MicroVision Inc (MVIS) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Microvision Incorporated earnings conference call. My name is Luisa and I'll be your operator for today.

(Operator Instructions)

I would now like to turn the call over to Mr. Jeff Wilson, Chief Financial Officer. Please proceed, sir.

Thank you. I'd like to welcome everyone to Microvision's third quarter 2009 financial and operating results conference call. In addition to myself, participants on today's call include Alexander Tokman, President and Chief Executive Officer.

The information in today's conference call may include forward-looking statements, including statements regarding projections of future operations, product development, applications and benefits, availability and supply of product and key components, business partnering expectations, market opportunities, and growth and demand, as well as statements containing words like "believe", "estimate", "expects", "anticipates", "targets", "plans", "will", "could", "would", and other similar expressions. These statements are no guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are included in our most recent annual report on form 10-K, filed with the Securities and Exchange Commission under the heading "Risk Factors Relating to the Company's Business." And there are other reports filed with the Commission from time to time.

Except as expressly required by the Federal Securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in circumstances, or any other reason.

As we've done in previous quarters we asked for your suggestions for topics for today's call using our corporate blog, The Displayground. The most popular topics were an update on our supply chain partners and manufacturing capacity, details of our recently announced distributor and OEM relationship, the status of additional customer agreements, details on the timing for online availability and US distribution of SHOWWX, and status on PicoP's display engine development for embedded applications. We have addressed some of these in today's press release, and we will also be discussing each of these topics during today's call.

I now would like to turn the call over to Alexander Tokman. Alex?

Thank you, Jeff. Good afternoon, everyone. Thank you for joining Microvision's third quarter earnings call. I will just dive into the results.

Most successful companies, as they grow and evolve, typically reach memorable milestones that shape their future for years to come. The third quarter of this year was, in many respects, a historical milestone--historical quarter for Microvision, as we reached three important corporate milestones in the commercialization of our PicoP technology.

First, we launch our first PicoP-based product called SHOWWX, which is the world's first laser projector. Second, we receive our first purchase order to distribute SHOWWX. And third, we secure our first global OEM to private label of this product.

Our Asian distribution partner is Mint Technology, which is a subsidiary of Mint Wireless, which has already issued a press release revealing that the global OEM that will private label or Pico projector is unit incorporation. Mint is a strong distributor of mobile products in Australia and New Zealand, and throughout the Asia-Pacific region. These products include digital cameras, digital photo frames, as well as other novel products, which include Pico Projectors.

Uniden is a global player in wireless communications and global brand in consumer electronics. They will private label our product this year. Uniden has invested considerable amount of marketing dollars to roll out the first Pico Projection product based on our technology.

All of these events, hopefully, you can see, demonstrate the appeal of the new and emergent product category, which is targeted for both consumers and business users.

Many of you already know that our SHOWWX laser Pico Projector uses our display engine, which typically delivers colorful, very large images to create a truly big-screen viewing experience from a device about the size of a cell phone. In fact, we can project images up to 200 inches across, depending on the ambient light conditions, without ever having to adjust focus. That is about two to three times greater than any of the competitive offerings.

Many of you who don't know, our Pico Projector is a very simple plug-n-play device for people on the go who want to spontaneously view and share multimedia applications, and programs, such as mobile television, movies, photos, user-generated content. Users typically can seamlessly plug the projector into their IPOD devices, portable media players, and other mobile devices, which brings me to the next topic.

Not every product can have "Made for IPOD" logo on it. This logo indicates that our projector has been designed specifically to work with IPOD products. Microvision has gone through a five-step process, and certified that SHOWWX has been made in accordance with the high standards of quality and performance that you expect from Apple Ecosystem players.

Why is this important? According to media sources, there are more than 220 million IPODs sold today. The preliminary feedback we have received from prospective users have been very positive. They recognize the value of the unique competitive advantages of the PicoP technology, including the thin form factor, high resolution, infinite focus, and long battery life.

As an example, very recently we have completed a participation in a trade show in Japan called CEATEC, where multiple parties have showcased their new projectors. Engadget Report has provided some of the coverage on what they seen at the show, and I'm going to read you a quote from one of their takeaways. "We stopped at Microvision's booth at CEATEC in order to take a look at what makes the world's first laser-based Pico Projector so special. And we can honestly say that the picture was pretty stunning." This is a quote from Engadget Report.

