MicroVision, Inc. (NASDAQ:MVIS) Q4 2023 Earnings Call Transcript
MicroVision, Inc. (NASDAQ:MVIS) Q4 2023 Earnings Call Transcript February 28, 2024
MicroVision, Inc. misses on earnings expectations. Reported EPS is $-0.10353 EPS, expectations were $-0.09. 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 Fourth Quarter and Full Year 2023 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Drew Markham. Please go ahead.
Drew Markham: Thank you, Paul. 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 landscape, 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 reports on Form 10-Q. These filings describe risk factors that could cause our actual results to differ materially from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call and, except as required by law, we undertake no obligation to update this information. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC's Regulation G.
For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as for all the financial data presented on this call, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC today, both of which can be found on our corporate 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. Now, I would like to turn the call over to our CEO, Sumit Sharma. Sumit?
Sumit Sharma: Thank you Drew and welcome everyone to this review of our fourth quarter 2023 results. I'm certain everyone is anxious to hear about our progress in securing strategic automotive customers. I will start off by updating you on our progress on multiple RFQs. Second, I will cover the state of the competitive landscape and advantages our technology provides. Third, I would like to lay out the opportunity that we see in this space and why all of us are fully committed and what our vision remains for our company. Let's start with an update on RFQs towards design wins. We currently remain engaged in nine RFQs with multiple OEMs located in Europe and North America. The vast majority of these are for passenger car programs with an expected target start of production from 2027 with the largest volume programs starting in 2028.
These are the high-volume nomination opportunities. There are multiple small opportunities that are earlier programs. As I've mentioned before, OEMs that have made some early nominations of other solutions are actually looking for new technology partners that would operate as a LiDAR Tier 1 for these higher-volume programs. The total volume of all these programs is in the multiple of millions of units for MAVIN-N, MOVIA-S, and MOVIA-L products. The lion's share of current RFQs are for MAVIN-N product. Later this year, our MAVIN-B sample with all ASICs in place, which we call MAVIN-N, will be ready for OEM integration. The focus being on ADAS level 3 and level 2+, with high-speed highway pilot and urban driving capabilities. With one LIDAR per vehicle mounted on roofline, the lowest profile, highest resolution, and lowest cost are of key importance.
The highest volume opportunity is for MOVIA-S product. MOVIA-S is the next generation of our flash-based sensor and is a derivative of the MOVIA-L architecture, ASICs, and chipset with a wider field of view and the smallest form factor. With the small form factor, it is capable of being embedded in the car body without any aesthetic break and provide a LiDAR cocoon around the car for the first 50 meters at lowest cost. Each car could require between three to five MOVIA-S LiDAR sensors depending on the highway pilot or urban driving safety features. The MOVIA-L product line is focused on industrial space and trucking. MOVIA-L is the legacy product that was part of the Ibeo acquisition, including ASICs and a mature production line that allows potential customers lowest risk path to getting our mature sensor.
All products are targeted to include a perception software running on ARM core processor within the sensor. This is a big deal for LiDAR products as this will enable us to monetize our perception software to a software license mechanism that will increase contribution margin. We will talk more about this later in the year. In all RFQs, we continue to meet and exceed all technical requirements. We have a technical team that can deliver mature products. I would say our combined teams in Redmond and Hamburg are the most experienced in delivering LiDAR products and perception software for over a decade. Our team in Hamburg remains the only team that has delivered a LiDAR product with Audi that went into production. Our new partnerships for manufacturing have passed OEM qualifications and quality reviews.
We have automation paths that are credible and can be put into place to meet their B-sample needs this year and support price targets. We can demonstrate to potential customers that we can fund our core development and the customer funded custom development is within their target ranges. The industry-wide challenge that we continue to work with is proving our capability to operate as a LiDAR Tier 1 with adequate cash runway and investor confidence to execute a supply agreement upon nomination. As you may recall, capital raising was a focus for us last June and we continue working on this. We are also being conservative about the types of deals we engage in. I don't believe it is in the long-term interest of our shareholders to sign deals that look like we are subsidizing previous poor choices in LiDAR partners that were made in the past by having to take on more risk while being the most mature partner.
