MicroVision, Inc. (NASDAQ:MVIS) Q1 2024 Earnings Call Transcript

MicroVision, Inc. (NASDAQ:MVIS) Q1 2024 Earnings Call Transcript May 9, 2024

MicroVision, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the MicroVision First Quarter 2024 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. At the end of today's presentation, there will be an opportunity to ask questions via a chat line. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Drew Markham. Please go ahead.

Drew Markham: Thank you. I'm pleased to be here today with our CEO, Sumit Sharma, and our CFO, Anubhav Verma. Following their prepared remarks, we will open the call to questions. Please note that some of the information you'll hear today will include forward-looking statements, including, but not limited to, statements regarding our customer and partner engagement, market landscape, opportunity and program volume, product development and performance comparisons to our competitors' 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 intends, believes, expects, plan, and other similar expressions.

These statements are not guarantees of future performance. Actual results could differ materially from the 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 actual results to differ materially from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC's Regulation G.

For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as for all the financial data presented on this call, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC today, both of which can be found on our corporate website at ir.microvision.com under the SEC Filings tab. The conference call will be available for audio replay on the Investor Relations section of our website. Now, I'd 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 first quarter 2024 results. Let me start off by updating you on our progress on multiple RFQs in flight, which remain our primary focus to get automotive partnerships in place, while adjusting to the OEM realities. Finally, I will provide an update on the broader view we are working on for partnerships and licensing. We believe that the best long-term opportunity for our technology in our company lies with automotive OEMs focusing on ADAS features in passenger vehicles. This segment will have the highest demand in millions of units and is spread across several OEMs in North America and Germany. As I shared last time, to win and dominate in this space, a company needs: first, LiDAR cost of scale in the low hundreds of dollars; second, smallest sensor size; third, highest resolution and range with lowest power; fourth, sensor integrated perception software; and finally, a company operates as a financially stable Tier-1 LiDAR supplier.

I believe with conviction that our technology offering with MAVIN, MOVIA and perception software are aligned with OEM needs for existing RFQs and newly expected RFQs in 2024 that we are starting early engagement on. I understand the frustration and anxiety of our shareholders on the speed with which we can provide OEM validation of our technology. Context is important. There is a big demand opportunity in this segment, but a wide range of challenges to meet OEM commercial requirements for successful passenger vehicle nomination. All OEMs evaluate our technology and how it fits into their individual specifications. In all cases, we meet and exceed their technical requirements. Our team's experience and effectiveness is also a strength that OEM often complement us on.

They find our cost structures compelling, given that we talk about wafer technology instead of rotating prisms and mechanical galvo steering. In each RFQ, OEMs require significant customization of hardware, firmware and perception software. Their timelines for customization and qualification are long and would require several hundred engineers for several years. Commercially, we would want them to cover the cost of this customization, but they expect these large costs to be amortized over a large volume of units to be shipped over five to seven years and to be borne by our investors and the risk of final volumes not being realized or flat volume pricing is provided year after year. Any potential project we could take on would limit our ability to part -- of any other potential future nominations.

Some OEMs want to see our manufacturing strategy proposals to commit to factories in Asia and North America for volumes that would not justify two factory locations. Some OEMs explicitly want a factory in the U.S. To be clear, they will not accept a NAFTA country, but only a U.S. contract manufacturing factory while expecting cost structures that are only possible from Asia. Others will only review proposals from Asia, while a small group wants to see a diversified operation strategy with multiple continents. Again, the expectation is that we will fund this with our investors. All OEMs want varying levels of perception features, some running within the LiDAR, some running in their ECU, some claiming they need no perception, but want our source code.

Some OEMs want the LiDAR in roofline, others want them integrated in headlamp and some others are only looking at behind windshield integration. They want our core LiDAR to be flexible enough to fit into all their locations. They are aware of the trade-offs in each location, but will require updates to the core hardware. Some OEMs only want to work with us as a LiDAR Tier-1 with contract manufacturing agreements in place, others prefer a traditional Tier-1 with a diversified product portfolio and profitability with us in a partnership with them, and a smaller group wants to see our Tier-2 strategy even if the volumes do not justify any licensing model. OEMs do work very closely with us and are willing to compromise their needs, but in general, there's a wide area we need to navigate on each RFQ.

