MicroVision Inc (MVIS) 2013 Q2 法說會逐字稿

Welcome to the Second Quarter 2013 MicroVision Inc's Financial Results Call. My name is Loraine, and I will be your operator for today's call. At this time all participants are in 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 Ms. Dawn Goetter, Director of Marketing Communications. Ms. Goette, you may begin.

Thank you. I'd like to welcome everyone to MicroVision's Second Quarter 2013 Financial and Operating Results Conference Call. In addition to myself, participants on today's call include Alexander Tokman, President and Chief Executive Officer; and Stephen Holt, Chief Financial Officer.

The information in today's conference call may include forward-looking statements, including statements regarding benefits under existing contracts, and the negotiations of future agreements; our competitive advantages; progress for prospective customers; projections of future operations and financial results; product development, applications and benefits; availability and supply of product and key components; market opportunities and growth and demand; plans to manage cash used in operations; as well as statements containing words like believe, goal, cap, expects, 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 Exchange Commission, under the heading Risk Factors relating to the Company's business and/or 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 any reason.

The agenda for today's call will be as follows -- Alex will report on the operation results, Steve 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 Alexander Tokman.

Thank you, Dawn. Good morning, everyone. Thanks for joining us today. We are very pleased with the second quarter business results around our key operating objectives. Specifically, we completed second quarter development milestones with our Fortune Global 100 customer.

We made progress in securing new supply chain partners to facilitate the PicoP go-to-market strategy. We significantly reduced cash used in operations, we secured new cash to improve the balance sheet, and finally, we again saw encouraging market news and indicators favoring the emergence of the Pico Projection market.

More news from the mobile device, beside more news from MEM sources about its market growth expectations as well as a sneak peek into new and exciting gaming and education applications as showcased by Disney Research.

Applications that can be brought to life, thanks to the display in imaging technology such as ours. Let's focus briefly on the most recent market development. In April we announced an important $4.6 million development agreement with the Fortune Global 100 major electronics brand to incorporate our patented PicoP display technology into the engine produced that could enable a variety of new products for those specific global OEM.

During the second quarter we began to work side-by-side with the OEM in the development of their display engine that is rooted in our technology. Both companies made solid progress and met the key second quarter milestones on the development activities under this agreement.

Concurrently with the development activities we are also engaged in commercial negotiations for licensing and component supply. Our new partner has outlined its vision, and a preliminary roadmap for its products resulting from this activity, and to date we are very pleased by its approach and level of engagements.

We continue to progress our business development activities to secure additional designs wins for this year. Our current, primary targets include several consumer electronics and automotive companies that can benefit from PicoP display technologies distributing attributes.

Today's PicoP display solution possesses attributes unmatched by others. It is the only a HD-capable, focus-free Pico Projection technology in the market that offers an immersive experience and it can be delivered in a tiny package whose size does not increase as the brightness increases.

It provides exceptional brightness to (inaudible) ratio that affords a multi-hour operation from a single battery charge. A higher brightness at a low power are the two of the most desirable attributes for the mobility industry for this type of application. Today our brightness to power up consumption ratio is superior to any other competitive solution and we believe it will remain as such in the foreseeable future.

Let's now move onto our supply chain topic. We've made significant moves during the second quarter to build a stronger supply chain in order to facilitate the future adoption of PicoP display technology by OEMs around the globe. This activity, as you can imagine, is targeted for those customers who are not vertically integrated, or simply want a more standardized third-party solution based on our technology. Our goal is simple, to architect an expanded supply to provide these OEMs with several sources for the key components including MEMs, A6, and display engines to integrate into their products and the -- our image by PicoP in (inaudible) brand and licensing model.

Finally, in line with our objective of aggressively managing cash using operations, we have shown tangible year-over-year improvements on our key financial metrics during the second quarter. Our cash used in operations was reduced by nearly 60%, but operating net losses were reduced by greater than 30% while the revenue was up by 44%.

Steve will take over at this point, and provide you with full details and color. Steve?

Thank you, Alex. As Alex mentioned we had good results in the quarter with increased revenue, lower cash usage and the raise of $5.5 million net proceeds from an equity offering.

First, I'll talk about revenue. Second quarter was $1.9 million up 44% from $1.3 million in Q2 of 2012. The $1.9 million is comprised of $917,000 of product revenue. $880,000 of development revenue, and $73,000 of contract revenue.

First half revenue was $3.7 million up 21% from $3 million for the first half of 2012. Q2 operating expenses were $4.4 million, which is lower than the operating expenses of $6.3 million in Q2 of 2012, is 29% reduction in the operating expenses over the prior year, reflects the cost productions from the restructuring that we implemented in mid-2012.