But for the right volume deal, we plan to take such risks. So to conclude this section, we have made great progress towards securing nominations with our technology maturity and continue to work with each OEM to find a solution to becoming a LiDAR Tier 1 that will be acceptable to them to secure long-term supply agreements. Although others have announced low volume nominations, we do not believe that any LiDAR company has been able to achieve Tier 1 status and maintain long-term supply agreements following nominations. Second, I would like to take some time and update you on the changing industry landscape we are navigating on our path to securing nominations. I believe this is an important piece of context for shareholders to understand. The seismic change of advanced sensors being added to passenger vehicles is real and continues as evidenced by the high-volume opportunities in these RFQs. It will arrive earlier with passenger vehicles, with internal combustion engines, and eventually EVs. Based on what we have seen, there is nothing slowing down the demand for high-tech, low-cost LiDAR sensors for the future.
As I've been saying for several years, active safety systems in passenger vehicles with ADAS level 3 and level 2+ will be the dominant force to drive scale and cost. All OEM and technology companies focused on level 4 are scaling back plans and reevaluating business models. Autonomous trucking remains as one real opportunity for autonomy, but this would be a low-volume business at best, important support, but not the core path to profitability. For us to be successful in broader LiDAR space, we need to focus on projects that are significantly higher in volume than those offered by L4 opportunities. Therefore, MicroVision remains primarily focused on passenger vehicle opportunities. Another area of change is the Tier 1 landscape. Almost all traditional Tier 1s that were in the LiDAR space are announcing their exit.
The oscillating mirror or rotating prism technology is not reliable and scalable, and traditional Tier 1s did not have the backing of investors or talented staff to create the most innovative sensor technology and software. This has created a green field for technology companies like us. OEMs are actively engaging with companies like ours to explore partnerships. This is the area of transformation and risk. There's a vacuum left by the exit of traditional Tier 1s that we need to accelerate to establish ourselves as a reliable and trustworthy Tier 1 LiDAR partner. LiDAR companies that got early nominations raised a lot of money on promises and failed to deliver to OEM programs in even low-volume scenarios. They have immature technology and specifications or understanding of how to scale.
This has muddied the water a bit for any company involved in the new RFQ, including incumbents, but we have a level playing field moving forward in all RFQs. We continue plowing through this landscape. On this topic, I would like to say both MAVIN and MOVIA products arrived just in time to meet OEM needs. I would say we're in the best shape. Our competition raised billions of dollars in a matter of three years, has blown through most of it, and live to show for technology. We have invested slowly and wisely over the long period of time and have the most mature team and product offerings. The need for perception software will also become a decision driver. In the past, the need to support L4 features drove software development, which is significantly more expensive and not easy to deliver as a qualified product.
In the meantime, our team in Hamburg focused on developing critical perception software and taking it through OEM qualification. The software landscape has changed and competitors have invested in development that are not relevant, while MicroVision has an advantage with our sensor embedded perception software ready with mature KPIs. In conclusion, our positive securing nominations requires us to navigate all these changes and get OEMs comfortable with our capability to deliver on passenger vehicle programs at the LiDAR Tier 1. What's involved in becoming a LiDAR Tier 1? We need to own our own technology with significant IP. We have this fully covered. We need strong technical and operational team in place to deliver on contracts. We have this in place and can deliver multiple nominations.
This has been vetted and qualified by OEMs. We need contract manufacturing partnerships that are automotive qualified by OEM. We have been in this place as well. We need an automation path for our products to deliver the cost targets for high volume sensor sales. Again, we have this in place. Finally, we need to show demonstrable financial runway to be able to take on large supply agreements at the time of nomination. We need to get that last point in place to become a LiDAR Tier 1 to get multiple OEM nominations for passenger vehicles. Finally, let's take a larger view of the landscape by understanding why we continue to focus on this space and drive hard. I believe to be successful in the LiDAR space for the next 10 years, there are five key things that a company must master.
