly that pitfall, and we have to very carefully tread it. What I mean by that is, I think what you saw in the Q3 margins as well, we wanna pursue opportunities which translate into a positive gross margin story. Because I don't think there's any value of transferring wealth from our investors to these direct sales customers, where we have seen companies which did that and are doing that actually, who are focused on industrial markets. Yes, they have very good revenue numbers, but again, their margins are really, you know, either, you know, even in the negative, for some of them. So I don't think that's something, a business model that the markets and the investors will reward, in the long run. And I think this is pretty evident from just, some of our peers who are focused on this market and their valuations, because investors want companies to focus on growth that translate into gross margins and ultimately lead to a path, a path to break even. I think as Anubhav, you mentioned, it's really hard to achieve economies of scale because all these direct sales revenue are non-recurring in nature, and you have to spend a lot to get the same quantum of revenue. Meanwhile, having that said, it is extremely important aspect because this is also something that the OEMs are looking at us, because what it does is the focus on this revenue at good margins essentially alleviates the need for or reduces the need for additional capital to grow the business. And I think that's sort of why what I mentioned, the financial discipline, is a very important attribute in some of these financial due diligence. Because, like I mentioned, as we are modeling out the next 5-7 years with these OEMs, this is also part of the revenue stream, which they understand is dropping to the bottom line as well. Right. Moving to the next question. Regarding LiDAR, what will OEMs deliver to excite people to buy a new car? Is it safety to prevent collisions with cars and bicycles around the vehicle, save life, injuries, and prevent costs? Yeah, that's a very good question. I think, you know, if you think about as you get a new vehicle in the future, whatever the powertrain is, I think most likely it's gonna start with the internal combustion engine, because those are still dominant for a while. Passive safety and active safety is gonna-- is a, is a very big part of it. So certainly, you know, so many meters, you know, there are 15, 20 meters around the car having a safety cocoon, so you wanna see 360-degree, that can have, like, the MOVIA sensor, you know, that, that, goes around it. And of course, also active safety and driving highway speed conditions. So it's all about safety. The first entry to this market is gonna be... I think, like, you know, there's lots of articles recently that were published about that the, you know, the first commercial applications are in trucking. Yeah, you know, they're gonna make a lot of investments, they're gonna go forward. But as you can imagine, you know, penetrating the trucking market with high volumes, right, is, again, it's gonna take a long period of time. It's a very, very conservative market. But yep, it's sustainable revenues, sustainable volumes there. But passenger vehicles are significantly more, you know, a number of them are launched every year. These OEMs are in a very competitive market with each other. Regardless of where the interest rates are, you know, you have to be selling vehicles, right? And, you know, for them, they have to sell more value. You can't just buy another vehicle with seven more airbags and feel safe. There is a definite push to having more ADAS features that kind of blend away... that create this active and passive safety cocoon around the vehicle. So yes, I do believe that safety is gonna be, you know, a key differentiator for not just premium OEMs, all OEMs, as they look towards what are they offering their customers, and how soon can they bring this technology from their premium segment to some of the other higher volume segments within their fleet. Thanks, Sumit. I think, I guess a related question, what do you see on the regulatory side that maybe gives you more or less long-term optimism about LiDAR being just there as a safety piece of content required, maybe one day for many, if not all, cars? This is actually a good question. So as you can see, OEMs are qualifying the new technology. They ship, they take the liability, and they are able to, through the NCAP process, deliver right now. The regulatory part you're talking about is if ever there's a body of data that shows that cars that ship with these features were significantly more safe compared to everything else. At that time, regulation will move in and mandate, like they did back in the nineties, that every car has to have a airbag. Well, someday in the future, I expect that these ADAS features are gonna be the dominant safety features. They will, they will definitely deliver huge amount of factors of safety to vehicles. And what everybody expects is that you're gonna get a, you know, regulatory move towards this sometime in the future. Is that gonna be in the next couple of years? Probably not, because we need a body of data. So none of the LiDAR companies that have announced anything about have shipped anything in volume. They're just kind of cranking it up slowly, right? And they don't talk about any of their volumes yet. What we're doing is we're telling you that OEMs must have enough data to now start putting forward these next set of RFQs for 2023 that have these kind of volumes, but that is still only scratching the