MicroVision Inc (MVIS) 2012 Q3 法說會逐字稿

Welcome to the Q3 2012 MicroVision, Inc. Financial Results Call. My name is Kim and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Jeff Wilson. Mr. Wilson, you (inaudible).

Thank you. I'd like to welcome everyone to MicroVision's Third 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.

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 product and key components, business partnering expectations, market opportunities and growth in demand as well as statements containing words like believes, estimate, expects, [estimate] target, plan, 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 expressed 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 and circumstances, or any other reason.

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

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

Thank you, Jeff. Thanks, everyone, for joining us this morning and we want to extend -- for everyone who is calling from New York and New Jersey, sympathies and hope that and families are okay.

Let's just jump into the call. In Q3 we accomplished several important milestones that we believe should significantly strengthen our fundamentals and provide a strong platform for future growth. We grew year-over-year revenue over 40% by beginning volume shipment of components to Pioneer for the launch of their Cyber Navi head-up display system.

We reduced cost within operations significantly from the previous quarter by almost 40% from the same period a year ago, all is consistent with the guidance given earlier. And we finalized and announced a strategic agreement with Intersil for the next generation electronics for PicoP display technology.

I will now expand a bit on each of these milestones as well as current business activities. Starting with some financials, and Jeff will provide a little more detail shortly. I'm pleased to say that revenue for the third quarter increased more than 40% from the same period a year ago and 100% from previous quarter. And the third quarter operating expenses realized the benefit of our restructuring effort performed in early Q2 of this year, therefore, the cash burden is down.

Moving to Pioneer; recall that Pioneer began shipments of its Cyber Navi head-up display system in late July, and this launch was consistent with our guidance and goal to commercially introduce PicoP display technologies starting mid-2012. We began component deliveries in late Q2, and consistent with the guidance we gave on the last conference call, we saw increasing delivery of volumes and revenue in the third quarter.

To-date we have delivered about third of Pioneer's backlog, and we expect to continue fulfillment of orders through Q1, Q2 of 2013. The preliminary results indicate that the quality of the components provided by MicroVision has been commendable. Pioneer has consistently indicated to us that it will take 3 to 5 months to gauge the Cyber Navi uptake in the Japanese market.

However, some of you may know already from press coverage that Pioneer is accessing opportunity to sell in Europe. Consequently, we are executing against the current orders and continue to support our partner as they move forward.

Moving to the next subject, Intersil. In September, we announced a strategic relationship with Intersil, a leader in the semiconductor industry. The agreement is part of cementing our ingredient brand business model by offering a solution that not only has industry-leading features today, but also has a strong roadmap that advances technology for years to come.

Today PicoP Gen2 display technology is the only high definition capable focus-free, largest screen size solution available for pico projectors in the market. And it can be delivered in the package that is about 1 inch wide and less than a quarter-inch thick. It is low-powered while displaying up to 25 lumens.

This combination of specs make Gen2 optimized formidability, but like any high tech solutions what is optimal today can and should get better as it progresses overtime. Through corporation with Intersil, PicoP display technology is expected to offer much higher brightness while simultaneously lowering power usage without increasing the size of the mobile or the cost.

This combination extends the mobility of value proposition of PicoP display technology because remaining a battery-powered solution with higher brightness is a key necessity for all mobile products. Our PicoP display technology roadmap strengthened our licensing strategy because it offers OEMs access to a sustained continues improvement to better their own product roadmaps to meet evolving consumer expectations.

Now let's briefly discuss new opportunities. We continued to receive new orders for our PicoP evaluation kits in the third quarter. That's further increasing the opportunity space for future products and applications. In fact, in the third quarter alone we shipped design evaluations samples to more than 20 companies mostly in the automotive and consumer electronic space -- some in industrial so they can begin their test and evaluation studies.

We are currently engaged in business discussions with a sub group of companies who purchase our evaluation kits prior to Q3, and who have finished their preliminary technical evaluations of our technology. The ultimate goal is to secure their commitments to design products based on our industry-leading, high definition pico projection solution with specific objectives focused on establishing and agreeing on the business model details. In several cases, a meaningful progress has been made.

Before I turn it to Jeff, I would like to state several updates regarding the green laser developments. During the quarter, Osram Semiconductor announced the launch of its first direct green laser offering and called out its significance for the pico projection market. In the release Osram discussed the benefit specifically for the MEMS-based Pico Projectors such as MicroVision's display technology.