In addition, we often see OEMs that have nominated other LiDAR companies in previous years actively working to evaluate us as an alternative even though other projects have not gone into production. Additionally, other LiDAR companies that may have been awarded nominations for 30,000 to 50,000 sensors and instead represented they were fleet-wide adoptions in their public comments on order books complicate market communication. But that is out of our control and expect public markets to take care of that. I believe this is context for our shareholders to understand why providing certainty on timing on any deal is hard to predict for MicroVision. With OEM's start-up production timelines moving out to later in this decade and aligning to regulations that we'll be rolling out while their global product strategies are changing by region and powertrains, there are just too many variables that we face as we work with them to secure nominations.

But let's not forget that these are the biggest opportunities in automotive technology space with multiple OEMs and multiple regions with millions of units expected in the future. This is the best alignment to our technology and products. Getting through this complicated set of variables is first -- to find our first partnerships remains our primary focus and I believe represents the best way possible to build shareholder value. Based on vast experiences with April 2017 OEM, we know that we must only agree to contract terms to support the long-term health of the company as well as the interest of our shareholders. Currently, we remain engaged in seven RFQs for our MAVIN product. Since Q1 update, we have disengaged on two RFQs. In one RFQ for a passenger vehicle of our MOVIA S product, the OEM moved the decision point beyond 2024 as they look to realign their model year strategy.

This decision has nothing to do with our technology, but rather their product strategy. In another RFQ for our MOVIA L sensor for a global trucking OEM, we were not able to reach commercial agreement. We were told that our sensor and software proposal was the most mature and top offering. Our manufacturing strategy was the highest level of maturity and went through their qualification, reported to us as in the top tenth percentile of their suppliers. Our commercial proposal was also accepted. Their preference was for a partner with a more diversified product and revenue portfolio. MicroVision cannot accept an agreement limited to B-sample only since we would have to take on significant financial risk for a full program with only B-sample phase agreement.

Ultimately, we could not reach a mutually beneficial agreement. As I said earlier, with the wisdom that comes from experience, we know how important it is for us to avoid any partnership that gives outsized benefit to that significantly larger OEM, while putting the long-term health of the company in jeopardy. We continue making progress on seven RFQs for our MAVIN products. Timelines for decision from OEMs continue to shift given that there are multiple configurations, mounting locations, integration and model year needs. OEMs acknowledge that a lot of internal decisions are in flight to reduce configurations and they remain engaged with us. On our MAVIN product development front, our ASIC development and B-sample design and pilot line continue to move forward.

We chose to fund these ahead of any nomination since demonstrating mature hardware is a requirement for all OEM. We have not funded any new development for MOVIA L or MOVIA S up to this point. MOVIA L hardware is in production now and is a great demonstration point for OEM to value partnerships from. The outcome of the MOVIA L RFQ that I described was not what we wanted, but this was a great engagement for our company. We remain able and willing to support the OEM. From my perspective, their vision for autonomous trucking is uniquely positioned and I believe is the most viable one I have seen. Ultimately, we understand their needs for the business and we express our needs as supplier. As a company, we have lived through the lingering challenges resulting from a one-sided contract and we have to make the right long-term choice.

We stand ready to support them on future programs. Given this landscape and OEM timeline to decisions shifting for SOP in 2028, we are exploring other opportunities for partnerships and licensing in smaller industrial markets that will allow us to bring in non-dilutive capital into the company for the technology assets we have. We will talk more about this as we make progress, but this is what we are also giving attention to, generate revenue from industrial sales and partnerships and collaborate on potential licensing opportunities for MOVIA and MOSAIK. We are fortunate that we have a wider portfolio of distinct products that address automotive and industrial needs. Given the market environment, I believe we are taking prudent steps to reach a sustainable path.

I personally remain profoundly committed to the company and the vision. I would like to now turn the call over to Anubhav to talk about our financials. Anubhav?

Anubhav Verma: Thanks, Amit. The challenges for the auto, mobility and ADAS industries continue to persist amidst the current market conditions. Auto OEMs, Tier-1s, and ADAS companies, and in particular, LiDAR companies, continue to experience market pressure. Particularly the auto OEMs in the U.S. and Germany that remain our primary customer demographic are experiencing stronger pressure mainly due to two factors. Number one is stiff competition from the Chinese OEMs in terms of both prices and features of SDVs, or software-defined vehicles. These software-defined vehicles are being run on centralized computers with domain controller with 10 to 12 cameras, one to five LiDARs, and several radars, while the U.S. and German OEMs are still showcasing vehicles with ADAS features enabled only by cameras and radars.