surface. I mean, 100 million vehicles, if you take away China, there's still a significant amount of vehicles that are shipping. To get penetrated into their fleet, you know, that, that changeover is coming over pretty soon to start delivering that. Soon after that is, you know, of course, regulation will step in if you can see a significant advantage, you know, to safety. Thanks, Sumit. The next question is, what's the sequence with the automotive companies for an RFI? Is it RFI the first phase or RFP the second? And what is sort of the—if you could just walk us through the process of design win. Sure, sure. RFI is a phase where, you know, they solicit, you know, they have a need, and they solicit a wide, you know, cast a wide net. They reach out to all the LiDAR companies that are known entities, and they give their requirements, some loose requirements, and they try to get where is your state-of-the-art technology right now? Where are you, right? What's your production capabilities? What's the maturity level? What's your liability? They wanna know what product would you be proposing for that. Then typically from that, you know, it would be a down select, but it would still be, you know, a handful of companies that get into the RFQ, the first round RFQ. And then there is a deeper dive into, you know, the various concepts of your technology. They wanna know how your technology works. They wanna get in the middle of it. They wanna see data. They wanna understand, you know, all the different things. But they also wanna disclose to you about what they wanna do with it, what their unique needs are. You know, we're not selling screws and glue. These are not commodity parts. How your customer is gonna use your technology, it's slightly different every time, and we, of course, work with them to accommodate them. But that's where a huge amount of technical alignment starts happening. In parallel, of course, we start making some non-binding and binding, depending on the OEM, commercial proposals of really where we are gonna be. From that phase of the RFP, you go to another phase where they even down select even further. They do an even deeper dive. Then, of course, they get, you know, I mean, you can go on forever, but essentially it starts converging down to, like, one or two companies, which is the last one. You start. You know, you have, like, binding offers and detail, you know, understanding of what the thing is gonna cost, and they wanna know breakdowns and understand, like, you know, what the future would be if they were to pick you. So, and then after that is, you know, they nominate somebody. The good point that I see so far is that right now, for the volumes that we're talking about, they're looking for a sole supplier. So they really wanna understand your quality and manufacturing capabilities and partnerships, your supply chain, and understanding that how are you gonna be able to-- like, if they pick a sole, partner, how are you gonna be able to supply the volume in all the regions that they may, wanna expand to in the future? So this entire thing has to be put together. So it's not-- you know, you can imagine that the technical part is very detailed, but I would say the commercial package and the financial due diligence is probably significantly more involved than even the technical. You know, we have, we're very fortunate we have great engineers, and, you know, they can walk people through. They can get the excitement. They can, you know, they, they have mastered what they've created, so we can get the confidence in the technical side. But the commercial side, you know, they need to believe that the company has a plan to be sustainable for a long period of time. We can get to start a production and beyond that, and what our strategy would be made to make sure that the prices we're giving right now are affordable for them, but also it's sustainable for us. So I think that that's kind of a general process, how you get to a nomination or design win. Thanks, Sumit. I think the next question is probably, I'll take, it's about what are OEMs' most important requirements, including financial due diligence, for these nominations? So I think I touched base on this, but let me elaborate that. So I think what OEMs are looking to do is extensively model how the business and the revenue streams will evolve in case of multiple wins over the next several years. And this also includes the direct sales channel that we talked about, earlier. They want us to project the headcount by geography and the predictability into, you know, how the cost will fluctuate, in terms of the volume ranges that they have given us.... This will also, this also involves who will maintain the inventory and where will the locations be and how even the, the, the shipping will happen, to their different production plants across, across the globe. Because, you know, as I discussed in my prepared remarks, we are required to have manufacturing capabilities or production facilities in Asia, as well to supply to the Asian business of these OEMs. And I think most importantly, modeling, how will the company be capitalizing and, most importantly, lowering the cost of capital, right? Because as you can imagine, as the company starts to generate traction, we will be reducing our cost of capital and moving on from equity to debt financing. And as the company generates cash flow, a lot of other options open. So I think what, the OEMs are looking for is a clear path as to how the company becomes a more traditional company, as the entire LiDAR business and LiDAR industry