Similarly for the first half operating expenses were $9.1 million down 33% from the $13.5 million in the first half of last year. The operating loss and the net loss for the quarter was $3.4 million or $0.13 a share, this is $1.5 million lower than the operating loss and the net loss of $5 million or $0.26 per share in Q2 of 2012.

And the first-half operating net losses were $7.1 million down 52% from the same period last year. First-half net loss per share was $0.27 versus $0.82 for the first half of 2012, that's an improvement of 67%.

Now onto cash. Cash used in operating activities in Q2 of 2013 was $2.8 million, down 59% from the $6.8 million used in Q2 of 2012. The improvement is due to lower net loss and improvements in working capital. For the six months ended June 30, 2013, cash used in operations was $6.3 million versus $13 million used in the six months ending June 30, 2012. Cash on hand was $6 million at June 30, 2013.

And finally, our order backlog -- total order backlog at June 30th, was $3.8 million, of that total $3.4 million is related to our development agreement with the Fortune Global 100 electronics company.

That concludes the financial results. At this time we will now open it up for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from Ryan McDonald from Northland Securities. Please go ahead.

Hi, guys. Ryan McDonald (inaudible) for Mike Latimore. First off, could you give us a bit more of an update on a top five prospects for an additional deal this year, next year, and maybe what you think the likelihood is that you could sign maybe another Fortune 100 company or customers before the end of the year.

Okay, Ryan. I'll take this. As I mentioned we did make progress with -- on both (inaudible) automotive and consumer firms with some of the Top Five targets. In terms of -- and our goal is still to develop additional wins this year on top of what we announced in April with the Fortune Global 100.

You know, in terms of predicting whether they will be from Fortune Global 500, it's difficult at this time point in time, but some of our targets do include companies that fall into this list but we could not at this point guarantee that the next deal would be with somebody like this. We just know that we have them in the mix, but the predictability of this and timing, specific timing is very difficult.

And did any targets move in or out of the Top Five during the quarter, was there any change to that?

Yes. We had a couple of shifts, absolutely.

Okay. And then, any additional cost -- changes that we should expect in the second half of the year here?

We call that -- we completed restructuring around middle of last year, and the OpEx structure that has been designed at that point in time, is what we are executing with -- what we are using to execute the current activities. So we do anticipate, overall, reduction for the year versus previous year, yes.

Then just looking towards additional sources of revenue for the second half of the year, I mean, is the majority of that revenue going to be coming from that development agreement, and beyond that, is there -- what are thoughts on revenue generation for the second half.

Good question. Until the royalty licensing and component sales revenue come in, once the customers start introducing their product, we expect that most of our revenue will come from a combination of development agreements with the upfront fees, potentially some licenses fees and customer support activities. So, correct.

Okay. And then just finally, just a question, I guess, surrounding on some further technology application, Google Glass, you know, seems to be something that's very popular, and might need some tweak or projector technology. I mean, is that an area where you guys will have opportunity to speak with them.

Absolutely. Google Glass is an application that (inaudible) and across here, while the strategy since 2006, recall that when we reorganized we said, three areas we are focusing on, Pico Projection, automotive displays and eye ware displays, absolutely. The reason they were prioritized in such an order because the complexity of product, increases as you go from Pico Projection to automotive head-up display to eye ware display for a variety of reasons.

One of the was to make eye ware application successful you really need special content, [see-through] content that had not existed in the past, and companies such Google, Microsoft and others, have ability to influence this, which is what Google is doing, so we are very happy to see what Google is doing with trying to introduce this product, and our engine technology and some of the optical IP that we developed is very applicable to what they and others are doing.

All right. Thanks a lot guys.

Thank you. Our next question comes from Andrew Uerkwitz from Oppenheimer & Company. Please go ahead.

Hi. Thanks, guys. Can you, on your Fortune 100 design win here, can you go in a little bit more detail on the roadmap, or maybe on the inside guide, as far as -- I think they could be doing multiple products. It's going to be -- do you have any idea when it will potentially be launched, or could you give us an update on what the next milestones are?

It's a great question, Andrew. I'm pretty sure that most of the listeners want to hear this. We are somewhat limited in how much we can disclose other than, they pay us $4.6 million over the next 30 months of development starting in April of this year, and the good news from what we've seen to date.

We are pleased with the fact that they are very active, they've been actually very proactive in defining type of product -- new product categories and targeting different product portfolios within their existing infrastructure.