The pressure to produce vehicles with advanced ADAS features continues to increase for U.S. and the German OEMs to stay competitive. The second is the cost focus. OEMs here are also under pressure to realize returns on huge investments made for their transition from ICE, or internal combustion engines, to EV products as EV adoption is lagging in the North American markets. Couple with this, the recent UAW actions in North America are further driving OEMs to be laser-focused on cost to roll out the new models. Recently, one of the major OEMs pushed out their decision on LiDAR beyond 2024 as they internally aligned their Asia strategy. This RFQ was for high volume passenger cars that we were competing for. We believe that this could be in response to the growing competition from the Chinese OEMs to realign their global strategy and expand the LiDAR RFQ scope in order to compete on a global basis to offer these advanced ADAS features.

In addition to this, the high interest rate environment further directly impacts the cost of capital available for both OEMs and Tier-1s to take on new sensor programs like LiDAR to enable advancement towards higher levels of autonomy in their vehicles. As we mentioned last time, quite a few Tier-1s have publicly announced their intentions to shift their focus away from LiDAR. Also, in the recent past, we have seen many publicly announced delays and financial losses caused by immature LiDAR products and their expensive industrialization process. This has driven the OEMs to be more careful in selecting the LiDAR suppliers and cause longer selection timelines and more stringent evaluation criteria. Simply put, with only a handful of Tier-1s interested in LiDAR, the business objective for OEMs is to find a high fidelity LiDAR sensor provider acting as a Tier-1s themselves to enable the L2 plus L3 features for ADAS at the lowest price.

Given the publicly announced delays and losses sustained in the LiDAR programs so far, OEMs are taking longer to identify LiDAR suppliers who will be able to fund their own business and sustain on smaller projects, lower volumes, especially in the initial years, and scale accordingly when the volumes ramp up in the second half of this decade. On the supply side of the equation, the objective of the LiDAR players is to navigate these initial low production volume years to [measure rate] (ph) with their cash burn and be well-positioned to scale up and become profitable when the volumes ramp up later in the decade. This is primarily the reason why LiDAR companies are under pressure from investors and markets, especially LiDAR companies that have announced nomination wins or serial production awards from OEMs. All LiDAR companies that have announced significant serial production awards with sizable commitments are under more pressure because of three reasons.

Number one, the ramp of revenue from such perceived wins has been much slower than the pace initially communicated to the market. Second, the volumes, even with the start of production, are nowhere near the publicly announced targets. And number three, higher cash cost to industrialized products and unexpected financial losses to their individual cash burns as they have to front a higher cost for lower volume projects. The markets are penalizing these companies for producing results that are not even in the right zip code of the aggressive targets set by them at the onset. Most of these companies are trading at significantly lower values post announcement of serial wins. The depressed market valuations are clearly indicating that all these LiDAR companies will need several hundreds of millions of dollars of fundings given their pursuit of smaller volume projects.

We saw this in play in one of the RFQs we were competing with from a global commercial trucking OEM, as Sumit described. As we progressed through multiple rounds of evaluation and of technological and commercial of our MOVIA L proposal spanning over six months, they were very impressed with our sensor proposal and our manufacturing strategy, as it had the highest level of maturity. Our commercial proposal was also accepted. However, they preferred a more traditional partner with more diversified revenue portfolio as their volumes were lower. They offered us to do a B-sample development only instead of a full nomination. We could not reach a mutual agreement since MicroVision would be required to take on significant financial risks upfront for the full program with only the B-sample phase agreement.

We would need to commit significant resources for a lower volume project that would have kept us from competing with the other bigger volume passenger car RFQs. If I can summarize all this, there is a huge demand for LiDAR in the second half of this decade, which is being driven by the global competition and marketplace. The current business challenge, however, is low volume and projects and low revenue from the auto in the near term and the ability to sustain these initial years to emerge as one of the few standing LiDAR companies. Now, what does this mean for MicroVision and our shareholders and how do we plan to be successful in navigating this period of low volume? We have to adapt from what the financial markets are indicating to us and do the following three things.

Number one, we focus our efforts only on big volume passenger car projects from OEMs. Making the right selection is very important for us. We want to commit resources only for large volume OEM projects as that will be the best use of our capital. In the meanwhile, bring in revenue streams from non-automotive verticals and accelerate their growth. Pursue diversification of revenue streams of non-automotive industrial channels with shorter sales cycles to reduce the dependence on low volumes in the short to medium term. This is very essential as all serial production revenue will be material only with economies of scale, which won't happen until later this decade. Number two, maintain our long-standing capital-light business model with a low cash burn to stay ahead of the curve compared to all other LiDAR players.

