MicroVision Inc (MVIS) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2012 MicroVision, Inc.'s earnings conference call. My name is Rachel 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 Tiffany Bradford of Investor Relations. Please proceed, ma'am.

Thank you. I'd like to welcome everyone to MicroVision's first-quarter 2012 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 and financial results; product development applications and benefits; availability and supply of products 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 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 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.

The agenda for today's call will be as follows. Alex will first give a business update, Jeff will then report the financial results. There will be a question-and-answer session, and then Alex will conclude the call with some final remarks.

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

Thank you, Tiffany. Thanks, everyone, for joining us this morning. In February, we articulated MicroVision's three core objectives for 2012. They are -- securing OEM commitments to use our second-generation, high-definition PicoP display engine that is based on direct green lasers -- I'm going to refer to it as PicoP Gen2 for simplicity.

The second one, launching this technology with our partners; and finally transitioning to our core image by PicoP ingredient brand and licensing model. It is important to point out that all three goals are interrelated under the third goal, the transition to image by PicoP ingredient brand licensing model. This goal is articulation of our overall business strategy, and in turn, it dictates our behavior and how we are pursuing the other two goals, specifically pursuing deals with OEMs, as well as how we execute our Gen2 technology go-to-market plan with our supply chain partners. As a result, I'm going to start discussion with the business model first.

In February of this year, we laid out plan to transition to this model. We aggressively implemented this plan and have defined three go-to-market paths for our customers. The first path is targeted for large OEMs with established supply chains who want to get to market sooner. Under this option, MicroVision would provide key subsystems of the engine to OEMs. The customers would manufacture and integrate the engine and incorporate it inside their own products. MicroVision would receive an upfront license fee and royalties on sale of components and products.

Path number two is targeted for major OEMs who can and wish to do full vertical integration of MicroVision's PicoP technology. Under this option, MicroVision would license IP and provide systems control software, our secret sauce. The customer would build all of the components and manufacture the engine to embed it inside their own product. Under this scenario, MicroVision would receive an upfront license fee and royalties on the future product sales.

Finally, there is path three, under which we sell PicoP display engines to OEMs that are interested in a low volume product that would yield a high margin for MicroVision. This option is targeted at customers outside of the consumer and automotive markets. Typically, the customers who do not have ability to produce the engine but can implement it inside their product.

Under this option, MicroVision would provide the display engines that would be manufactured by one of our selected OEM partners. Customer would manufacture their own product and invent our technology inside it. Under this scenario, MicroVision would receive nonrecurring engineering fees and revenue from engine sales.

All three of these go-to-market plans require some level of engineering support for all the customers. We are committed to providing our expertise in order to make them successful, obviously. We have identified in each path -- an opportunity in each path, and are pursuing them right now. We believe today that path number one represents the largest near to midterm growth opportunity for MicroVision and our shareholders, because it offers an optimal balance between the time and cost of getting to market.

Our productive and successful business and technical relationships with Pioneer to date is a perfect example of the business model described under path one. For technology companies, as many of you know, a key to success is continuous innovation. And we will continue our investment in innovating the PicoP display technology to advance the features and capabilities of this patented solution, and introduce new generations of products in support of our customers' roadmap.

From the business model, then I'll move on to the other two goals, securing customer commitments, and commercializing PicoP technology. Let me start with the first one.

Recall that, in February, we reported that we had begun shipping PicoP Gen2 design samples to customers to begin their evaluation phases. Since, we delivered additional samples to several new players. Our engineering and operations team made visible progress towards completion of the detailed design of Gen2 engines, working very closely with Pioneer and several other suppliers.

We received new orders for PicoP evaluation kits in the first quarter, including an order from a major Tier 1 automotive supplier and an order from a large industrial customer, who is interested in applying our technology to improve productivity in their factories. Both could be potential customers for our Gen2 technology in 2013.

Overall, we are targeting major OEMs who fit into the licensing and royalty business model we laid out at the beginning of this call in February. We believe, through previous discussions with these types of customers, that this is the business partnership they prefer. They have this benefit of these type of partnerships, is that the largest segment players can drive that option with lower component costs, and it reduces the business and market risks for MicroVision and our shareholders.