As you know, entering 2012 there was no commercial availability of this key component for pico projectors. Pioneer shipments of its Cyber Navi head-up display product this summer marked the first [instantiation] of a commercially available direct green laser diode. You know from our conference calls throughout 2012 that we accepted several direct green laser suppliers to be in the market by the end of 2012, which is exactly what we see with the Osram now joining the supplier to Pioneer.

In addition to these two commercial supply sources, Sony announced in June its intention to enter direct green laser market with Sumitomo. We have discussed at length the benefit of the direct green laser over synthetic counterpart including standard smaller size, lower prices, higher volumes and yields. As you can imagine, multiple sources for this key component eases the concerns of OEMs which they had in the past about availability of this critical component.

We expect multiple sources and competitive pricing will benefit our licensing partners when they procure lasers to manufacturer display engine -- engines and end products incorporating PicoP display technology.

At this point I will stop, and Jeff will take up with financials.

Thank you, Alex. As Alex mentioned, during the third quarter we began volume component shipments to Pioneer, and began to realize the benefits of the steps we took in the second quarter to align our costs to our Ingredient brand strategy. As a result we increased revenue by over 100% from the second quarter of this year and, more importantly, increased margins from the second quarter.

We continue to expect to achieve our goal of an overall reduction in our cash used in operations by approximately 50% in the second half of 2012 compared to the first half of this year. With that background let me provide additional details on our revenue, operating results and cash position.

Our revenue for the third quarter increased to $2.6 million, compared to $1.8 million for the third quarter last year. And for the first 9 months of 2012 our revenue increased 37% to $5.6 million, compared to $4.1 million during the same period last year.

Our revenue for the third quarter was comprised of sales of components to Pioneer, our SHOWWX product and the initial royalty revenue earned on Pioneer shipments of the Cyber Navi product. We have almost completed our sales of SHOWWX products and expect to complete these sales in the current quarter. Our backlog at the end of the quarter was $4.5 million, composed primarily of components for Pioneer.

Next, moving to our operating results. Our operating loss for the third quarter was $4 million, compared to the $7.8 million for the third quarter last year, and $18.8 million for the first 9 months of 2012 compared to $26.1 million for the first 9 months of last year.

Our net loss for the third quarter was $3.8 million or $0.15 per share, compared to $7.8 million or $0.57 per share for the third quarter last year. And $18.6 million or $0.91 per share for the first 9 months of 2012, compared to $26 million or $1.96 per share for the first 9 months of 2011.

Finally, moving to our cash position. For the first 9 months of 2012 we reduced our cash used in operations to $17 million, from $21.8 million for the first 9 months of 2011. The cash used in operations in the first 9 months of 2012 include approximately $400,000 in restructuring and related cost. We ended the quarter with $10.7 million in cash.

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

Thank you. We'll now begin the question-and-answer session.

(Operator Instructions)

And at this time we have a question from Andrew Uerkwitz from Oppenheimer. Please, go ahead.

Thanks for taking my question, I appreciate it. Could you talk a little bit about Pioneer's competitive -- where they stand competitively, what their competitors are doing -- are those -- is that an opportunity for you guys? Could you give us a little bit of color around that?

Sure. Pioneer's product is the first -- it's one of a kind and they are really not -- no competition has been established for it, because Pioneer has some time-to-market advantage because they start earlier with us. And from the feedback that we have access to, it appears to be that the people will like this product.

As I mentioned on the previous call, Pioneer has done a market study before they launched it because they wanted to get the feedback and get their feet wet before launching the product. And it appeared to be at that time that 80% of the people who were solicited and asked questions said that this product was revolutionary.

Obviously, we need sometime in the market in Japan to truly understand the demand, but we believe that they are happy with what they are getting from us, and we hope that the market uptake is good enough where they come back to us, and get more. At the same time, we are obviously working and developing other opportunities in this area as well as the other areas.

Thanks, Alex. Could you also just to change subject a little bit here; how do you perceive pricing of green laser as we head into this year into next?

To be honest you, the pricing of green laser, even at the introduction, has been exceptional, compare it what we saw over the past 2, 3 years from synthetic green laser counterparts, the green laser price for the laser diode is well within the market expectations in terms of generate and create opportunities in several different segments, including consumer.

Obviously, at the onset, the prices are little higher, but once you get into any reasonable volume we see a very, very, very attractive price for anybody who wants to license this technology in the future.

And then -- last question. Would you say volume (inaudible) what -- millions of units, tens of millions of units?

Typically, we are talking about -- at the beginning we are talking about hundreds of thousands. and then the volume we are talking about tens of millions, yes.