becomes more mature, more mature, and the companies move towards a traditional company with lower cost of capital, than just equity. The next question is: Are there any automotive requirements that only MicroVision can provide, and none of the other competitors? I think the way to think about it is that, OEMs put together what they need. For example, this question actually comes up often, right, about the Dynamic View LiDAR. Let me just describe. You know, for example, they'll give you a field of view, and they'll give you regions of interest of what resolutions they want, at what ranges. All right? So if you think about it, what they're actually describing there is a Dynamic View LiDAR, right? And that's exactly how our technology works. That to maintain these high resolutions and these narrow fields of view, you know, in flight, we accumulate all the data and we, you know, pump it out. So from my vantage point, when I look at, you know, a tear down of anybody, any of our competitors' technology, right? I'm sure they've done ours as well. When I look what's inside, they're just running a static view, right? I mean, they have four channels or some number of channels that are pointing in different directions, okay? Statically taking in whatever noise that they have, and the field of view is fixed. So therefore, the resolution of the far range is much harder for them to achieve. They have apertures, they have members that are on a smaller aperture size, so they're not even able to reach those kind of ranges. So everybody technically says the same thing, but if I look at it, you know, from my vantage point, a lot of these things have been written with Dynamic View LiDAR in mind. If you think about MOVIA, you know, it's a 2D sensor. You know, it's got, you know, it's a VCSEL and a, you know, SPAD array, known technology, you know, but customized by our team in Hamburg to actually create something very unique about it, right? Which gives a cost advantage long term. So it's what they want. But if I have to say there's one requirement, what is one requirement that they, they want somebody to provide? It's actually cost. It's something that is small and low power. You got to meet it, right? So you can see the size of our product. We're talking about the SRL, we're talking about MOVIA. These are small, they'd be low power with their ASICs in there, right? It's actually the cost. It's to say, are you scalable? Can you put a production line in that's not gonna cost us $40-$50 million, and you're trying to amortize that, right? A reasonable production line that can go at high volumes at a very high quality and deliver that, because no OEM wants a product that is gonna be $800 or $1,000 per unit, and somebody trying to drive their price up, you know, not getting to economies of scale. We are pricing it aggressively, and the reason is because we can achieve economies of scale a lot easier because the products are truly running on a, you know, semiconductor, active align, automated line. These kind of automations exist, so that's like a core benefit we have. So I would say if there is like, a real advantage our technology has, all the specs, I can talk about it all day, I love it, but it's a real commercial proposal we're making. We can start hitting price targets that they have dreamt about and nobody else has, has achieved them yet, and we're gonna do that at profitable gains for the company after so much R&D invested to get to this point. So, you know, that's what I'm more excited about, that, that is an automotive requirement, but it is really a commercial agreement that they feel like is sustainable. Thanks, Sumit. I think this next one probably I should address. It's like: On the revenue guidance for Q4 2023, which markets and products will contribute the most, and how much will be software versus hardware? So Q4 2023, we do expect a significant step-up in revenue from Q3 levels to hit our range of $6.5 million-$8 million for the full year 2023. And as I mentioned earlier, we expect this revenue to come from direct sales, and this is the high contribution revenue primarily from software. So we are expecting similar levels of gross profits as well next quarter on these revenue as well. And I think maybe this is the right time to also talk about what 2024 could potentially look like. Obviously, we will be providing detailed guidance and details at our annual Q4 call next year. But 2024, as I had mentioned earlier, would be a combination of NRE from OEMs and also direct sales of MOSAIK and MOVIA to some of the non-automotive customers. And direct sales are shorter sales cycle revenue. I think like I mentioned, we wanna make sure the focus to increase the direct sales revenue channel is only done at high gross margins to help drive cash flow and reduce needs for additional capital as the company grows and focuses on achieving economies of scale on the strategic sales aspect of it. So I almost think of this as a dance in tandem between direct and strategic sales, where direct sales are uplifting the strategic sales revenue channel for the company. Right. The next question is, do the current RFQs cover OEM's complete automobile offerings, or are they limited to specific models? And along the same lines, are the OEM RFQs projected to cover multiple year, multiple year models, and do the RFQs tie the OEM to the selected LiDAR company for multiple years? I think I'll answer the last one first, right? Any contract you sign, I think, you know, you come to an agreement. They're gonna invest a lot of engineering on their time to get the