MicroVision Inc (MVIS) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Microvision Incorporated earnings conference call. My name is Dominique, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Ms. [Terry] Bradford, Investor Relations Specialist. Please proceed maam.

Thank you. I would like to welcome everyone to Microvision's first quarter 2010 financial and operating results conference call. In addition to myself, participants on today's call include Alexander Tokman, President and Chief Executive Officer, and Jeff Wilson, Chief Financial 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 believes, estimate, expects, anticipates, target, plans, will, could, would, 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.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements, are included in our [static] Form 10K filed with the Securities and Exchange Commission under the heading Risk Factors Relating to the Company's Business, and our 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 have done in previous quarters, we asked for your suggestions for topics for today's call using our corporate blog. the Display Ground. The most popular topics were Green Laser forecast for the remainder of the year, additional information about the new low-power embedded engine and $8.5 million purchase order, and an update on the progress of SHOWWX sales through Microvision's online store. We will discuss each of these topics during today's call. I would now like to turn the call over to Alexander Tokman.

Thank you, Tiffany. Welcome, everyone. A quick disclosure before we begin. I'm battling the flu, so hence I apologize up front for any coughing or sniffling you have to endure throughout this call. Let's dive into operations. Just two months ago, we discussed Microvision's first historical milestone that occurred in late September of 2009 where we launched our first-ever consumer product based on the proprietary platform. I'm happy to say that in the first quarter of 2010, we produced additional two historical marks. First, we received the largest single order of $8.5 million for the newly designed embedded engine. And we also recorded a record backlog for all PicoP-based products totaling approximately $16.7 million. Both of these historical milestones are indicative of the strong demand we have experienced for the Pico-P-based products for accessory and the engine. Needless to say, we're excited about all of this. And we plan to deliver -- Based on the schedule of the $8.5 million order we have received for the embedded engine for the OEM to place inside its high-end multimedia player we plan to start delivering the first products in the third quarter, [throughout the fourth quarter], and finishing in the first quarter of the new year.

Most of you who follow us closely. Know that in the first quarter we [launched] our SHOWWX in the United States. The product, as you know, has won multiple, multiple awards, specifically taking first place [CES] innovation award for design and engineering. We won popular awards as the the [last gadget standing at CES] and finally, Best of Show at the Macworld. All of these are very good indicators that facilitate our plans for 2010. The production output and supply chain capabilities continue to improve, specifically in late Q1 with the recent addition of a second qualified Green Laser supplier. Although Q1 revenue does not reflect this slight March improvement, we converted a large percentage of approximately 3,000 Green Lasers available to us during this time into production units. Because we received most of the lasers in the last month of the quarter, and there is an acceptance period that follows for the final product, only a portion of those units that were shipped were recognized as revenue during the quarter, which means most of it will be recognized in the second quarter.

As I mentioned two months ago, we are confident in the increased production of Green Lasers for Q2 as well as for the second half of this year. We expect there to be some variability in the exact timing, but the overall ramp is consistent with our earlier guidance and should enable the fulfillment of the product deliveries in increased volumes to our distribution partners, as well as to give us flexibility to accept additional product orders moving forward. Other notable business and technical milestones achieved during the same quarter included, other than the launch of the Pico projector in US, also completion of the design of our engine and [shipping] the initial samples to several critical OEMs. As we launched the product in the US, the web sales have been in line with our expectations. Due to the limited supply, as was communicated earlier, we have not done any marketing to date other than the press release for the US launch. And as supply continues to improve, we will launch several marketing programs to help drive demand to our web store.