And the good news it's not a single product, it's going to be -- they have plans for a variety of different products, whether they are attached or working in conjunction with products from consumer electronics sector, from a variety of spinoffs in consumer electronics. I can't give you any more details, otherwise I'm going to start disclosing information that will prevent us from (inaudible).

Yes. I know. Sure, I understand and appreciate. Appreciate what you've told us so far. Then just a spinoff on the wearable text. (Inaudible) actually put in a Pico Projector, in a wearable glass. Do you think just kind of a buzz surrounding either a watch or glasses, or just general accessory that could help propel new ideas for Pico Projector attachments for gaming, those sorts of things? Are you seeing any (inaudible) there?

I think it's going to be dependent on who is doing it, and how well they thought of the ecosystem upon introducing this type of product. Apple in the past have shown historically that they do a very good job of assessing all of the -- not just the product is going to look like and feel like, but also what type of information and what other ecosystem players you need to have to make a successful application.

So we heard Apple is working on this, we heard, we heard others. I would put a lot more bet on Apple being more successful and everybody else is copying it, versus the other way around.

With Google Glass, you know, the judgment is still out, as you know, it's been still in beta testing, there's been, kind of positive and negative, the good news is that Google is really seeking, going after this application. We know other large companies are doing similar type of work, and we are actually very excited, because there are six different attributes need to come together to make successful eye ware product.

You have to have the right display engine technology. You have to have the right optical technology to encapsulate this into ophthalmic lens. You have to have the right user interface, you have to have the right industrial design. You have to have the right content and delivery. We control, or we contribute heavily to the first two attributes, but we have no control over the other four. So with Google addressing this Google Glass project we are happy to see the progress being made on the other areas that would facilitate this market.

Sure. And then just one last question, around auto, I was car shopping the other, and it seems like quite a few more cars are implementing heads-up display. Are you seeing -- what kind of activity -- is this picking up there, is interest picking up, is it waning? How do you see that?

The interest has picked up tremendously since the second half of last year, once the players realize that the laser base have displays, actually a viable solution given that the green laser situation seem to be addressed or alleviated greatly. There has been increased interest since late last year, and it had not waned until now. There's a lot of car makers and their tier ones who are -- we are in discussions about how to get laser head-up display to market and, again, one or two key people from Top Five are from that segment.

Great. I appreciate your time and look forward to seeing you in September.

Thanks, Andrew.

Thank you. And our next question comes from Tom Zulist from No Limits Capital. Please go ahead.

Hi, Alex. How are you?

Hi, Tom.

Green lasers. Can you give us an update, if we are seeing any change and who the players are, and if there's any pricing change, if we are starting to get into mass production now?

Well, we have two players that have been commercial -- introduced their products or their offerings last year, in the second half of last year. One from Japan one from Germany, and then one also, very large Japanese player, announced they will introduce their own version of green laser in the second half of this year.

So we've got three suppliers right now that we are looking at, all of them are established, all of them have domain expertise in this area, and to date, everything that they told us in terms of what's going to be available at what price have come to fruition.

So we don't really negotiate directly with them because what we do we point them to our supply chain, and we help our supply chain to get a favorable pricing from these entities, but again, what we are seeing right now is more sufficient to start Pico Projection market and to take it into higher volumes once the adoption takes place.

Good. The original goal to get an additional contract signed by year-end, whether it be a Fortune 100 or a non-Fortune 100 that's still on the table for you. You haven't changed your outlook there?

Correct. It's still our goal.

Okay. And could you talk a little bit about IR activities? Do you see that starting to step up, and do -- I see you have one thing planned that was announced for September?

Yes. We will be attending several conferences, one with Oppenheimer, and one with -- some additional conferences that we plan to basically get investors updated, fundamental investors updated on the activities and the progress we are making. Steve and I have planned and will execute (inaudible) road shows, and -- periodically and obviously we will -- depending on the timing, and depending on the budgets, we are planning to do some oversea trips to inform foreign international investors as well.

Good. One last question. Relating to gaming -- have you seen any additional interest in that area? Have you started to find that they're looking for applications that they can start to bring to reality?

Yes. You've seen example. I don't know how many people on the call has seen that, that the Disney Research issued a video a couple weeks ago, I think, and they basically developed their own internal technology that (inaudible) technology to provide -- (inaudible) you who can feel for interactive gaming and educational type of applications. It's a perfect example of R&D work that we have participated in over the past couple years.

The Disney activity had started in 2008 when we supported them with the technology, they did not tell us at that time what specifically they will be developing, but two years later they came back with significant progress from the video has shown.