A very important takeaway is that, again, we began on schedule delivering PicoP Gen2 design samples for evaluation at the end of February to several prospective customers, and are expecting to hear their decisions starting this summer.

Now let's move on to update on the goal of launching the engine. As you are well aware, we recently announced the completion of important definitive license and distribution and supply agreements with Pioneer. Under these agreements, Pioneer will produce PicoP Gen2 display engines for its own automotive aftermarket products, and will pay MicroVision royalties from sales of these products. Pioneer will also supply key subsystems of this technology to MicroVision, who will provide it to our customers in other verticals.

The signing of these agreements represents, as you can imagine, a major milestone towards achieving our 2012 goal of launching our technology inside, first, Pioneer's product, which is targeted for midyear.

What about green lasers? You probably wonder. Direct green lasers appear to be on track for Pioneer's product launch. As we discussed in February, we believe that direct green lasers will meet the requirements for automotive applications at launch. And we continue to develop the system enhancement needed to address consumer application, and expect the consumer version of the PicoP Gen2 technology will be available soon after.

In summary, we believe that all of the elements to see the first product based on our second-generation technology is on track to be in the market around midyear.

Now that I've given you a update on the three primary goals for the year, let's come back to the business model, and let's take a look at the long-term financial value of this ingredient and brand licensing royalty model. Remember, we said that we expect that it will reduce operating capital requirements for MicroVision; it will leverage strength of OEMs to own the supply, and high volume manufacturing of engines and products; it capitalizes on the investment we've made in creating our patented display technology; and it facilitates continuous advancement.

It offers also opportunity for us to receive upfront licensing payments to support customers before, during, and after the decision phases. It will provide a long-term revenue stream from royalties when OEM products hit the market in the future.

And thus, in order to better align to this model, in April, we have taken actions and implemented several operational measures, including the realignment of our resources that will allow MicroVision to reduce operating [cash-in] requirements by approximately 50%, starting in the second half of 2012. Jeff will outline the details of this initiative in a moment.

This operating plan will support critical activities that will drive our growth, including the delivery of Gen2 design samples to OEMs and ODMs this year, including support customers before and after the design and operation phases; and also enhancing the capabilities of our technology, and proliferate our technical roadmap. It will also help MicroVision to address the recent changes in the market that would have increased the financial obligations of the Company required to ramp the supply chain, in order to produce high-volume offering.

Our experience with Pioneer and discussions with major OEMs in the consumer electronics sector indicated that this licensing model is preferred, and its more cost- effective approach for all people involved to get solutions to market. A number of factors have converged, making now the right time for us to transition to the image by PicoP business model.

First, it's been maturation of direct green laser technology that offers cost performance and size conducive to all markets we are targeting. Second, it's the availability of the Gen2 design samples based on the direct green laser technology. These samples highlight performance, size, power, cost, advantages of MicroVision's scan beam laser platform for a multitude of Pico projection applications. Third, it's our strong intellectual property; and finally, the increased global interest in the Pico projection market.

So, to summarize, the discussion I just covered, we have made important progress on the three core objectives for 2012, and we continue to aggressively pursue these goals moving forward.

Let me now pass the microphone to Jeff to cover the financials and some of the details on the initiatives I just discussed.

Thank you, Alex. I'd like to start with our recent actions to align our operating and personnel costs to our ingredient brand strategy.

First, since our OEMs will be assuming a greater portion of the PicoP engine integration, we plan to require lower working capital going forward. In addition, we are taking steps to further reduce our product development, sales, marketing, and administrative expenses. And finally, we have reduced our personnel costs to align to our strategy. We expect the reductions in working capital, operating expenses, and personnel costs, should result in an approximately 50% reduction in our cash used in operations in the second half of 2012.