Number one, sensor cost of scale in the low hundreds of dollars. Number 2, smallest sensor size. Number 3, highest resolution with the lowest power. Number 4, sensor integrated perception software. And number 5, a company operates as a financially stable Tier 1 LiDAR supplier. These are the big things in our space that will not change over the next decade in any RFQ or nomination. Customers are going to want highest technology LiDAR with a high level of perception software integrated at cost, that in the hundreds of dollars for sensor and pay additional for perception software license, which translates to high contribution margins. As of today, MicroVision has already solved for the first four items in all three of our products. No LiDAR company can say this with confidence or show evidence of it except MicroVision.
Nothing will beat our MAVIN end product in cost, performance, size and power. Nothing. Nothing beats our MOVIA Edge product in cost, size, performance and maturity of perception software. In conclusion, there's an ocean of demand for sensors and software out there with multiple reliable OEM partners. We have the technology, lead with our products and the opportunity for strong gross margin, and I would say, will last for a long time. Investments made to develop products today will run for a long period of time without redesign required, thus having a much lower cost to customer acquisition while having a high lifetime value to customer. Traditional Tier 1s have stepped out of this space and created an opportunity for us to step in to become a key partner to OEMs directly.
Multiple competitor strategy to fake it till you make it is being exposed as we speak. This is truly a greenfield out here for us to dominate and we intend to do so. I would like to now turn over the call to Anubhav to talk about our financials. Anubhav?
Anubhav Verma: Thank you, Sumit. Now, let me summarize with the current state of affairs in the auto, mobility and ADAS industry from a financial perspective. Auto OEMs, Tier 1s and ADAS companies, in particular LiDAR companies, have been under a lot of pressure lately. There are primarily two reasons for that. Number one, the problem of solving for full autonomy L4 and above is significantly more challenging and expensive to execute than all the hype built up over the past several years. Hence, there is a clear reset within the industry as well as investors. Tech companies, OEMs and capital markets now are gearing to back more investing in more realistic and near-term ADAS L2 plus and L3 solutions. Number two, OEMs are also under significant pressure on their transition from ICE, which is internal combustion engines, to EV products due to the hyper competitive price wars, which are a direct result of the high interest rate environments and market share expansion battles.
Major auto OEMs are carrying historically high levels of inventory. They are therefore becoming ultra-cost conscious as well as aggressive about including new ADAS and safety features enabled by LiDAR in their upcoming models in the next four to five years. The OEMs are striving to command pricing that is attractive to the end customers with advanced ADAS and LiDAR enabled safety features in the upcoming models. Regardless of the delays and easy adoption, having ADAS and safety features is critical for OEMs to expand and even maintain their competitive positions amongst each other. This business problem for OEMs translates into the high demand for LiDAR sensors to enable L2 plus L3 features for ADAS safety at lower prices with more mature technology.
All these factors have essentially forced the established Tier 1s out of the LiDAR market as they do not have the risk profile to allocate hundreds of millions of dollars in R&D, which is essentially the CAC, or Customer Acquisition Cost, in developing the technology and responding to these extensive OEM RFQs. This is evidenced by recent public statements by many Tier 1s, including Magna, ZF, Continental, and Bosch, announcing their shift in priorities related to LiDAR. The lack of established Tier 1 presence, in turn, has influenced OEMs as they have to move their internal production timelines to the right, as well, especially after some of the early LiDAR winners failed to deliver on their commitments. The OEMs are being extra cautious, spending more time and efforts on thorough diligence before picking their LiDAR suppliers, or replacing existing ones in case of non-performance.