product they need, get it qualified. We'll invest a lot of time. So I think the way you think about, you know, are they committed to us, are they committed to the contract? As long as we perform to the contract, we deliver that, you know, you're gonna be a great partner. And I believe, you know, where others may have failed in the past of delivering on time, you know, that's not an issue with us 'cause we have a high level of maturity. Certainly, you know, that's a really big advantage that we have. As long as, like, you know, is it gonna go across—I think the question, let me rephrase that. I think what I understand is, like, is it gonna go across the entire fleet, right? I think, you know, the way to think about it is that you have multiple model years that they pick. You know, they will have something they will introduce with. They have a marketing strategy that goes with it. But the volumes that you're talking about, right, that would be across multiple model lines, right? You know, when you start getting to millions of units, it's gonna be across multiple model lines. So, yeah, I can—we can say with absolute confidence that this will be across multiple model lines and depends on how they deliver the product, how they market it, what the uptake would be, because you're gonna create this whole, you know, environment for them to be able to get access to that technology at a certain price point. They would have qualified it. It's like a qualified part, and it, you know, has to go into production for them. And, you gotta deliver on time. You know, if they have a production timeline for 2027, they want you to be ready on a significant, you know, amount of time. You can't be the one that ever causes a delay. And, if anybody did, that would be pretty bad. That would delay any kind of launches for an OEM, and that's very, very bad. But for us, I feel like that we're probably well positioned with our Tier One strategy. And of course, the supply agreements we tend to sign with a contract manufacturer that the OEMs have already looked at and qualified and feel very comfortable with. So I feel confident that, you know, once we are tied together, contract is still, I mean, it's a pretty significant commitment that we would make on their behalf, and of course, they would have to make by picking us as a technology partner. We do have a question- Thanks, Lak. From Andres Sheppard. Andres Sheppard, your line is live. Mr. Andres Sheppard from Cantor Fitzgerald, your line is live. I think Andre is having some trouble, Lak. Let's continue, and let's see if we can get through somehow. Right. I think the next, next question is: From the outside, MicroVision's hiring, and it can look promising and indicate a company ramping up, but without execution wins in the third quarter, will this look fiscally irresponsible? Actually, let me take that question. Look, I think we think of this company not just a quarter to quarter, but a long-term business, right? And to build a business, you need to have the right building blocks. And for that, not just engineering, we need to build our operations and our supply chain, which is absolutely very critical to these OEMs, as I mentioned, as part of their due diligence, too. So recently, we brought on senior executives for building our operations and supply chain and product engineering capabilities as well, because these are very critical in any of these discussions with OEMs, because they help us lay out a complete roadmap from where we are today and how do we scale the product in terms of the units, which are millions of units, as Sumit described. And to achieve that kind of pricing, which is sustainable, we need to have a very solid plan in place to be able to deliver those prices that we are offering to our potential customers, which will essentially help us get a competitive edge over the competition. So yes, so I think that's sort of why the hiring, the recent hiring initiative that MicroVision have been focused on, for the company. Like I mentioned, for scaling, it is gonna be all about scaling similar products. So that's when you achieve the economies of scale. So at that point, we would not need to add more hardware engineers, but that would more be project managers, which will be dedicated resources managing the particular OEM relationship that will be tasked with delivering that production schedule to make sure any recalls or any associated production nuances that the customer and we have to deal with are taken care of. So that would be the growth in the headcount related to that. And then on top of that, obviously, the software engineering team, as we integrate more software into our products down the road.... All right, so the next question is, at the Investor Day, you stated that all the in-flight RFQs required MicroVision's Dynamic View LiDAR capability, and no other vendor has that capability. Is this still an accurate statement? You said no one can catch us, and that we'll have multiple deals this year and refer to the potential take of 80%-90% of the market share, and wish the shorts good luck. Is this still an accurate statement? Yeah, it's still an accurate statement. Everybody's using some sort of spinning prism or a static electrostatic mirror, you know, that you cannot change the field of view of the MEMS mirror on, you know, dynamically or like a galvo. So, you know, ultimately firing off multiple pulses with a slow-moving mirror, you can only collect. So if you think about this dynamic view at the resolution, you know, the way to do it is a dynamic LiDAR. So that statement is still