We have activity such as this, that we haven't announced publicly because, again, when we participated in the -- our customers, to be able to control the communication flow, whenever they're ready to discuss this, so we do have activities such as Disney Research with other entities, but they haven't come -- came to light yet because they're probably, either not ready to communicate publicly, or they're still maturing certain aspects of this -- of any particular application.

One last question related to that. The interactivity that you're capable of with your system, I've noticed that some of these companies are looking to put virtual keyboards in place with the tablet or whatever. How accurate, and is that application that would be part of your technology, or are there other technologies that maybe be more suitable for that particular application?

Our interactive touch, or air touch application is broader than just a keyboard. So there's a lot of companies that can do simple laser keyboard projection. Actually the first one I remember when I first started here in 2006, there's a company in the U.K. that introduced this product.

Our air touch is broader, it doesn't -- not only allows you to create the keyboard if you need to, but also more importantly, use your hand gesture to articulate objects in air that are projected on any surface. So, yes, our technology can do this, but it can do a lot more than that.

Great. Thanks. Keep up the good work.

Thanks, Tom.

Thank you. And our next question comes from Randall Hough from ProEquities. Please go ahead.

Thank you. Hi, guys. Alex, let me bring up a name from the past year, and it came to mind when you were indicating expectations for revenues in the second half of the year. It's been over a year, if I have the timing right, since Pioneer launched its heads-up -- after-market heads-up display product. Can you give us an update on how the success of that has gone? And if it hasn't gone well, why it hasn't gone well?

That's a great question, for sure. It's on the mind of every listener as well. It's a good question, Randy. A couple things. First of all, we fulfilled original Pioneer offer through Q2. We delivered everything on time with quality that exceeded everybody's expectations, so basically our components for the solution that they put inside their head-up display, that program was completed very successfully.

Pioneer has been pleased, we have good relationship. One of the things, as you know, that -- and again -- I mentioned it over the past six months. Pioneer as a company, did not have a very good financial year, last fiscal year.

As a result they have gone through significant restructuring and reorganization, and that process, I'm pretty sure, distracted them from focusing full attention on new products, and given that activity which we I which we anticipate -- you know, which we learned about at the end of last year, we reduced our expectations for significant reorder for 2013 for the after-market head-up display.

However, we are still in discussions with Pioneer for the different product and embedded head-up display, and our Mini car companies, as I mentioned earlier, that are very interested in embedded head-up display rather than after-market head-up display.

Other than this, if I would provide additional color on what happened, or what is happening with them, it would be probably not desirable because they have their own reporting structure, they explain their own results and what's successful, and what's not successful, so it will not wise for me to comment on their performance.

Okay, fine. Thanks. That's an update, that's what I asked for.

Okay.

Let me take you to this idea that you've put out a number of times in the past, Alex, of 12 to 18 months in terms of cycle time from when you first start talking to prospective customers, and when they might make a decision to go forward with production.

So keeping in mind that the availability of test kits began in Q1 of 2012, we are now well into the 18-month cycle, and you've commented previously that you've identified your Top Five, that someone else earlier alluded to, and what have you, and that perhaps, some number of those have moved out of the Top Five and what have you.

So I guess I'm looking for a general comment as you've gone through the 18 months since the kits went out, what you've learned in terms of the process that you have to go through in selecting one particular customer over another; those that have faded from the Top Five list.

What was the reason? Was it incompatibility on terms, or the inability to come together on terms of a relationship? Or was it regarding, that the technology was not suitable for what they had in mind? Could you give us some color on what you've learned --?

Absolutely. You're absolutely right. We started the evaluation stage of the cycle March of last year, and it lasted for about -- I would say until November. So between March and November we shipped units -- evaluation units about 50 entities, and during that period most of it came back with, kind of, yes, interested to work with you; no, I'm not interested in working with you. Majority of those 50 said, yes we are interested in working with you. Then we, at the end of the year we had to rack and stack them, take Top Five -- and start focusing on Top Five.

Now what happened since on these cases? So, sometimes when it doesn't work, it's not because somebody losing interest, it's because there's an incapability or disagreement on some of the key terms. For example, we want people who we sign to put stake in the ground and give us some commitment that is tangible to us. We know that there is a commitment, and not everybody is comfortable in doing this.

Larger companies more often, really small companies and OEMs, so we have to be firm and we have to be firm and we have to basically determine -- the progress and through negotiations.

And let's say we want to discuss a royalty component, we want to discuss upfront payment. If we don't feel that we are getting the fair share, or the conditions have changed from initial understanding, we try to correct this. If we can't correct it, we replace that person and move to somebody else.

