MicroVision Inc (MVIS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 MicroVision Incorporated earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Tiffany Bradford, Investor Relations. Please proceed.

Thank you. Good morning everyone. I'd like to welcome you to MicroVision's first-quarter 2011 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 in demand, as well as statements containing words like believes, estimates, expects, anticipates, targets, 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 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 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.

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

Thanks Tiffany. Thank you everyone for joining us this morning. The outline for today's call will be as follows. I will begin with a business update. Jeff will follow with financial results, and we will close with Q&A.

If you recall, in February, we communicated our three primary objectives for this year. The first one was to complete development of our new next generation direct green PicoP display engine for early sample availability at the end of this year and for commercialization in the first half of 2012. The second one was sell more of our award-winning products to obtain moderate growth in revenue, and final one, simplify operations to reduce the cash requirements for the year by 40%.

While I am pleased to tell you that we made solid progress in all three areas, let me highlight each one separately, starting with the direct green laser engine. Recent terrible events in Japan had a significant socioeconomic impact on citizens and many businesses in the country. Our thoughts, sympathies and prayers go to the residents of Japan and their families, specifically those who were impacted by earthquakes, tsunami or reactor spill.

Fortunately, our joint development program with Pioneer Electronics is moving forward and has not been disrupted by these events. Pioneer's headquarters are located south of the areas that were most heavily impacted by these disasters. As a matter of fact, I just visited Japan about a month ago, and Pioneer's senior management reiterated their commitment to the program schedules. Both MicroVision and Pioneer are devoting substantial resources to this effort to make sure that we are delivering it on time.

We have also visited and reviewed the direct green development programs with several suppliers. Our current assessment is that they are on track for commercial introduction between end of this year and middle of 2012. All of this is consistent with our previous expectations.

As a result of all of this, we are also on track to see the initial direct green engine samples to OEMs for evaluation and testing in the later portion of this year with the expectation that a subset of them will adopt our technology and introduce their own products about a year later. The commercial distribution of the actual engine to other parties is still planned to begin the first half of 2012, and Pioneer's aftermarket head of display is expected to be the first product that will leverage our new display engine.

Let me move to the second goal, selling award-winning products and moderately increasing revenue. I am happy to say that we were able almost to double the product revenue last quarter from the previous quarter and also from the quarter from a year ago, all thanks to the levers that were implemented in the latter portion of 2010. We hired dedicated regional staff in the Americas, EMEA and Asia-Pacific who are adding new distributors globally. We introduced also a new product in late November with better performance, more features. We are pleased to say that not only this product won awards, industry awards, it's also one of the best-selling Pico projectors on Amazon. We obviously expect to continue to introduce new accessories and new features to our products to enhance user experience and increase the addressable market for Pico projection devices.

The final goal was reducing the -- simplifying operations to reduce operating cash requirements for the year. In Q1, we reduced the operating cash requirements by 27% versus previous quarter. This reduction is well in line with our target of reducing the annual cash used in operations by 40% from 2010. We also anticipate -- and Jeff will tell you more about this -- that our cash needs will continue to decrease in future quarters as the impact of the changes that were made in earlier this year will take full effect.

A considerable contribution to the operating burn reduction this year is expected to come from leveraging new partnerships in commercializing our new products and platform. We made a good progress in negotiations with several ODM and electronics go-to-market partners to design and manufacture our future products and electronic subsystems. This is -- this will allow us to accelerate time-to-market for new products and also to reduce and reallocate internal resources onto the high ROI areas, such as display engine innovation and (inaudible) applications.

One of the most recent moves that we made, you've probably read about it, was opening an office in (inaudible) partnership in Singapore with the NTU, or Nanyang Technological University. We announced this a few weeks back, that we opened an R&D and operations center. This is a strategic deal for us as it allowed us to achieve several important objectives. First of all, it's about technical innovation. The NTU is the world's largest technical university by a population with spreads of sciences and technologies. This relationship has opened the door to a wide range of technical resources in the areas of photonics, laser sciences, micro electronics, materials sciences and nanotechnologies. Our physical presence on campus will allow us to work side-by-side with the outstanding faculty and student body. We believe this will lead to new innovative ideas and new applications that will leverage our proprietary and disruptive technology.