Please keep in mind, the automotive OEM industry is a slow-moving industry that is highly focused on safety and intense qualification processes. So they are now looking for suppliers who have mature technology at the best price, and hence, the lowest risk to execution and strongest balance sheet to become a LiDAR Tier 1 supplier. This has also led to the collapse of a few LiDAR companies and the ongoing consolidation of the industry in the past 18 months. It has now become very apparent that the only way to become a successful LiDAR company is to operate as a Tier 1 in order to capture that huge demand in the later part of this decade and early next. Now, with all these broader trends, how does MicroVision stand to be the company that will remain one of the last few successful LiDAR companies able to capture this huge demand?
The fact that we're now actively engaged in nine RFQs, including some of that previously announced as one by others, we believe MicroVision's product portfolio meets all the following criteria. Number one, the most mature products for both long and short-range LiDAR. No company has both products. Number two, one of the best form factors and sizes. Number three, perception software inside the silicon. And number four, and most important, at the most competitive long-term price. We're now in the process of establishing our credibility as a Tier 1 player in the LiDAR industry. Now, let's address this question in a bit more detail. What does becoming a high-growth Tier 1 mean from a financial and a business model perspective? It really means three things.
Number one, the ability to maintain lower customer acquisition costs and generate increasing profits with more hardware volumes. Number two, run a lean business with strong balance sheet that is scalable. Number three, improve operating leverage through the software revenue stream. Now, let's talk about number one. MicroVision has already spent R&D dollars over the last several years to bring the products to the level of maturity where they stand today. In other words, we do not have to spend hundreds of millions of dollars to develop next generations of products. We have 300 engineers, and we need them to technically respond in detail for all these RFQs. Scaling operations with multiple customer wins will not require us to add proportional headcount to our engineering teams.
We see no need to double or triple headcount to support potential revenue growth. The resulting economies of scale would be expected to add significantly more revenue with limited addition to R&D expense, thereby translating into faster going operating profits. This is what will enable our business model to have lower go-forward customer acquisition costs and scale operating profits rapidly with higher volumes. We, as a management team, have been predicting for a long time now that this moment will come, which will shake up the industry. Now, given financial resources are limited, any LiDAR company that is investing in new products or saying it is investing in newer generations of the same product is, again, going on a cycle that is unaffordable as OEMs need solutions that are mature today, not in the future.
For number two, financial discipline is key. As we work towards building and establishing MicroVision as a strong Tier 1 partner to OEMs, we believe that we would be one of the last companies standing to capture the LiDAR market. Our financial discipline of having a burn rate between 65 million to 70 million a year is one of our greatest strengths, especially during the times when our competition has finally realized the importance of financial prudence, having raised three quarters of a billion dollars and burning through half of it in just two years. From a business model standpoint, we have always stated that partnering with an established contract manufacturing partner will be the most capital efficient way to execute. As we navigate the final rounds of these RFQs with OEMs, customary visits and quality audits and production facilities have been important for building customer confidence.
We have successfully passed such qualification visits. Now, finally, number three, and the most important one, having software revenue stream. The key to a valuable LiDAR business is supplying customers hardware with software integrated inside the silicon. To be valued as a high growth Tier 1 LiDAR solution provider, scale is achieved by securing additional customers or similar products with minimal customization in the software, which allows us to achieve economies of scale for the hardware. As we continue to strengthen our balance sheet, we are establishing a Tier 1 status amongst OEMs. Now let's dive into our numbers. First, let me take some pride in MicroVision's core values of leading by example and predicting industry trends and behaving like a mature public company.
I'm pleased to report that we reported revenue in line with our guidance. For the fourth quarter, we reported revenue of $5.1 million. This translates into full year 2023 revenue of $7.3 million that came in between our revised guidance range of $6.5 million to $8 million. Revenue in Q4 was primarily attributable to the Microsoft contract signed in 2017. We recognized $4.6 million of revenue from Microsoft representing the remaining contract obligation on our balance sheet. No new cash was realized against this revenue. With this revenue, there is no additional liability that remains under this contract as it expired at the end of December, 2023. The remainder of the revenue came from our direct sales channel from the sale of our hardware and software.
