MicroVision Inc (MVIS) 2014 Q1 法說會逐字稿

Welcome to the Q1 2014 MicroVision Incorporated conference call. My name is [Dawn] and I will be the 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 Dawn Goetter, Director of Marketing Communications. Ms. Goetter, you may begin.

Thanks. I'd like to welcome everyone to MicroVision's first quarter 2014 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 negotiation of future agreements, our competitive advantages, progress with prospective customers, projections of future operations and financial results, product development, applications and benefits, availability and supply of product and key components, market opportunities in growth and demand, plans to manage cash used in operations, as well as statements containing words like believe, goal, path, expects, 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 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 results.

I know would like to turn the call over to Alex Tokman.

Thank you, Dawn. Good morning. We appreciate you joining us today for an update on MicroVision business results for the first quarter of 2014.

This quarter, we made significant progress on our three primary operating goals for 2014, which include first, completing display module development with our Fortune Global 100 customer, supporting this customer with their commercialization efforts and supplying them with key components.

Second, building pipeline of consumer and automotive product opportunities for MicroVision's go to market partners that will provide display engines that will incorporate our PicoP display technology. And finally, ramp in our supply chain for high volume production of MicroVision-specific components in the second half of this year.

Starting with the Fortune Global 100 customer, many of you know that our customer announced in February that it aims to bring a high performance, high definition image quality display module to market for use in pico projectors, as well as other devices with projection functionality. We have been close with supporting the development of this module, which incorporates MicroVision's patented PicoP scanned beam display technology.

Most of the original development milestones have been completed and we expect to complete the remaining development work in the second quarter of this year. We expect this will be followed by commercialization support activities for our Japanese customer. Concurrently, we're engaged in commercial negotiations while the development program continues through spring of 2014.

Now, moving to other consumer electronic opportunities, our business development efforts are focused on developing the relationships, interests, capabilities and commitments from the key stakeholders needed to enable the pico projection ecosystem, which includes engine manufacturers, consumer electronic product OEMs and major retailers. In Q1, we made considerable progress in this area and we are concurrently developing go-to-market paths with several OEMs and major retailers that are interested in the variety of consumer electronic products utilized in our PicoP display technology.

As a part of this effort, MicroVision has produced numerous prototype end user product demonstrators to show superior performance of our pico projector that is built around our technology. We have also completed direct consumer studies to provide OEMs and retailers with data and ideas of the type of products that they could offer that will be successful in the market.

PicoP display technology, as many of you know, can enable an end user experience with features such as high definition, always in focus images displayed on a gigantic screen with laser brightness that are not attainable from other pico projectors and that are well-suited for the mobile video consumption that research shows consumers are now making part of their regular entertainment routine.

Moving to automotive segment, we are continuing collaborations with both a tier one global supplier and a leading global OEM for head-up display. Our goal is to deliver a prototype head-up display system to the vehicle OEM in the second quarter of this year. These programs are in the evaluation and test phases, which are critical steps to having new technology adopted for embedded automotive applications.

Let's focus briefly on UPS. We announced in March of 2014 that we would be supplying customized PicoP display modules to UPS to outfit a distribution facility in the United States. The PicoP display modules will be part of a new package guidance applications aimed at increasing processing efficiency in real time package sorting and routing. MicroVision expects to deliver the modules to UPS in the third quarter.

Once MicroVision delivers units and UPS completes [installation] phase, we expect that companies will discuss possible next steps which could include additional deployment of MicroVision's technology across UPS.

This development highlights an important point for every MicroVision shareholder. The PicoP display technology and platform that we developed a few years ago was defined and designed to be suitable for other applications beyond consumer and automotive products Applications such as UPS could result in important standalone growth segments for us in the future.

Now, moving to supply, the success of the customer activities I just described is predicated on having a high quality, high volume supply of key MicroVision components that could be delivered to consumer electronic and automotive players at competitive market costs.

In 2013, we developed new supply sources for MEMS and auto-mechanical engines to facilitate the offering of a standardized display solution that could provide OEMs with a quick time-to-market for products incorporating PicoP display technology. Our goal is to help our supply chain partners to prepare for high volume production of MicroVision-specific components starting in the second half of this year.

Finally, a brief note on cash use and operations. In the first quarter of 2014, we maintained low cash usage in operations of $2.9 million, while focusing on commercialization of our technology with our partners.

With that insight on the financials, I will turn it over to Steve for more details.