Turning attention to the display engine, just as a point of reference, the new engine contains the same small and [thin optimal] mechanical module, but now incorporates a proprietary small ASIC chip set that gives us the electronics package half the original size and also one-third less power. Still, with all these changes, we're able to produce the same beautiful images with WBGA resolution and vivid colors. We have begun, as I mentioned, shipping these initial samples of the embedded engines to select customers, and plan to work with these [customers] to develop their plans for product launches. Also in the first quarter, we are proud to say we received several acknowledgments reflected to our intellectual property. We were recognized by two prestigious organizations, IEEE and Patent Board. First, IEEE ranked us for our IP as 13th overall in a patent pipeline power out of all global companies. We were also ranked as number one US Company in the sector of electronics. This is the third year in a row we have been included in top 20, progressively improving from 20 in 2008, 17 in 2009, and finally 13 in 2010. The Patent Board, which publishes their findings through the Wall Street Journal releases, also released their markings and we made top 50 for the second year in a row and moved to 38 from 43 a year ago. At this point I'm gong to stop and pass to Jeff, who will provide you with financials.

Thank you, Alec. The following financial results are for Q1 this year compared to Q1 of 2009. Revenue was $668,000 compared to $951,000. Our revenue has decreased as we transition away from our historical reliance on contract revenue and begin [full mobilization] of products based on our PicoP technology. The revenue for the quarter includes about $264,000 of accessory projectors. That does not include approximately $300,000 in projectors that were shipped prior to the end of the quarter but were not accepted until Q2. As we stated, we ended with a backlog of $16.7 million compared to $617,000 last year. The record backlog is composed almost exclusively of orders for the PicoP embedded engine and the SHOWWX for the PicoP Laser Projector, and are scheduled for delivery in 2010 and early 2011. Our cost of product revenue was $1.2 million compared to $241,000 last year. As is often the case with the introduction of new products, the cost of the initial units are higher than the sales price. Our cost of product revenue is comprised of three major components -- material cost, which includes the cost to manufacture the unit at Asia Optical, overhead, which, supply chain cost occurred here at Microvision, and, in our case, a lower cost of market adjustment to reduce the cost of our inventory to its expected selling price. In Q1, the lower cost of market adjustment was $756,000.

As our volume increases and our manufacturing processes improve, we expect our margins will also improve. The operating loss was $9.5 million compared to $9.1 million last year. The increased operating loss due to both higher operating cost attributable to launch of SHOWWX, and lower contract revenue in 2010. But a net loss of $9.1 million or $0.10 per share, compared to $8.9 million or $0.13 per share last year. The net cash used in operating activities was $9.7 million, compared to $8.8 million last year. The increase is attributable to a higher net loss and an increase in working capital requirements to ramp SHOWWX production. Included in the working capital increase, are inventory increase from approximately $900,000 at the end of 2009 to $3.6 million at the end of Q1. Our inventories are comprised primarily of raw materials and finished units for the accessory projector. And we are in the process of increasing our production from Q1 to Q2 to fill existing orders. At the same time, the lead times for many of our components, particularly ASICs, have increased dramatically. We have increased our inventory levels to allow for smoother ramp in production. As our supply chain becomes more mature and predictable, we plan to reduce our inventory levels as a percent of cost of revenue. We ended the quarter at $35.6 million in cash, cash equivalents, and investment securities. With that, we will turn it over for questions.

(Operator Instructions). Your first question comes from the line of Yair Reiner. Please proceed.

Hi, this is Michael [Sair] in for Yair Reiner. To make sure I have this right, you mentioned there are $756,000 of inventory write-downs, implying you really had about $400,000 of material costs in overhead for product?

Yes, about $450,000, yes.

Okay. All right. That definitely explains a lot. Could you talk about -- maybe you can't give specific [AHPs], but is this still kind of half of the MSRP, or did you find that you had to try and drive adoption by further cutting AHPs?

When moving units through several different channels in the US, Europe and Asia, and depending on the channel, the transport price differs. Obviously, depending on who the end customer is and what channel they receive the units is reflected in the price to accommodate for all the margin necessary to fulfill that specific channel. So again, the highest price is what we sell ourselves, but all of the people who sell our units globally are around the same MSRP as Microvision.

So, then do you value inventory at the lowest price, then?