Perfect. I appreciate the time, and good luck, guys. Thanks.

Thank you.

Thank you. Our next question comes from Mike Latimore from Northland Capital. Please go ahead.

Great. Thanks a lot. I guess just on the backlog, over what timeframe will the majority of that be recognized, do you think?

We were scheduling deliveries of those, we would expect that -- most of that backlog will be delivered in the next 6 months.

(Inaudible). And it sounds like most of the backlog is Pioneer, so I wanted to clarify, SHOWWX, that is going to be basically done in the fourth quarter in terms of rev-rec on SHOWWX?

We believe so, yes, that's the way we are talking right now.

All right. How about -- I don't know if you give any color for next quarter, but how are gross margins looking next quarter -- should we assume similar to this quarter?

That's a great question. Again, we are at the very beginning part of the market on margins so we are not -- until things stabilized and we have more predictability around the revenue mix, I don't think we are in a position to give guidance around margins other than to say that obviously part of our strategy going to a licensing component model [we'll] have better margins than what we have on the product side.

Mike on the positive side, this is -- remember when we introduced a product based on the synthetic green laser, the margin was not positive it was negative or neutral at best. This is -- for the first time we have positive margin on the product, and big contribution comes from the fact that we are using direct green lasers not the synthetic counterparts.

It sounds like the supply of direct green lasers is ample at this point. What about just kind of overall manufacturing among your partners? Do you see that as keeping up with demand here? Is there any issue about getting full capacity up and running?

As we start developing more and bringing more licensing partners to the table, we believe at this point that the supply of green lasers should not be a limiting factor. And the people who participate in it right now -- there are two players already with Sony coming within 12 months most likely. We expect that the volume would be adjusted to the demand and there should not be any limitations as we experienced in the past with the synthetic.

And last, what was the stock-based comp expense in the quarter?

Give me just a moment here. Total stock-based comp in this quarter was about $850,000.

Okay. Thanks a lot.

No problem.

Thank you. Our next question comes from Joel Achramowicz from Merriman Capital. Please, go ahead.

Thank you for taking my call. Alex, and Jeff, can I ask follow-up questions on the heads-up display opportunities with Pioneer? Do you have any indication of how many vehicle or car companies are perhaps looking at this technology to implement in the high end luxury automobiles?

I can give you the general figures Joel. Think about -- so the Pioneer activities independent of the question that you asked, because most of the car companies are interested in embedded head-up displays, not the aftermarket version. And to-date we have discussions with at least several major companies and [they're] tier ones in North America, in Europe and in Asia, particularly in Japan.

So, some of the -- a lot of these products are probably going into aftermarket installations -- right -- in the early stage?

The way it works -- the setup itself this aftermarket -- Cyber Navi head-up display that Pioneer is offering typically go through the distribution of recent channels, and channels such as equivalent of car toys, et cetera, where people basically can purchase this and install it retroactively on variety of models.

We don't have actual indication on which models -- which driver is buying these, but what we know is that this system is agnostic to the car model as long as the buyer has the subscription from DOCOMO which is provided with the purchase of this device.

Very good. A lot of back you had a relationship with Visteon, and I think some other tier one part suppliers. I mean, is that relationship still viable? I mean, is it -- now that you made so much progress with Pioneer, I mean --?

We have historically, a good relationship with at least half-a-dozen tier ones, Visteon, we had relationship maybe 4 or 5 years ago. This is before the green laser deterred us somewhat. We are still dealing with the large group including -- Visteon was part of this group.

Right now we have negotiations again with a series of these prospective partners. I can't identify them by name, but what I can tell you, they represent the major players on each continent and they are directly tied into major car manufacturers who are part of this triangle to determine how to go forward.

Excellent. Another question, we have talked about the beam projector which seems like one of the first mobile phone-based projection devices incorporated into mobile phone by Samsung. I guess they are using the TI engine. And you talked about really having some interesting discussions with some of the development people and how excited they were to see the MicroVision technology, the PicoP Gen2. Have any discussions with Samsung continued from there?

So, there are a couple of questions in which you are asking. Let me just try to address each one of them. First, Samsung introduced [a] first cell phone with the embedded Pico Projection technology even though it's from TI, it's actually good for the market because it shows basically there is interest from one of the major players. And secondly, Samsung is spending all the marketing dollars to promote this technology, so it benefits everyone in the world. That's number one.

Number two, we have discussions with a series of topnotch tier one OEMs in the consumer space from Korea, from Japan, from North America, and again I -- would like to -- not to disclose specific names, but you can imagine that the name that you are asking is on the list.