Second, it's about cost efficiencies and synergies. The new center serves as a cost-effective means for us to expand our research and development initiatives outside of Redmond. Additionally, Singapore government offers attractive financial incentives for new disruptive technologies that are cultivated in Singapore, which range from R&D subsidies to tax breaks.

Finally, it's about location. Singapore is centrally located and allows us to better support our manufacturing partners, better support our customers. I don't know if you know this, but 40% of global mobility market is in Asia and puts us closer.

At this point, I will let just to provide you with financial results.

I'd like to start the financial discussion with some comments regarding this morning's announcement on our new equity facility with Azimuth. As you may know, we entered a similar facility in August of last year. It has proved to be a cost-effective method for raising capital, and we've raised about $25.5 million today using the facility. We have about 2.6 million shares remaining under the 2010 facility. We believe this is a good time to enter into a new facility to keep our financing options open for future cash needs.

Moving to the financial update for the first quarter, as Alex discussed, we've made significant progress on our goals of increasing sales of our PicoP-based products and reducing our cash used in operations significantly compared to last year. I'll go over some of the details of our revenue, operating and net income, and finally our cash position.

During the first quarter, revenue increased to $1.1 million compared to $668,000 for the same period a year ago. Product revenue increased to $886,000, more than double from the fourth quarter of last year. We are continuing to expand our distribution channels and believe we are well positioned to reach our full-year objective of a moderate revenue increase over 2010.

Our operating loss was $9 million for the first quarter, compared to $9.5 million for the same period last year. As you will recall, we took a number of steps in late 2010 and early 2011 to reduce our operating costs. These steps included reducing our work force and reducing our investment into synthetic green laser platforms. As a result of these actions, we've reduced our operating expenses by 12% in the first quarter compared to the fourth quarter of last year. We expect the full impact of these actions will result in greater reductions in the future quarters of 2011.

Our net loss for the quarter was flat at $9 million, or $0.09 a share, compared to $9.1 million or $0.10 a share the same period last year.

We ended the quarter with a backlog of $1.5 million. As you'll recall, in 2010, MemoryKick, also known as NionCom, placed orders totaling $11.9 million for PicoP display engines that it plans to embed into a high-end media player. There are recent discussions with MemoryKick. We have learned they have again delayed the launch of their product into the second half of 2011. This has introduced additional uncertainty about the commercialization ramp of their high-end media player. Consequently, we have removed these orders from our backlog until more information regarding the timing and quantity of engine deliveries can be established. As we discussed in February, we are repurposing the inventory for repurchase to fulfill this order for future [Shutteby] (inaudible) orders.

Also as we discussed on our previous call, we do not include the revenue from this order in our 2011 revenue forecasts. So with this adjustment, we still expect a moderate increase in our revenue for the year.

Our cash used in operations for the first quarter was $8.1 million, compared to $11.2 million for the fourth quarter of 2010. This represents a reduction of 27% and is in line with our overall goal of reducing cash used in operations by 40% for the full year. We ended the quarter with $14.5 million in cash and cash equivalents, which includes $3.1 million raised during the first quarter through our 2010 equity financing facility.

In summary, we are tracking to our plans for 2011 of moderate revenue growth and a 40% reduction in cash usage, while maintaining our progress on the next-generation PicoP engine development. With that, I'd like to open the call for questions.

(Operator Instructions). Richard Shannon, Northland Capital Markets.

I guess my first question is regarding your new distribution and sales strategy. It looks like you had some nice progress here in the first quarter. I'm wondering if you could discuss any of the metrics to track progress going forward. I think you talked about a number of new distribution channels. Can you quantify that and maybe give us a goal of what you'd like to get to throughout the rest of the year to get to your sales forecast goal for the year, and any other dynamic you think will improve that?