Let me just focus for a second on other important milestones that we were able to achieve during the same quarter. Recall that in a move to further strengthen our supply chain capabilities, we have signed a long-term agreement with OSRAM Semiconductors for supply of green and blue lasers.

Many of you know that securing a second source for green lasers, which is an integral component of our PicoP display engine facilities our go to market strategy, and should enable increased product availability late this year and early next year.

We have also received $1 million subcontract from Lockheed Martin, to support DARPA Awareness and Visualization program. This contract is important to our longer-term strategic needs, as it provides a funding opportunity to advance our eyewear technology for a variety of military and consumer full-color eyewear applications.

As a bonus in third quarter, we have also received important acknowledgements from two unexpected sources. First, we were selected by a company called Patent Board, as one of the "Top 50 Movers" in technology state.

The Patent Board, for people who don't know, is a leading business-based patent advisor to Fortune 500 companies, and they advise Fortune 500 companies, emerging technology companies, and assess their IP portfolio strength. And the company has developed more than 50 indicators to track the global patent activities of a variety of companies around the globe, and we broke into top 50 for the first time and made number 43 on that list. The companies--two companies that just above us include Mitsubishi and Kodak. So, we're an impressive Company.

Second, we were identified by a Pacific Northwest business publication as one of the top 100 companies in Washington to work for, which is a pretty good acknowledgement for the people we have here at Microvision. We made number 27. The characteristics that were used in assessing the Company--best companies to work for included communication, decision-making responsibilities, performance standards, leadership, and the corporate culture. Again, all of this attribute of all the people that have made everything possible here in Redmond.

Before I pass the baton to Jeff to discuss financial results, would like to stress that in Q3 we continued to focus most of our resources on commercialization of the PicoP-based product, while still aggressively managing operating costs and cash burn. As a result, we have reduced our quarter-to-quarter operating and net cash burn for the third time this year.

And Jeff will provide you with more details. Jeff?

Thank you, Alex.

For the nine months ended September 30th, we reported revenue of $2.9 million compared to $5.1 million for the same period in 2008. And for the third quarter, we reported revenue of $924,000 compared to $894,000 for the same period in 2008.

At the end of the third quarter, our backlog totaled $2 million, compared to $647,000 last year. The year-to-date decrease in revenue is primarily attributable to lower backlog at the beginning of 2009, which is a result of our strategy to focus most of our resources on commercializing the PicoP products.

We report an operating loss for the nine months--first nine months of 2009 of $27.9 million, compared to $25.3 million for the same period last year, and $9.3 million for the third quarter 2009, compared to $9 million for the same period last year.

We also report a net loss of $30.8 million, or $0.43 per share for the first nine months of 2009, compared to $22.7 million, or $0.38 per share for the same period last year. And $11.5 million, or $0.15 per share for the third quarter, compared to $8.4 million, or $0.13 per share for the same quarter last year.

The net loss for the third quarter and the first nine months of 2009 include a non-cash loss on derivative instruments of $2.2 million and $3 million respectfully. This is compared to a gain of 585,000 and 2 million for the same periods in 2008.

As you may recall from previous quarters, the loss on the derivative is due to the change in the value of investor warrants that were issued in the Company's past financing transactions. The value of these warrants increases as our stock price goes up. But, there's been no change in the terms of the warrant.

The net cash used in operating activities for the first nine months of 2009 was 23.4 million, compared to 22.3 million for the same period last year. For the third quarter, our net cash used in operating activities was 7.1 million, compared to 7.6 million for the second quarter of this year.

The reduction in the quarterly cash burn was primarily a result of our cost-reduction efforts we implemented in the first quarter of this year. The net cash burn for the third quarter was partially offset by the receipt of 1.5 million from the exercise of investment warrants, and 300,000 for other investing and financing activities, resulting in net cash usage of 5.9 million for the third quarter of 2009. We ended the quarter with 20.5 million cash equivalence in investment securities.

Alex?

Thank you, Jeff. I think we can open up Q&A.