Great. And I know you can't give us [Alex] but I mean can you describe at least, on a general basis, what kind of reactions you get from development people and marketing people in -- some of these major players?

The reaction has always been positive, and (inaudible) because people always -- for development people, from these organizations have always told us consistently that they prefer our type of technology versus panel technology such as DLP and LCoS. And, in the past, the limitation was supply. Everybody was concerned, look you don't have enough green lasers, your green laser is too expensive.

And hopefully, now this barrier has been greatly, greatly mitigated and the tier one OEMs actually can go and validate this condition by themselves. They can go either way to Osram, the Pioneer supplier, Sony, and have a discussion, and understand what are the volumes and what are the pricing that they could get for their own products.

So, we believe this becomes a non-issue and as a result we see an increased interest in our technology for a variety of licensing models that we are pursuing with prospective partners.

And a final question, Alex, I appreciate your taking the questions. When we see you at CES in January, will you have an improvement in the actual form factor of the engine? I mean, it seems every year you have been able to do that. Do you see a roadmap in that regard to continued reduction and improvement in performance?

Well, we definitely have a roadmap. We have a roadmap to reduce power, to increase brightness, to add some very salient features that no one else has. And we obviously expect to show the progress to our prospective partners at CES, and hopefully this will proliferate our licensing discussion and help us to get sooner to the desired state.

Great. Thank you very much.

Thank you. Our next question comes from Randy Hough from ProEquities. Please, go ahead.

Thank you, guys, and good morning.

Hi.

Jeff, first to you, with all the financing that's been done in the last year and so, would you bring up the date on what the fully diluted share count is now?

Sure. So, the actual shares outstanding is right about 25 million, and then fully diluted with the warrants is another, let's call it, 6.5 million, so about 31.5 million.

And in terms of financing opportunities, I guess it's principally in the near-term is going to be coming from exercise of warrants?

I think in the near term we look at any one of a number of financing opportunities.

But if you were to project the length of time that your current cash reserves will be sufficient to carry on the operations of business, could you give us a timeline on it.

Sure. So as we look at, we ended the quarter at $10.8 million -- $7 million in cash. As you look at increased -- or revenue coming up from Pioneer continuation of our reduction of burn rate. We expect that cash to be sufficient to last us at least to the second quarter of next year. I that was your question.

Yes, okay. At least through the second quarter, or to the second quarter of next year ?

No, at least through the second quarter.

Through the second quarter, okay.

Yes.

Okay, great. And, Alex, if you would please, you've had the first test kits go out, help me remember; was it in March?

Last week of February, yes.

Last week of February, okay. So, we have been 7 months, 8 months out there with the test kits and you've always talked, I think, correct me if I'm wrong here; that the normal cycle for potential OEM relationships adoption of your technology and some sort of licensing agreement may be anywhere from 12 to 18 months. And we are advancing now with Intersil in a way that's pretty impressive. I mean, if I heard you correctly, tell me I'm not dreaming, I did here the number 25 lumens in your comments earlier?

25 lumens is what we have to-date, Randy. We actually with Intersil we were working on -- to double that.

Double it?

Yes.

Wow. Okay, so that leads into my question. What more do these OEMs need before they see that -- and get overall these things that have been inhibitors to adopting our technology in years gone by? What more, if anything, do they have to see?

And wrapped up in that is when we get the conference call 30 -- or 90 days from now, at the end of Q4, and you report, can you give us any feel for what you might be doing in terms of identifying or projecting the number of potential relationships starting in calendar year 2013?

All right, let me try to address all your questions, Randy. First one, let me start from the end, it's not just -- let me, and you understand, it's very hard to guide to the timing on the specific deals, because it's so customer-to-customer specific and sometimes you have to spend more or less time to get certain terms closed on that's beneficial to you and everybody around this table.

So, it's really the quality of the deal, it's more important than the quantity or the timing to be honest with you. And so, we are try to basically to ensure that everybody we are having business discussions with, and when we're defining and agreeing on specific business terms they are beneficial to MicroVision as much as they are beneficial to our partner.

And as a result, you are right, it takes about approximately on average 12 months to get from A to Z. We start shipping first samples at the end of February. And then the first customers who we -- prospective customers who we shipped these units to, they had to complete their own evaluation study. That first step is to strictly validate what we have been saying. Because they can believe us but most of the people want to test it and ensure that what we are saying is true.

So, the people who received the earlier units, some of them already completed the studies and said let's negotiate the business terms how we go -- how we can go to market together. So, we are actually making progress in this area as well.