There are really two levers that we'll dial up this year to get moderate growth on revenue. First one, like you said, increasing our presence globally by having a not only local presence that develops the strategic support for the local distributors, but also improving our marketing and sales tools to ensure that everybody realize the benefit and the value of the product.

The second lever is innovation. So we are going to introduce enhancements throughout the year and enhance our existing product portfolio by adding new features that will allow us to reach out to a larger addressable market beyond Apple and beyond laptops, as well as introducing certain accessories to facilitate use models.

We're trying to boost the concept of entertainment on the go, business on the go. To do this, we were creating a variety of tools to make, for example playing gaming on a mobile device is easier to facilitate business applications.

The final variable that will help us to do this really is outside of our direct control, and it's the evolution of the ecosystem. To give you an example, just last year, there were very few devices that were able to output video out to be connected to the external projectors. Apple was only one of the very few OEMs who actually allowed to do this. This year, the ecosystem is changing and there is an onslaught of new tablets and new smartphones that actually output video out via HDMI or other channels. We are adapting to this development and we expect to address this very shortly.

Okay. Maybe a follow-on to that -- you specifically mentioned Apple. I think you've talked about regaining certification there. Do you have any idea how much of your current SHOWWX products sales are driven by people -- customers desiring the Apple certification and using related Apple products?

I don't -- it's a very good question because a lot of volume goes through our distributors not (inaudible) so we only have -- as you recall, we have a direct channel and we have a distribution channel. Most of the volume is going through the distribution channel, so we don't have direct feedback from the users. But if we use the direct as an example, I think that I would say majority, three-quarters of the users today would be someone with iPad, iPhone or iPod Touch rather than laptop usage.

Great. Next question I think probably also for you Alex. You've talked a lot about your relationship with Pioneer, specifically in the automotive heads-up display. I'm wondering if you could give us a little bit more of an update on your conversations with partners in other end markets. Obviously, everyone is interested about the smartphone and related mobile products market, [but] any other markets in which conversations have advanced in. What stages are we at? When do you see a potential for future progress and potential announcements of any said partners?

These developments are also progressing. We have been in close contact with quite a large number of cell phone manufacturers, carriers, and consumer electronics players. And so we know -- they know us and we know them pretty well over the past few years. We do have good relationships.

One of the things that we were challenged today and in the past, as you know, with Percival was availability of quantities of units base because they were limited by the synthetic green lasers and finally by the cost of the device, because synthetic green laser is a very expensive device. They are right now anxiously awaiting for us to complete the development with Pioneer, get the initial samples out sometimes in the fourth quarter of this year to start testing, evaluating, and confirming all of the expectations that they have of this technology. They express -- everybody expressed the desire to put something inside their device that is focus-free, easy to use, and something that doesn't consume a lot of power. We believe we're going to have the solution to address this. Direct green gives us not only ability to grow volume, but also takes care of cost constraints that we are experiencing today with synthetic green engine. So we are -- I would say we are on track and right now people simply anxiously awaiting for us to complete the development, give them the early samples so they can start making decisions for their future product lines.

Okay, great. Then one last question for me on financials. Jeff, any way you can quantify what your target OpEx is ending the year? Obviously, you talked about reducing the OpEx. What kind of a number we should think about by the end of 2011?

Sure. So if we go back I think in the first quarter ,I think we said we were targeting 20%, 25% overall reductions in operating expense. I think we are still tracking to that expectation.

Great. Thanks a lot guys. I'll jump out of line.

Michael Tu, Oppenheimer.

Thanks for taking my question. Did you have any significant inventory write-down in the quarter?

We had a moderate inventory write-down for the quarter. I think we're in the $400,000 range mostly on new material that was still coming in on noncancelable POs, writing that down to (inaudible) cost of market, but nothing like we've had in the prior quarters.

Okay. Going forward, I don't suppose that will be much of an impact?

No. I would not expect it to be.