(Operator Instructions)

And your first question comes from the line of Chris Schwab with Craig-Hallum Capital. Please proceed.

Thank you. Can you guys give us an update on the number of green lasers that you would expect to be able to secure in 2010, given your supply agreement?

Christian, this answer is probably on the mind of everyone on this one call. All we can see in this point in time is that, as you know, we have two green laser supplier. Corning, right now, is the primary green laser supplier in which we built all the units--most of the units in 2009. The OSRAM will come online at the end of this year. And we expect increasing values.

Corning continues to scale up production as quickly as possible to support us, as well as other customers for its G-1000 green laser.

And honest--and true to many new complex technologies, the path to commercialization of laser-based devices have not been without its challenges. But, we see very strong plans from both green laser suppliers to increase the volume, reach steady-state production, and making that a non-issue for 2010.

Can you walk us through how you would expect green laser pricing, which is pretty high right now, obviously, what you're being told the cost curve will be over the next couple of years?

It'll obviously be function of volume and, again, it, initially, as it's with me, new technologies you expect higher prices. But, as the volume reaches numbers measured in millions, it becomes less and less of an issue, and we expect that that's the trend that we'll reach sometimes in late 2010, earlier 2011.

Do you think the pricing will come down enough in late 2010 to have it embedded into a cell phone, given production data that OSRAM and Corning and sharing with you?

That's the current plan, Christian. Keep in mind, there is at least six other companies that are developing green laser, either based on frequency-doubled technology, which is what Corning and OSRAM are doing today, as well as developing direct green solutions, which are expected to be less expensive.

Obviously, timing is everything, but we expect to have at least two green laser manufacturers online in full production, and expect to have new entries in the second half of 2010. So, the competition is going to help everyone.

Has Uniden shared with you any unit expectations that they plan that they'll be able to ship in 2010?

Yes. They express an interest to follow up after the initial roll out in 2009. That's our current understanding.

But, they haven't shared in a number, measured in the tens of thousands or whatever--.

--Yeah--.

--That they could ship?

It's order of magnitude, larger number than what we've given to them next year.

Thank you.

Thank you.

Your next question comes from the line of Jed Dorsheimer with Canaccord Adams. Please proceed.

All right, thanks. Maybe just a follow-up on some of Christian's questions. What do you expect in terms of your capacity to be, as we look in 2009 and 2010, providing there is not an issue with green lasers?

Today, Jed, most of our capacity's concerning buy a green laser. In 2010, we don't expect this to be a problem. So, the goal is to have at least hundreds of thousands of units available for consumers worldwide.

Hundreds of thousands of units? And would that be for just the accessory products?

Based on demand we're feeling today, it appears to be that we should have at least that level of demand in 2010 for accessory. And as well as potentially late 2010 entries for embedded applications, but, again, as you know, ultimate go to market timing will not be dependant on us for the embedded applications. We will provide the engines. But, when they will be converted into product, ultimately will be determined by the cell phone manufacturers, digital camera makers, and other consumer (inaudible).

And how many partners will you be going to market with, with an accessory, in '09 and then 2010?

In '09, we should have--we're planning to have at least three consumer electronic partners. And 2010, obviously, the list will increase, as we have higher capacity.

And are you looking at sort of a 5,000 to 10,000 unit number for each one?

Very good question. I would like to defer this to basically to allow each customer to announce their own launch plans, and then communicate directly through their channels what exactly they're going to introduce, and in which regions, without stealing their thunder.

Got you. So, let me ask it in a different way. If each one of the three go with 10,000 units each as their plan, will you be able to supply to meet those needs?

In 2009, most likely not, but in 2010 we should not have any problems.

Got you. And then, would you be able to meet about half of that in 2009?

Just be patient a little longer. The partners will come out with their own announcement and communicate what exactly they're selling and to whom, within very short period of time. So, just be patient a little longer.

All right, thanks.

Um-hmm.

(Operator Instructions)

And your next question comes from the line of [Randy Hoff], private investor. Please proceed.

Alex, thanks for taking the call and the question. Great quarter, great accomplishments. Again, following in the same stream with the last two questioners, talk a little bit about the path to market entrance in the US. If we're starting out in Southeast Asia, in Australia, in that area, and these new OEMs come onboard, can you give us any picture about when this product in 2010 or '11 might be available in quantity in US?