Okay. But in general thought, do you see the desirability of our technology for application in the marketplace, given the availability of size production for the natural green laser. Do you see that still strong?

Absolutely. To be honest with you, if people did not see -- did not feel comfortable about supply, we would not have that level of interest, because the interest starts from -- I did confirm what you tell me, so I did -- so there's the check mark. Second, I believe that the supply chain that needs to support this is there, so these check marks, I think, are good and positive.

Again, the progress is often determined by the negotiations on key terms. Whether they're supply terms, whether they're distribution marketing terms, and the law of commitment, which we measure in form of investment, that specific partner needs to put into the program, internally, at their place and with us to make a successful proposition, because keep in mind, each of these activities take a lot of engagement from our side to support them. We don't want to support somebody who doesn't want to pull their own share.

Yes. Well, I guess I'll just close with this last comment. I would think that -- I'm trying to create in my mind an idea -- the usefulness or utility of our technology, is of such a magnitude that minor things with large companies like development funding would be offset by the desirability of the technology. But I'm getting a sense that maybe I'm a little too optimistic about that.

No. Just remember that each large company comprises -- I think of it as a feudal society. Each large company combine of business units and they all compete against each other, and they compete against different priorities. So, sometimes even though desire is there in some cases, maybe not have the budget to support their desire, so they will look at us to carry the -- most of the weight and we would like to avoid situations like this.

Okay. Thanks, Alex. I'll get back in the queue.

Okay.

Thank you. (Operator Instructions). And our next question comes from Ryan McDonald from Northland Securities. Please go ahead.

Hi, guys -- again. Just one last follow-up question. From some of the consumer electronics companies that you've been in discussions with about potential deals -- I mean, does there seem to be greater interest in an opportunity for an embedded solution? Or, something -- as maybe like an accessory to a smart phone, that's embedded in a case or something like that?

It's an excellent question. An excellent question, Ryan. Usually people who come to us and who engage with us, they're interested in both, but typically, I would say eight or nine out of ten times they want to go through accessory attachment type of product first, followed by the embedded.

Okay. Thank you very much.

Yes.

Thank you. And our last question -- our next question comes from [Henry James]. Please go ahead.

Good morning, Alex.

Good morning, Henry.

I had a question with respect to the Fortune Global 100 company and the development agreement, and the timing of a potential commercial agreement, and I was wondering, with respect to the commercial -- sort of commercial licensing agreement would you expect that you would have to sort of fulfill the development agreement before that would happen?

No. We are actually conducing this in parallel, so as we started the -- during the development program, we are in the process of negotiations prior in royalty terms.

And so, I guess then, as that program moves along and gets closer to completion on the development agreement, then the potential for signing a commercial agreement will sort of rise along with that?

Absolutely, absolutely.

One last question on the direct green lasers, it sounds like you have two suppliers and the third supplier before year end. Do you think there will be additional suppliers at some point in the future, after that?

I think once the market picks up, absolutely. There are additional suppliers that are slightly behind. There are at least two that we know of they are behind the first three, but yes, absolutely. We would see -- once the Pico Projection market picks up we expect that others will enter this game. And just think about this, a lot of people ask us consistently -- what are the markets for green and blue lasers, and red lasers. And if you think about this, there's only application that drives it, Pico Projection.

Whether it's consumer Pico Projection, whether it's automotive displays, or whether it's eye ware displays, because red lasers which was the staple of the DVD technology or (inaudible) this, they've been replaced y blue ray which is blue laser, and green laser has a new application out on Pico Projection. So these large companies must have done enough homework to understand that there is a future in this market and that's why they're doing it.

All right. Thank you.

Thank you. I will now turn the call over to Alexander Tokman for closing remarks. Please go ahead.

Thank you. We made solid progress in Q2 against our primary three goals for 2013. First, generate new business opportunities. Second, expand key supply chain; and third, aggressively manage cash used in operations.

We are very excited about our engagement with the major global electronics brand, and plan to actively support our new customer this year to both enable their solution and to progress the negotiation on the licensing and supply terms. We are continuing to progress new opportunities in the (inaudible) phase, and securing new supply chain partners. We regularly see news and stories that illustrate favorable conditions for Pico Projection markets.

For example, according to recent yield development repot, MEMs is in a -- on a dynamic growth path, expected to double in the next six years to 23 billion, just MEMs. All of these are good indicators. We are pleased with second quarter results, and looking forward to updating you on the progress in about three months.

Thank you for joining us today. On behalf of Dawn, Steve and myself, we'll see you in three months.

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