Our products are mature and we do not need to invest in the next generation on MAVIN or MOVIA unlike our competition. Most of our competition that has announced serial production wins will need significant capital in the next 12 to 18 months, including refinancing of over $600 million of convertible securities. This is a very clear differentiation for MicroVision as our capital needs are not as intensive as others. With our $150 million ATM program, we can be very opportunistic in raising capital and in no rush to pressure the stock like other industry players have done. MicroVision has always demonstrated prudent management of expenses with a strong balance sheet that is scalable. We believe that our mature product portfolio successfully meets all the RFQ requirements.

We would start investing in the next-generation products when the auto revenue stream is stronger and the time is right. Number three, bring in non-dilutive cash into the business by pursuing meaningful licensing and partnership opportunities for MOVIA products and their applications in specialized sub-verticals under the industrial market, including forklifts, warehouse automation, et cetera. This will further help in demonstrating to the market our financial prudence and intention to build long-term value in this company. Now, let's dive into Q1 numbers. For the first quarter, we recorded $1 million in revenue, which is slightly ahead of our expectations. Revenue in Q1 was primarily attributable to the sale of MOVIA devices to a global commercial trucking OEM as part of their RFQ evaluation process.

We also sold our sensors to a leading agricultural equipment company for industrial applications. From a gross margins profile standpoint, on an adjusted basis, after adding back the amortization of the acquired intangibles and adjusting for one-time license fees, the gross margins were approximately 25%. We continue to differentiate ourselves significantly from our peers who have either upside down negative gross margins or near zero margins in both industrial and automotive verticals. To support momentum in direct sales last fall in 2023, we also placed an order to build the new MOVIA inventory with ZF Autocruise to help satisfy demand from non-automotive customers. We're beginning to see medium- to long-term partnerships with significant multi-year revenue opportunities in the industrial sector, especially in forklifts and warehouse automation applications.

Expenses. In terms of expenses, we had approximately $26.4 million of R&D and SG&A in Q1. This is $2.4 million higher than last quarter, because in Q1, we rationalized our workforce and eliminated positions related to the sensor fusion development work primarily in Germany. The higher Q1 expenses are driven by the one-time restructuring charges associated with these actions. These actions were taken in line with our business strategy to focus on revenue-generating opportunities in the near term. The expenses also include $3.7 million of non-cash stock-based compensation and $1.8 million of depreciation and amortization. For the first quarter, $20.8 million cash was used in operating activities, which is in line with our 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, Q1 CapEx was $0.1 million in line with our expectations as well. Now, let's talk about our balance sheet. As of March 31, the €3 million payment was released from the escrow related to the Ibeo acquisition. This was earmarked as a restricted cash asset on our books. This asset was released in the last quarter. The final payment for the Ibeo acquisition will be paid out in Q2, roughly in line with the remaining accrued liability on the balance sheet of €3 million as of March 31, 2024. Our liquidity was $201.3 million as of March 31, including $73 million of cash and cash equivalents and investment securities and $128 million availability under the current ATM facility.

We believe we have sufficient cash and cash equivalence along with our ATM facility to have an adequate runway. We have one of the cleanest capital structures amongst our peers. MicroVision continues to stand out and beat competition in terms of maintaining one of the lowest cash burns in the industry with a highly-talented pool of engineers in both U.S. and Germany. We sold 10.4 million shares for a net proceeds of $20.6 million under the current ATM in the last quarter. The ability to strategically and opportunistically raise money via ATM position MicroVision very favorably as compared to our peers, some of which would have to resort to structured finance transactions to raise capital at significant discounts. We believe that with our current cash and our ATM facility, we are well situated to deliver.

Now, let's talk about 2024 outlook. We're expecting at least between $8 million to $10 million in the revenue from the following streams. As of December, we have already a backlog of $3.1 million. The revenue is expected to come from the sales of LiDAR sensors to both automotive and non-automotive customers as the volume ramps up. Number two, direct channel sales, which includes sale of our hardware to non-automotive customers, and software to our customers that include forklifts, warehouse automation robots, agricultural and mining equipment companies. From a cash burn standpoint, we expect the cash burn for 2024 to be similar to 2023, between $65 million to $70 million. We believe we have all the necessary engineering resources to deliver on our customer projects.

To summarize, we're really excited about 2024 and beyond. Operator, I would now like to open the line for questions.

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