valid from everything I've seen so far. All right. We still have yet to hear any LiDAR supply agreement from OEMs. Are timelines still, as management had imagined, and some investors have lost faith since the LiDAR market has been quiet, and if no decisions are made before the end of 2023, that won't help the cause. Although obviously, we know that there's not much LiDAR suppliers can do, as it is up to the OEMs. So any specific demand environment or delays that we're seeing? Yeah, I think, like, if you look at the magnitude of the contract, anybody would be entertaining at this point. These are big numbers. That will take some time, but they have to nominate somebody so we can start going by assigning resources because their timelines, I mean, one of the things is, you know, in the early part of the RFQ is they vet out, are you able to deliver to the timeline they need? And if not, doesn't matter if you have the best technology, you're out, okay? So that's important to them. Now, again, you know, different people will have different reactions to the 2027, but that's realistic. That's where OEMs are right now. Their software will take a while to develop, even though you're ready with your hardware. So... But again, those are not like, you know, significantly, like, into the next decade or anything, right? They're all contained within a typical OEM engagement for these kind of technologies to be incorporated into their vehicle. All right? So as you can imagine, that, you know, timelines, they have specific dates. They have to build a fleet. They have to collect data. We have to deliver reliability. They want to see a control build. They want to see reliability data. They want to see the fully automated line. They, you know, this whole development is a multi-year development, and you want to not do it with, like, thousands of engineers. You have to do it, you know, concerted effort. So, you know, I get it. I'm a shareholder, right? I mean, I bought shares in the company on my own as well. You know, it can't go fast enough for all of us, and I get that, and I live it every day. And even if, like, nobody's applying pressure on me or anybody in the company, I can assure you I apply pressure on myself, and everybody in the company feels that anxiety. I get it, and I promise you, we get it. But OEMs are OEMs. I feel confident because the way things are moving, this is how people that are about to make big decisions talk. Nobody's gonna get rushed, especially if somebody's gonna, you know, sign up to something big. Now, MicroVision, in our history, has done some big contracts, right? But nothing this big. Never, ever anything this big has ever crossed us, right? So and, you know, and to have multiple of them simultaneously, this is a big moment for us. I wanna make sure that we sign agreements that are sustainable, that they appreciate what we bring, and what risk they want us to take. I think, you know, a term I like that Anubhav used, you know, we don't wanna transfer a wealth from our investors to our customers to win a project. You can't just throw in your towels and just go home because they're asking for something tough. I just feel, like, very confidently, we can talk to them, we can describe to them the situations, we can show them the details, and they're getting a pretty good deal. You know, somebody that is actually gonna give them a commercial proposal that says, "You know what? I can give you in the hundreds of dollars. You know, here you go, but here's the economy of scale I need from you, and if you don't achieve that economy of scale, here's what the price is gonna be. Somebody could, you know, and the OEM could say, "Yeah, I want a flat price, you know, from day one." Well, from day one, if the first-year volume is low and I'm running negative%, negative gross margin, my investor's not gonna be happy then, right? So we have to find a balanced approach, and what I can clearly say is they listen, they talk, they're engaged, they understand. You know, they, they all understand because if the, the tables were turned, they acknowledge, right? "Yeah, I, I understand what you're putting together," right? So it's like any deal. When you have big numbers involved, you gotta go through it. I wish I could give you a lot more flair about it, and maybe that's gonna get people, you know, understanding the process, but this is just a lot of money, and you gotta have a cool head and just get through the process. You can't, you know, you can't, you know, have any hyperbole to investors, to the market, to employees, or to the customers. We do have a question. If I could just add to that. Apologies. We do have a question from Andres Sheppard from Cantor Fitzgerald. Andre, your line is live. Hey, this is Anand on for Andres. Can you hear me? Yes, we can hear you. Sweet. Cool. Congrats on the quarter, and thanks for taking our question. So I was just wondering if you could quickly walk us through what led to the revenue guidance revision and potentially related to that, how long it would take for you to materialize a potential OEM contract? And with that, what type of margins would you expect once that begins? Thank you. Great. So let me take that question. So, Anand, just to clarify, the reduction in the revenue guidance from $10-$15 to $6.5-$8 was related to direct sales. So if you'd recall, we had talked about that this year, it's gonna be the revenue is gonna be from MOSAIK and the sale of MOVIA, and the reduction is primarily attributable to some of the customers where we saw the opportunities moving into 2024. And this is