With that background, I'd like to cover three additional areas -- our revenue, operating results, and finally, our cash position as of the end of the quarter. Our revenue for the first quarter increased 55% to $1.7 million compared to $1.1 million for the first quarter last year. Our revenue for the quarter was comprised primarily of sales of our SHOWWX product and our Gen1 PicoP engine. We plan to continue to sell our existing inventory of SHOWWX products through the next quarter. Our backlog at the end of the quarter was $1.5 million.

Next, for operating results. Both our operating loss and net loss were $9.8 million or $0.58 a share for the first quarter of this year, compared to $9 million or $0.70 a share for the first quarter a year ago. The loss for the first quarter includes an increase in our inventory reserves of approximately $2.2 million for Gen1 PicoP component inventory in excess of our current sales plan. As I discussed earlier, we are aligning our sales and marketing efforts to support our PicoP Gen2 technology and minimize our overall cash usage.

Finally, moving to our cash position. For the first quarter, we reduced our cash used in operations to $6.2 million from $8.1 million for the first quarter a year ago. We continue to aggressively manage our cash position, and have taken steps to further reduce our cash used in operations in the second half of 2012 by approximately 50% from the Q1 2012 levels. These steps including reducing our working capital requirements, operating expenses, and personnel costs.

We are confident that these steps allow us to greatly reduce the amount of additional cash we will need, while still achieving our goal of making the PicoP Gen2 display technology available to others this year. As of March 31, our cash balance was $6.8 million.

With that, I'd like to open the call for questions.

(Operator Instructions). (technical difficulty) [Mike Tu].

So on the various -- you mentioned sort of three business models you're targeting with maybe number one was Pioneer being the most visible. Can you talk a little bit about the average selling price you're seeing kind of by each of those three categories? What do they kind of flush out to be?

It's a very good question, Mike. There's no single answer, because the price is dependent heavily on the applications that each OEM will target. So the consumer prices would be more aggressive, the automotive would be slightly less, and then the verticals, such as industrial, medical, et cetera, will have higher-margin solutions. So, fundamentally, our goal, as we move into component and licensing royalty strategy, to get to both 40% margins. And that's one of the reasons we defined the strategy six years ago and we transitioned in this year.

Thank you. And then in terms of just volumes that you think are potentially doable this year, what -- with apparently the direct green lasers being available and you have some partners that can do manufacturing, what kind of volume range are you thinking maybe second-half of the year?

Today, as we understand it, is that there will be sufficient -- more than sufficient green laser -- direct green laser volume from at least one of the green laser suppliers to fulfill Pioneer's launch, starting around midyear in the second half. And they indicated that they have additional quantities necessary to fulfill new customers as they become developed and available.

Great. Then just a minor financial question. What was the stock-based comp expense in the quarter?

Give me just a second here. I have that.

I guess one other question. I mean, the -- you talk about some business models here where you get upfront royalty payments, or upfront payments and then royalties follow. When you get an upfront payment, what sort of percent of expected, I don't know, year revenues would that be?

It's a great question. Maybe we can give you the ranges, but fundamentally, again, it's going to depend on several factors -- the level of exclusivity. Some of its less exclusive relationship, the less upfront license fee we would be seeking and negotiating. And it increases as the level of exclusivity, whether it's regional, temporal, is increasing. So really there's not a single number that can point out to. But fundamentally, the royalties basically will come once the design win is -- licensing win is completed and the customer launches their product.

That's stock-based comp number was about $400,000.

Great. Thanks a lot.

Joel Achramowicz, Merriman Capital.

Thanks for taking my question. Alex and Jeff, I was wondering, Alex, in particular, could you perhaps give us just some color on your thoughts on OEM -- current OEM discussions, particularly in the more aggressive consumer space? And maybe some color on when do you think we could see some traction in that regard, that might really drive the model that you've discussed?

Yes, Joel. Well, we -- our current target was about 15 prospective OEMs. Today, we ship design samples to a handful of them and continue to increase this number.

As I mentioned during the February call, the evaluation phase is, typically, it takes between one to six months, during which they test drive our technology to validate, to make sure it meets the performance parameters that we specify; as well as -- this is also an important factor -- assess their own internal product plans. Does it match to their product design cycles? Do they have the budget to execute this? So this is a period we're in the middle of. We started it at the end of February, and I think, by summer, we'll have a lot more indications and information to update you on.