Based on our current assessment of supply and demand for the fourth quarter of this year, we anticipate that most of the accessory volume will be shipped to IEM and distribution partners in Asia and in Europe. As a result, we anticipate to begin Microvision Direct campaign in the US in Q1 of next year.

Okay, great. All right, but I want to get my hands on one of them. All right, can you give us any fleshing out, not that this is not enough on the plate. It certainly is. It's pretty impressive. Other applications that you might be working that we've talked about in the past and where they are in the process, such as the eyeglasses, and military applications.

I'm going to give a short answer, and I'll try to amplify. The short answer, please schedule a trip to see us in MacWorld this year, and we will be showing certain things in private settings that we typically do not show publicly.

But, to amplify a little, besides the eyewear, we also have some very interesting extensions of these typical projection applications, which focusing on gaming, as well as other very unique offerings that can only be enabled through our proprietary technology.

And are those--is that, what, a 2011 timeframe? And is it too soon to say that simultaneous introduction of a number of different applications might be impeded by supply of green laser and the ASICs and all that sort of thing, or is that not going to be an issue when we get out into the late-2011, early-2012 timeframe?

We're constantly looking at the new vertical markets that take advantage of the similar technologies that is inside the accessory projector, and later will be inside cell phones. And these applications not just include projection applications. Our technology is fully reversible, which means we can use it for imaging, as well as presenting an image. We can capture an image. And combination of these too powerful features in one device gives us certain unique offerings that nobody else can touch.

For example, ability, with high precision, to diagnose and measure something, and then display it is only something that we can do, because we use MEMS mirrors and because we use lasers. And without--I can't give you any details on the phone, because we're not ready to discuss this. But, all I can tell you is that you will see some of the initial demonstrations of variety of these applications next year, starting out here.

Okay. So, we're talking to you. So, if I understood what you just said, and then I'll drop off, we're talking about having a dual-purpose device, potentially, where we have a camera, basically, if I understood what you said, and a projector built into the same unit.

This is one of the applications that we could bring to the market, and obviously we need to define pulling partners for each one of the initiatives that we have to take us to market. But, yes, this is one of the possible applications that could be derived from the technology that we already have today.

And your next question comes from the line of Joseph Dubrof with Morgan Stanley. Please proceed.

Hey, Alex, how are you?

Hi, Joseph.

Alex, at one point do you think your partners will be at a point of stability to where you'll really be able to give us some estimates and some numbers? I know you're not comfortable doing it right now, because you just can't get a feel yet from your component suppliers. But, when do you think they'll hit that point?

I think it's 2010, Joseph, when we have--when, specifically, green laser suppliers and the rest of the supply chain hits, then you state volumes and we fully understand the yields and throughputs. So, it'd be easy for us to know, first, what the capacity within high probability. At the same time, we will know what is the demands in front of us, and we'll be able--we'll probably--will not guide anybody to any specific numbers until that time, when we'll give you a little more clarity in terms of the units, what will we expect to see in 2010?

Because at some point you're going to have to give the analyst community something to feed on and do their reports on and I'm--.

--Yeah--.

--Looking forward to that day.

Yeah.

Okay. Thank you.

With no further questions in the queue, I would like to turn the call back over to Mr. Alex Tokman for closing remarks. You may proceed, sir.

Thank you. Well, Q3 was a historical quarter for us, but we're not quite done yet with making history. The elements of our future success, which are at the center of Microvision's radar include, first of all, ramping green laser volume and product supply, developing new customer for accessory and embedded applications, as well as developing, to Randy's questions, a radically new use model and applications that will take our technology well beyond the basic projection applications.

As consumer become more accustomed to accessing information through mobile devices, such as Smartphones, media players, and smaller computers, this type of functionality will be a must in any device. The market is still in its infancy, and we believe we are on the fringe of tapping into significant market opportunity.

All of these reasons--for all of these reasons, we're optimistic about the future, and so should you be. Thank you for joining us, and looking forward to speaking with you in three months.

Thank you for your participation in today's conference. This now concludes the presentation. You may now disconnect and have a great day.