To remind investors, we revised our guidance from 10 million to 15 million to 6.5million to 8 million in November of last year as part of the Q3 2023 results. This was a result of some opportunities in the direct sales channel appearing to have moved into 2024. Across the board, we believe automotive OEMs are witnessing historically high levels of inventory coupled with the rising interest rate environments causing OEMs to be a bit more cautious in taking on new projects and moving timelines to the right. This has slowed down the sale of Mosaic as a validation software too. But having said that, we believe there continues to be a strong demand for LiDAR products evidenced by several RFQs in place as described by Sumit earlier. From a gross margin profile, the momentum continued.
And this profile, this quarter resembles that of a typical software business as demonstrated by a 90% adjusted gross margin in Q4 2023 and 80% gross margin on an adjusted basis in FY 2023. We continue to differentiate ourselves significantly from our peers who either have been upside down negative gross margins or near zero margins in both industrial and automotive verticals. As we have stated earlier, we expect these high gross margins to normalize as the revenue scales up and the mix changes to more strategic sales, including NREs. To support momentum in direct sales last fall in 2023, we also placed an order to build new MOVIA inventory with ZF Autocruise to help satisfy demand from non-automotive customers. We expect this investment in building our inventory to drive revenue growth in near term and beyond.
We're beginning to see medium to long-term partnerships with significant multi-year revenue opportunities even in the industrial sector, especially in forklifts and warehouse automation applications. Again, our business model is to be efficient and not go after 700, 800 customers in the industrial verticals as that is not a sustainable business model. We want direct sales to generate operating profits unlike some of our peers who are focused on revenue with a low growth margin profile. Now, let's talk about expenses. In terms of our expenses, we had approximately 24 million of R&D and SG&A in Q4 2023. Keep in mind, this includes $4.6 million of non-cash stock-based compensation and $1.6 million of non-cash depreciation and amortization. For the fourth quarter, $16.6 million cash was used in operating activities, which is in line with our previously communicated expectations of a cash burn between $65 million to $70 million on an annual basis.
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, full-year CapEx was $1.9 million, again, in line with our expectations. Our balance sheet, as of December 31, 2023, we have made most of the payments associated with the Oboe acquisition. A liability of approximately 3 million remains on our balance sheet as the final payment relating to this deal. A final agreement has been reached with the seller, and we expect to pay this amount in the next few months. Our total liquidity was $93 million as of December 31, including $74 million of cash and $19 million availability under the current ATM facility. On the basis of the annualized Q4 2023 cash burn rates of $16 million, we have a financial runway of 1.4 years and are fully funded until Q1 2025.
We have one of the cleanest capital structures amongst our peers. MicroVision continues to stand 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 continue to have a $35 million ATM facility on file to strategically raise capital as and when needed. To date, we have only raised approximately $16 million under this facility and have $19 million available. 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 finance 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 are well situated to deliver to OEMs. Now let's talk outlook for 2024. We're expecting at least between $8 million to $10 million in revenue from the following revenue streams. As of December 31, 2023, we already have a backlog of $3.1 million. This revenue is expected to come from, number one, revenue related to the sales of LiDAR sensors to both automotive OEM and non-automotive customers as the volume ramps up at possibly multiple locations in EU and North America from the customers. Number two, direct sales channels that include sale of our hardware to non-automotive customers and software that includes forklifts, warehouse automation robots, agricultural and mining equipment companies.
Number three, NRE or non-recurring engineering revenue from OEMs related to the customization of our sensors. I would like to provide more details on the guidance towards the middle of the year as we start reflecting the revenue streams from any RFQ wins and multi-year industrial sensor deals. From a cash burn standpoint, we expect the cash burn for 2024 to be similar to 2023, between $65 million to $70 million per year. We believe, we have all the necessary engineering resources to deliver on customer projects. As described earlier, with the relationship between revenue and operating expenses that we have modeled out, we expect to see reduced need 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 nominations, we are strongly marching towards pivoting to the market, our value proposition as a unique, well-positioned, Tier 1 LiDAR company in large and growing automotive and non-automotive markets. Operator, I would now like to open the line for questions.
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