Okay. In terms of the backlog, do you think you could provide any more color or comfort, like how confident or how non-confident are you guys on this product being launched? Why is being delayed for the [fair] time?

That's a great question. As Jeff mentioned, we had recent communication with the executives from MemoryKick, and they communicated there's some difficulties with their initially planned Q2 launch of the media product. They're now guiding us to the second half of 2011. Based on all the information we had, we decided basically clean slate, and once they come back to us with realized schedules and realized volumes, we will be able to reinstate something. But again, it's going to be dependent based on their ability to complete the program.

What's causing the delays? There are a variety of reasons. Some of them were technical. Some of it is related to product features, functionalities, etc. Obviously, we don't have all the details, and you'd probably have to ask directly MemoryKick what is (inaudible).

Okay. So did you already purchase any inventory for that (multiple speakers)?

Yes, so just to go back, if you go -- originally this (inaudible) scheduled for delivery in Q3 and Q4 of last year. So the ramp in inventory in the middle part of 2010 and late -- or middle to late 2010 was largely related to being prepared to deliver this order. As we talked about at the end of the year, we were able to take that inventory, since it is at the component level, and repurpose it for the SHOWWX+. So that process was already in play.

Okay, that's good to hear. And just a real quick housekeeping question. What was your average diluted shares in the fourth quarter?

At the fourth quarter? It's approximately 100 million shares. I'll get you an exact -- I'll have to get you an exact number. Shares outstanding at the fourth quarter was 102 million shares was outstanding. The average number -- I'd have to get to the K to get that, but it was pretty close to the 102 million.

That's fine. Thanks.

Diane Daggatt, McAdams Wright Ragen.

Good morning. Two questions. First, can you talk about the new $40 million facility with [Us News]? Are there certain share parameters and price limits? Then second, I was wondering about OSRAM. It's been in the news that Siemens is starting some of its legging divisions and mentions OSRAM lighting. So I'm wondering if OSRAM is still going to be one of your suppliers. Thank you.

I'll take the second one and Jeff will come back with facility. Fundamentally, yes. So Siemens announced that they want to spin out OSRAM semiconductors as an independent entity. I think -- first of all, it should not affect anything that we develop with OSRAM. This (inaudible). They believe that it could be a large standalone company that would compete against GEs and Philips, and I think that's why they are doing it. So no changes as far as we're concerned, and I think that move will probably give OSRAM a little more freedom from being independent and be more agile.

Do you know the timing?

We don't know the timing.

Then going back to the Azimuth facility, it's very -- in fact, it's very, very similar to the one we did in August. If you'll recall, that one has a pricing table, so there's different pricings at which we can do drawdowns and different amounts that we can do at each one of those price levels. So there's a high degree of flexibility on the amount and the timing of when we can raise capital.

Okay. Great. Thank you.

Randy Hough, ProEquities (technical difficulty).

Good morning fellas. Thanks for taking my question. A couple of questions, Alex. A couple of comments that were mentioned I think on the first call of the year were related to of course reducing the operating expenses and looking at ways to streamline and make more efficient the business. I noticed on your website that you have a job application for a business development officer. Could you give us an update on how that's proceeding and what the logic was behind needing that person? I think is probably obvious, but I'd like to hear from you, and when that might be completed.

Okay. Let me make sure I captured everything. So first a question on the VP of Business Development, the second question about operating (inaudible)?

No, it really was one question -- what the logic was behind hiring the VP of Product Development and how you see that fitting in and helping your goal to streamline the Company and transfer to a more, you know, licensing and royalty kind of platform.

Got it. First of all, our two core competencies we're going to cultivate and what I believe would make us strong and allow for growth that we all expect is the technical innovation and skills in making deals with the OEM customers as we evolve by constantly rewriting what we have and where we need to improve, so it's almost a dynamic nature. We have been upgrading throughout since 2006. Sometimes as the Company goes through different stages, you have to continuously, on an annual basis (inaudible) do you have the right skill and talent to do what you need to do in the next three, four years. So we are kind of looking -- I am looking ahead this is why we are looking for some strong individual that will come from the industry, who has the necessary relationships, contacts to be very effective for the next five years.