But, I mean, your initial thoughts, I mean, with discussions with these prospective partners is positive? I mean, have they -- any color on what their thoughts are in response from looking at the peak of projection Gen2 module?

Well, just the fact that a subset of these already paid for these design samples to do their evaluations, shows that they have expressed some interest. And again, as you know, we've been in discussions with some of these players for several years. They finally see the direct green laser solution that offers cost that is conducive to specifically consumer markets. And now they all came in back, and evaluating, they're asking for the sample so they can basically assess set to their product lines.

And, as I mentioned to you, they are right now, some of them, in the middle of this evaluation, some will be receiving it soon. And we will know by summer, we should have some indication from some of these what they want to do to go forward. But interest is -- obviously, has always been there and it is there now. And there is more confidence in supply, particularly in supply of direct green lasers.

You'd talked in last quarter that there was one source for direct green lasers but you felt very confident there'd be multiple sources by summer. Is that still on track?

Right now, we have good visibility, is that at least one will be ready for Pioneer's launch. And the two, the other two that we indicated, have expressed -- basically, have given us updated guidances, which I told during the last call, that is somewhere in the second half of 2012. But fundamentally, we feel comfortable about getting to market first with Pioneer and having the laser to do it. And we feel also comfortable that if we -- when we have customers asking for increased volumes, we should have sufficient volume of direct green lasers to fulfill them.

Very good. And then last question, just -- I mean, do you see a potential for perhaps accessing strategic capital from some of these partners?

That's always one of the goals. And a lot of these partners think they are already investing heavily by trying to incorporate our technology inside their products, because it's not an inexpensive proposition. But, yes. Absolutely. When Jeff and I talk about that we're pursuing different venues of raising capital, and we talk about strategic investors, in many cases, we look forward to some of the potential both market partners for products, yes.

And another, just one final question. Do you see the potential -- you have a huge patent library of perhaps selling some peripheral intellectual property in order to raise capital?

We always look for opportunities to monetize IP. And of course, we -- we're looking for these opportunities. And again, when something materializes, be happy to update you on this development.

Very good. Well, thanks very much.

Mike Scott, Stephens.

A question I have, I guess, is a little simplistic. But to the extent that we finished financing, I guess, last December, whatever, and followed on by a reverse split, apparently, I mean, with all likelihood, that's what I want to know, notwithstanding the DOJs that are -- the GTLs that are going to go out maybe mid-year would keep me here mid-summer, mid-year, late fall. What's the likelihood with $6.8 million in cash, and I guess your burn ratio is going to be roughly $4 million for this coming quarter, give or take.

What's the likelihood of us having any kind of prospect of meaningful sales to be able to even fund the Company at this point, to the extent that -- I mean, I don't know what's out there. The terms of the Pioneer deal haven't been released, I guess you're not going to. But I think I'm fair to assume you can't run the Company selling kits. So what point -- or can you tell me what point you think are we in the neighborhood to be able to actually turn this into a revenue-producing thing where we can actually go cash flow positive?

Sure. Let me take a shot at that one. So we ended the quarter, as you pointed out, with $6.8 million in cash. We've taken some actions to reduce our burn rate by approximately 50%. Well, under the licensing model, one of the things we're expecting to do is to get upfront licensing fees.

We have Pioneer coming online, when that will start to generate royalties and component sale revenue in the second half of the year; we continue to sell our SHOWWX product line. So we think with those things that we have actually discussed we're taking will accelerate our time to breakeven. And then, of course, the timing of that will depend on when OEMs, the timing of the OEMs' launch of their products. (multiple speakers)

Just one correction, Scott. When Jeff described that our burn for the first quarter was 6-plus-million-dollars and we implemented measures to reduce it by approximately 50%, we expect to have quarterly burn rate [bill out for $4 million].