We value the inventory on the lower cost-of-market basis. As costs for components are going down, we will have to write the existing inventory down to that lower cost of market.

Great. Is there a significant AHP change quarter-over-quarter?

No. There hasn't been any significant changes to the AHP

Okay. That's very helpful. Do you have any kind of more definite timeline for the delivery on your backlog? You mentioned 2010 and early 2011.

The embedded order -- just to clarify, the backlog for the accessory projector is targeted for 2010. The $8.5 million order for embedded engines, for the most part is in the second half of this year and some of it spills into the first quarter.

Got it. And I guess final question from me, do you have any sense of how OpEx might trend in the next quarter?

We're not expecting any significant changes to OpEx overall. There will be a little bit of change in the mix, but no overall significant changes.

Okay. Thanks very much.

Thank you.

Your next question comes from the line of Joseph Dubois from Morgan Stanley/Smith Barney.

Alec, when you say the embedded engine, is that based on the new ASICs and the new power requirements et cetera that you announced recently?

That is correct, Joe.

Okay. And one other question. You mentioned all Pico-related products, the backlog, the engine. Other than the stand-alone in this new embedded, what other Pico-related products are driving this revenue?

At this point in time, Joe, it's SHOWWX and embedded engine, and if anything else becomes part this, we will communicate it.

Okay. One last question. It sounds like you're getting more and more comfortable with your Green Laser supply. What about production capacity?

What we're trying to do, we're trying to gauge what we receive from Green Laser suppliers and adjust our own capacity of Asia Optical [corneal] because we don't want to overspend and basically have much larger capacity than we have the components that we use on weekly basis. We're updating in our internal guidance to understand we're still consistent with what we expected and we are adjusting our CapEx investment according to what we see in the increase of Green Lasers. In terms of the increase in Green Lasers, as I mentioned earlier, it's very close, similar to the guidance that was given two months ago.

Thank you.

Your next question comes from the line of [Phillipe Letcher]. Please proceed.

Yes, Alec. That additional order for $8 million of the embedded piece, is it to one customer only? Or is it a few of them?

It's one customer.

Just to clarify, the $8.5 million order is to one customer. The remaining, approximately $8 million of backlog is for accessory projectors to several different customers.

Okay. And can you give me a guidance of how many units is representative of $8.5 million?

At this point, we would like to not comment on this because it gives away a lot more competitor information we are not willing to give at this time.

Okay, thank you.

This concludes the question-and-answer session of this call. I would like to turn the call back over to Mr. Tokman for closing remarks.

I think everyone, I believe, can taste and feel that we are at this critical threshold in the evolution of Microvision from a government and commercial contracts Company to a full-fledged products Company. Obviously, we are at the beginning of this transition, but the indicators I hear, consumers are looking for better ways to view and share information. And we are building a product or series of products and infrastructure to become a leader in this growing space. Many of you probably have seen the [Display Surge] forecast that the total Pico projector market will grow to about 142 million units or $14 billion in revenue by 2018, and at a compound growth rate of approximately 70%. According to Display Surge, many of you know it's not a surprise. Some of the older technologies such as [Alcors] and [ELP] are taking the lead in 2009-2010, basically in the short term. However, Display Surge confirms that the fastest growing technology from that point on is expected to be the kind of [immense] solution, which is what we are producing here in both unit growth and revenue.

Although not all the critical indicators, such as revenue around and increased Green Laser production, are yet visible externally, others are beginning to take shape. The high demand, the record backlog of orders for both accessory and the engine, improved Green Laser supply, further maturation of our production line, all of these factors strongly support our 2010 anticipated revenue growth. I think you have to agree with this based on the recent data just presented by Jeff and I. Before we close, I would just like to make one last plug. The Society for Information Display is around the corner and it's in Seattle this year. I invite all of you to come and spend time in person with some of the day-to-day heros at Microvision who are making all this possible for us and for you. Thank you.

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