In terms of how does this -- is this in conflict with our goal of reducing operating expenses? This position was budgeted last year for the operating plan for this year, so it's included in the assumption that we may reduce the operating cash requirements by 40%.

Great. One of the product ideas that we had talked about in the past, Alex, was application to eyeglasses, which seems to be an exciting opportunity, given the trends in projecting content in a convenient manner to the viewer. Can you give -- I know that of the million things you're dealing with, it might seem a bit as an outlier, but can you give us any idea of what the thinking is in the consumer electronics world about the potential for that market?

Everybody wants to see. To be honest with you, I'm going to be blunt. I came to MicroVision because I thought this was the coolest, the most radical application that would fundamentally change how people view and share information. So, that was one of the attraction points for me. What we learned is that it's the most complex product to get to market, primarily because not only it requires a cost effective, low-power, low-weight engine which is what we're developing right now with Pioneer, but also, most importantly, you need to have the right content that would be provided by the carriers and the content providers to facilitate the use of application. So as a result, we are actually working with most well-known content providers today on putting together ecosystem such that this product could be released into market.

So again, if you look at the three opportunities, primary opportunities we are pursuing, the Pico projection, automotive head-up displays and eyewear, eyewear is the most complex. Pico projection, believe it or not, is the simplest one because it requires cost-effective, low-power, low-volume engine. When you move to head-up display, you need to add additional special optics for automobiles that we already have developed and are working with automotive makers. When you get to eyewear, which is the third step, now you need the engine, the optics, and then you need the content. That piece is outside of our control, so we are working with likes Googles and Microsofts who develop an ecosystem from special content that could be seen -- could be viewed in a see-through format. That is why this activity will take a little longer than the first two, primarily because the ecosystem has to be in place to take advantage of it.

Great answer. I was glad to hear that's still exciting in the market. And last question, give us a quick overview, if you would, Alex, of when you might see some relief on the revenue side. Not to hold you at any specific revenue forecast or that sort of thing, but we do have a transitional year here it seems to me, 2011, but not a real good feel about when the top line might start to ramp, given the availability of direct green lasers in 2012. Put our hearts at ease here a little bit if you would, and give us some kind of a back-of-the-envelope idea of what's happening over the next two years.

That's a fair question. This year, it's moderate revenue growth from the existing products based on synthetic green platform. Next year introducing the commercial version of the next generation direct green engine, and start putting it in somebody else's products. So we start [to] obviously with Pioneer when are they going to introduce their first head-up display in 2012. Then the goal is that what we produce at the end of this year would be seeded to a multitude of OEMs ranging from cell phone manufacturers to carriers to just regular consumer electronics players and [subset] of this decide to take our technology and put it inside their product, we're going to have exciting end of 2012 and 2013.

Great, fair enough. Good luck.

This concludes the Q&A session for today. I would now like turn the call back over to Alexander Tokman for any closing remarks.

I would like to close this call with three takeaways for you. First of all, hopefully you've seen that we are making visible progress on strategic items as well as on technical items. The next generation direct green engine is maturing per plan. We've doubled the product revenue from previous quarter and also year-over-year. We reduced the operating cash burn by 27%. Our goal is to continue this trend into the second quarter. For the first time in history of the Company, believe it or not, we are not doing it alone. Pioneer, [Volen], now NTU, these are the institutions who put effort and resources to help us to get to market. We are working to expand this list later this year to include several new go-to-market enablers of our disruptive technology.

Finally, we implemented what we believe a very robust funding mechanism to raise additional cash when necessary. It offers lower cost of money and is less dilutive to the shareholders than the alternatives available today, but as we always tell you, we are evaluating options continuously, and we will take whatever we think is the best, in the best interest of you and us.

At this point, I want to thank you for joining us today, and look forward to providing you with more positive news as we progress throughout this year. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.