I mean, that's fine. I mean, again, I guess the question I would ask to follow Jeff's comment is, is the Pioneer deal a loan? Assuming that no new deals are signed or no new royalties or milestone [funds] received, is that deal alone going to produce the kind of revenue we're going to have the need -- the cash to run the Company until year-end? Or will it require additional deals to come online?

We obviously need other deals to come online. Let me describe to you, we have a target of 15 customers. We distribute in the design samples we've discussed, and the -- after they've reached a certain point and they feel comfortable about technical merits, we're discussing the pricing; we're discussing the timing; we're discussing all the pieces of all the attributes I described -- licensing fees, royalties, timing, et cetera.

We believe we generate additional orders. And that's what the Company is focused going forward right now, to generate some new licensing wins to facilitate revenue that will come from Pioneer.

So -- I don't want to put words in your mouth, but we do think that with the current deal with Pioneer and with the likelihood of a couple deals or a deal or two more coming on the rest of the year, that should be enough, hopefully, to fund the Company's progress, and not needing, if you could -- I don't know if you could or not -- to go to other markets for additional capital and dilute the stock further?

You always want to have a balance sheet that allows -- gives you flexibility to invest. And so, as Jeff and I described earlier, again, we -- we're looking for the new sources of revenue for new customers, but we're also looking for financial opportunities to enhance our balance sheet. And we're looking at several different options.

Well, from a shareholder's standpoint, I guess I would say that I don't think that, at this point, the temperature would be real good on the financing for SG&A. Obviously, if you could point to a deal that would help secure, or a series of deals that would help secure, I think the marketing would be a lot more friendly to it, obviously. So, that's all I have. Thank you.

Jeff Harvey, Janney Montgomery Scott.

Just a couple of questions on the financing options. Once you start getting some orders from Pioneer, is that something that would be bankable?

That's a great question. I think we -- obviously, we're in discussions with banks on an ongoing basis about the opportunities for doing -- I presume you're talking about having debt, working capital types of lines. I would expect that as we have some maturity, and with the feedback we've gotten from banks, is as we have some maturity and predictability around the sales cycle, that we would have availability of working capital lines.

Now, is it possible that some of these manufacturers might also be able to provide that to you?

There's always a possibility. As Alex said, we've talked to -- we continue to talk both suppliers and customers about being strategic investors, and things that they can do to support us in our go-to-market strategy.

Now, absent something like that, what do you feel are -- is your options at this point? I mean, as he was just talking about, the marketplace, I think at this time, would not be friendly to an equity offering. Do you feel confident that you have options in order to raise the capital you need here towards the end of the year?

Yes, I think as Alex pointed out, we have a number of different options for raising additional capital that we continue to evaluate, and we'd be prepared to pull the trigger on when and if needed.

Okay, thank you.

Thank you. That now concludes your question-and-answer session. I would now like to turn the call over to Mr. Tokman for closing remarks. Please proceed, sir.

To close this call, I want to re-emphasize that image by PicoP ingredient brand strategy plays to our strengths. And hope everybody sees that it allows us to do what we do best, innovate, by focusing all resources on continuous innovation of the PicoP platform and applications, while freeing us from developing the distribution and supply infrastructure across multiple vertical targets.

Second, it allows us to monetize. Someone asked just recently, our highly-rated IP portfolio, and secure revenue and margin from mixture of licensing fees, component sales and royalties.

Number three, it broadens the entry to market for OEMs and ODMs by allowing them to access a piece of the solution that is uniquely provided by MicroVision onward, while still relying on their inherent strengths to develop manufactured engines as well as their own product. Again, this is made possible by maturity in direct green laser technology and availability of our Gen2 technology this year.

Finally, it allows us to reduce the operating cash requirements. And as Jeff mentioned, it reduces our dependence on the external cash. Now we believe it accelerates our breakeven point as well. Our Pioneer partnership serves as an evidence that model, in which OEM or ODM does the integration volume manufacturing of the engine for their own product, is the more cost-effective approach to get to market for all parties involved.

At this point, I would like to adjourn the call. Thank you for joining, and we'll speak in three months. Thank you.

Thank you for your participation today in today's conference. This concludes the presentation. You may disconnect. Good day.