In the third quarter we shipped the new samples to more than 20 entities and we hope then within 1 to 6 months, subset of these people also will come back to us and say we are ready to talk about new business. So it's kind of -- think of it as -- it's a very tiered structure, but there's no one specific start time, one specific end time.

The good news is that, half a dozen companies who receive samples from us earlier in Q2 already completed the studies and we are in business negotiations how we will go forward, and how do we provide what they need to introduce their products in the future.

Keep in mind one important factor that everybody needs to understand is that, each OEM has their own fiscal years. And typically what you do, you negotiate and assess viability of a product for the next fiscal year, because the budget has been frozen a year prior to this. So, we are right now working with multiple people who are at the end of their fiscal year.

And as you know,in Asia, specifically in Japan, the fiscal year starts on April 1st. So we are in negotiations with lot of people, for example, in Asia to ensure that they budget for the program that we are trying to negotiate with them to introduce their products in the future.

So, there's three dependencies, one evaluation time, which some of these people already have completed. We're in business negotiations with [some]. And once the business negotiations are completed the programs typically begin. Sometimes, earlier phases of the programs start even before the definitive agreement is signed. And we are hopeful we will have couple of those as well.

Okay, with that [point], last question, are you ready yet to kind of give us a range? Could you, from that information, give us a range of when we might look for an inflection point in revenue ramp, royalty income and licensing fees? Could it be the end of second quarter next year, the end of third quarter next year, when several of these pieces are going to drop in and ring the cash register?

You ask a great question, which I think is on the mind of everyone who's is on the phone. Unfortunately, we would not -- we cannot give guidance at this time. As Jeff mentioned, until we have -- until we have a group of customers and we assess and have some historical data on their performance-- because keep in mind, our licensing model is predicated on the fact that other people launch their products on their timelines.

And until we have some level of comfort of what they are doing and how predictable they are it will be difficult for us to guide people, but we will do this as soon as we have some level of stability and understanding what they are doing and how predictable they can be.

Okay, but in -- you would at least -- let me leave with -- or leave us with this as far as my questions go, you still sense, and I would hope increasingly so excitement about this technology in the marketplace across a variety of applications. Can we at least say that?

Absolutely. Absolutely. Not only have -- not only have the older players who have been dealing with us for the past 4 years and who have been detracted by the situation with synthetic green laser, that are coming back to the table, but we have a lot of new entries, because the market is still -- even though it's still in its nascent form -- which I mean, look, we have been struggling to get the right green laser over the past 3 years.

Right.

But the other people haven't. And the market is not exactly exploring right now, and the reason is because ecosystem was not ready. Now more and mobile devices are equipped with the HDMI output, so there is a connectivity to devices such as ours and somebody else's pico projectors. And people start finally understanding the value proposition.

And with Samsung and other leading the way hopefully it would create a lot more opportunities and people become more of risk takers because everybody is waiting for somebody else to make the first step unfortunately in this market. There is not a lot of leaders believe or not in this space, but we have seen already several entities who are not the leaders, but want to become leaders, want to take that chance.

Okay, great. Thank you, Alex. I'll go back in queue.

Okay, Randy.

Thank you. This concludes the time that we have for the question-and-answer session. I'll now turn it back to Alexander Tokman for closing remarks.

Thank you. To conclude this call, let me just recap what we just described. Pioneer's first product commercialization is on track, we began volume shipment of components to Pioneer for the launch of their Cyber Navi head-up display system, and revenue is up more than 40% year-over-year.

We are advancing the features roadmap to enhance the appeal of our PicoP display technology for OEMs interested in the multi-generational product plan, and most OEMs are interested in multi-generational product plan. Specifically, in this regard we have finalized and announced a strategic agreement with Intersil for the next generation electronics for a brighter and lower-power engine.

There are now two direct green laser suppliers who can provide commercial grade direct green lasers to OEMs for their future products, and more are expected to be in the market in the near to mid future. We are sending new samples into the market, in order to create new business opportunities.

The feedback so far has been positive and we entered into business discussions with a group of prospective customers to establish details of the business models for going forward. Several discussions have shown a significant progress however, prior to establishing a common framework for future relationship.

Operating cash requirements are down more than 48% from previous quarter, following the restructuring we performed in early Q2. We are hitting on critical milestones that we articulated earlier in the year, and by continuing to move the business forward we believe, again, it makes us an attractive investment opportunity for longer-term minded investors around the world.

And at this point, I would like to thank everyone for joining us, and we will talk in 90 days. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.