primarily related to, you know, just tightening our forecasting processes with some of these smaller legacy Ibeo customers to better estimate their sales cycle and predict revenue. Since these are smaller opportunities, we're now beginning to have better visibility into the sales funnel as we integrate the companies together. Now, in terms of margin, you know, obviously Q3, we delivered 80% adjusted gross profit margins, which is again in line with the software or high contribution margin that we had talked about, and we expect that to continue in the fourth quarter, as well. Obviously in 2024, when we'll provide more detailed guidance, it will, the adjusted gross profit margins would come down to become more normalized as we tend to get more NRE revenue from OEMs as well. So hopefully that answers your question about the guidance and how to model it going forward. Appreciate it. And I guess the second part of the question is: how long would you say it would potentially take to materialize an OEM contract? And how would you characterize your progress on that front? Thank you. If you wanna take that. Yeah, I think as we mentioned, as I mentioned earlier in the call, I think, we stay on track, towards our 2023 goals. So, at this point, you know, I think it's gonna be in the transcript, right? Pretty much, we're in the, you know, deep phases of negotiation, and of course, the timelines for these projects have already been established, and it's down to just the commercial agreement. Gotcha. Appreciate it. As we mentioned in the past. Cool. I guess, very last question, just switching gears a little bit, to the non-automotive sector. What type of demand would you be saying you're seeing in the MOVIA sensor for verticals such as agriculture, robotics, and these have a shorter sales cycle? You know, we've asked this a few times, and we were wondering how you're progressing with potentially securing partnerships with maybe trucking companies or related verticals. I think, I'm gonna take this one. So if you think about strategic sales, I think trucking, let's put it over there in our strategic side. But if you think about just spot sales, if you have a segment or a market that does not see value in technology, and they're thinking that, you know, you're gonna finance them with single-digit gross margins, right? That's fine. Others, our, our competitors can take over that business and drive themselves out of business. We're gonna focus on the market. Within that segment, it is a segment that really appreciate the technology, what it could do for them, right? And they understand that, you know, with high reliability, right, it's got the automotive-grade product that's already qualified. You know, it could be a sales safety product, right, which has got hundreds of millions dollars worth of market with some people out in the world. These are real markets, right? Where, you know, where it's not a flash in the pan. We're choosing to focus on that because you can actually build a sustainable business, a successful, sustainable business, leveraging what's already been created on the MOVIA product platform. So yeah, I think as we look at our guidance, of course, it's always if you're downgrading anything, right, you never wanna disappoint people. But at some point, you have to take a look at it and saying, "Is it a sustainable path?" That if we enter a market, you know, some robotics, some you know, somebody talks about a, you know, can we put it on, you know, some robotic that's running around, you know, little, you know, humanoid robots are running around. That's not a sustainable market. And if the only way they can make their market is by having us not make any profit on their behalf and transferring wealth from our investors to them, yeah, I think it's better off that we don't do it, especially in the current environment, economic environment, with interest rates that high, it does not make the most sense for our investors. So yes, we're focused on it, but we're really looking at it, turning every rock and understanding how is the business sustainable if you engage with them. We do wanna grow, right? Growth is important, but you gotta have growth and profitability. You can't have growth with negative gross margin and somehow magically turn the corner on the economy of scale issue. Got it. Appreciate the insight. Thanks again for taking our questions, and congrats again on the quarter. We'll pass it on. Thank you for joining today. Thanks, Anand. Thank you. There are no further questions in the queue. All right, so, so I think, before we move on to the next question, I just wanted to wrap up my comment on, the demand environment. So, so I think the way I think about this is, LiDAR isn't a product or is a technology that is gonna be needed, and at the end of the day, it's all about which company will be successful in building a business around a technology that is gonna be ubiquitous and is gonna be around for a very long time, just like the airbags were. So I think it's just about investors really trying to identify, because I think, look, at the end of the day, there won't be 15 LiDAR companies, you know, standing in this, in this industry, because obviously, that's not how any industry goes. So there will be consolidation, but I think it's very important for any successful LiDAR companies to make sure they're building a business which is sustainable, with a cost structure that is scalable, with a foundation that is easy to grow and not having to do the other way, you know, which I think we have seen recently, growth at all costs. But we are way beyond past that era, and it's time that all companies realize that the path to good gross margins and path to break even for a new technology like this is extremely critical for any successful LiDAR company. All right, so next question... I think we described MicroVision as operating primarily as Tier 1. Why is that? Is that something you intend to do across all customers and products? Is it to have something to do with manufacturing, et cetera, is that accurate? And we wanna make sure we understand the business model and why MicroVision has chosen that route. And will MicroVision provide the recipe and utilize existing manufacturing processes by other companies to build products? Yeah. We've raised quite a lot of money, including Ibeo, but, you know, MicroVision as well, to develop a great technology to get to this point, and that was done on the backs of our investors, okay? The only way we can monetize that and, you know, amortize all that R&D, and of course, you know, show incredible input to the market, that we create something really valuable, is to sell something. You can't do that without a license, so you would have no choice as to enter the space and become a Tier One, and that is required, okay? Because the company long term, even if you had millions of units a year of volume, and it was a licensing model, everybody in this market will expect you to make, you know, a handful of dollars. You cannot even sustain the company that you need to, to do that. On top of that, you would not be able to amortize all you've actually, your investors have put in. They've put in this for a high-growth company, therefore, you have to sell something. And we're gonna sell this LiDAR, and we're gonna make money on that one, right? And certainly show a business. And if you think about all the LiDARs that are gonna go inside, our objective remains the same. You know, do I wake up every morning to just have, like, you know, single-digit growth? No, of course not. You wanna be a dominant player in this market with a profitable business and get to, like, the 80%-90% market share someday in the future. And you can only do that if you become a Tier One, and you actually are willing to work with the partners, create supply chain, create the engineering discipline required, and you can deliver them the finished LiDAR. It's your core technology. You've hired the people, you've spent money. It's time to get some returns. And that cannot be done by licensing. So yes, we intend to stay as a ADAS Tier One partner to OEMs, because we continue to invest in developing technology and doing R&D for what they need in our core technology area. And so therefore, we have to build a sustainable business model that allows us to be around for a long period of time to enable them. And of course, this is the highest-end features that are going into new cars in the future, in the near future, right? And you have the core technology that's required, and you are the only one that's scalable, and you're talking about price points, ASPs, that are significantly better and charming to OEMs than any of your competition. You're at the right place, at the right time, and you own your entire IP, and you have extremely motivated and talented workforce. I'm pretty sure there's many, many people on this call that would love to change places with me and to be managing that company, because that makes your life a lot easier. So yes, but it's hard. You have to make through some tough times to get to that point where you can take a breather, and they may not come for years, but you have to get through this, but you are gonna have to make your own LiDAR. You can't just think like, "You know what? I'm just gonna give it to somebody else." You know, even when you buy an iPhone, I mean, just look at the public filings for somebody like a company like Apple. They have a significant team that actually does that, and they sell their phone. That's their most dominant product. It's not the App Store only. So we are gonna make our LiDAR, and that's where you wanna be, because you're gonna have to invest in R&D to make the current LiDAR there, you know, so to deliver that, but they want to see a roadmap because that's a simple company. How are you gonna give me more features at lower cost, you know, or more software in the future? Because of course, software is a big part of it. We are gonna establish our LiDAR business, and then, of course, the tier of software is how you really start monetizing this company, because you have an installed base, and you can sell them software that runs on their product as you sell additional LiDARs in the future. If I can just add to that, I think the capital markets are already, they have, you know, sort of given their verdict on companies, LiDAR companies, that took the licensing route, and their valuations are significantly lower today. Because I think you can give away the farm here, because I think it's very important to have contract manufacturing model, because this is how we maintain control of technology, and obviously this is how we share overheads. And, and part of it is also has to do with, you know, we are gonna provide the liability and the warranties associated with any product like a Tier One as well. I think all these aspects are very important to even build a business, because like I said, at the end of the day, a successful LiDAR company will have the entire capabilities from soup to nuts, in terms of having the design house, as well as the production and the supply chain, infrastructure in place to be that successful.