Thank you, Alex. The numbers I'm about to share are included in our press release and in the 8-K filed today, which are available on the investor page of our website.

First, a couple of highlights. In the quarter, MicroVision raised $12.8 million net of issuance costs and an offering of common stock in warrants. Additionally, MicroVision continued its management of cash used in operations with a reduction in the quarter of 16% compared to the same period in 2013.

First quarter revenue was $1.2 million compared to $1.8 million for the first quarter of 2013. Q1 operating expenses were $4.3 million, compared to $4.6 million in operating expenses in Q1 of 2013. Our first quarter operating loss was $3.1 million, which is 16% lower than our Q1 2013 loss of $3.6 million.

MicroVision's first quarter 2014 net loss was $8 million, or 23 cents per share, compared to $3.7 million, or 14 cents per share, in the first quarter of 2013. The $8 million first quarter 2014 loss includes a $5 million loss on the exchange of warrants. Excluding the exchange of warrant loss, which is a non-cash item, the net loss would've been $3.1 million.

Cash used in operating activities in Q1 of 2014 was $2.9 million and this compares to $3.5 million used in Q1 of 2013. Cash and cash equivalents on hand at March 31st were $15.3 million. Backlog at the end of the quarter was $1.6 million.

That concludes the financial results. We will now open it up to questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions).

Our first question comes from Andrew Uerkwitz from Oppenheimer. Please go ahead.

Hello, thanks, guys. Just kind of thinking longer term here, how should we start to think about when the multiple of these projects start to come online and ramp in real volumes -- how that would play out with your OpEx and kind of give us, if you could, a couple of clues on how we should think about how to model MicroVision for the next, say, 12 months.

That's a great question, Andrew. It's not easy to -- there's no easy answer, at this point in time, because as you know, we are pre-revenue right now and working on commercialization specific to MicroVision components, at the same time, supporting our go-to market partners with the development of their engines and their products. So, there are multiple variables at play and more than half is controlled by our partners, not necessarily by MicroVision. Therefore, it's difficult to eyeball at this point in time.

I think the best advice we can give you at this point in time is that -- monitor our updates on the market wins, monitor our updates on the developments regarding Fortune Global 100 customer. Potentially you're going to hear more developments on the engine front and as well as some updates on the developments with OEMs and major retailers. And I think once we're able to articulate this, you'll be able to put together a more compelling story and model [that's] more [effective] than what is possible today.

Great. Perfect, thanks. Just one last question. On the automotive front, you didn't give much color there as you normally do in the past. How is that looking from a new customer perspective? Are you still engaged with multiple OEMs there?

Right now, we're focusing primarily on two. And the reason is not lack of interest; the reason, really, is prioritization of resources. About 90% of our resources are focused on consumer electronic opportunities because they have quicker path to market and quicker path to revenue margin. So, we put a majority of resources on this front.

However, we did handpick several key activities in automotive that have greater future impact and we're focusing on those. One of them is the global tier one supplier, who is basically one of the major suppliers to one of the largest car manufacturers in the world. And the second one, we're actually dealing with the car manufacturer themselves, who are interested in head-up display and we're going to be delivering modules to them and systems to them this quarter, and then weigh in for their feedback in next steps.

Perfect. I appreciate it, guys. Keep at it. Thank you.

Thank you. Our next question comes from Tom Szulist from No Limits Capital. Please go ahead.

Hello, Alex. Congratulations on your progress. First question -- lumen output. Where do you estimate that the first consumer products may be, as far as lumen output?

Right now, we're looking at the products that would somewhere between 25 and 35 lumen. And keep in mind, these are laser lumen, which are much brighter than equivalent LED lumen. So, we've done a series of blind observer studies in the past and it's clearly shown that a laser pico projector, at the same ANSI brightness looks almost 50% to 100% brighter than its counterpart with LED and related technology. So, we feel pretty good about this.

As I mentioned, we developed a series of [product] types of [prototypes] to entice retailers and consumer-[oriented] OEMs. And every time we show our models, they're always surprised by how bright of an image they can get out of such a small, tiny device.

Now, at the end of your meeting last year, I believe you had a Kindle that was retrofitted with one of your projector engines. Have there been improvements from what you had shown at the last shareholder meeting from what --

Absolutely. Absolutely, Tom. Sorry I didn't let you finish the question. Absolutely.

You're going to see significantly improved -- the brightness looks better than what you've seen last year. The image quality looks superior from what we've shown a year ago. And if there's a chance that you attend annual shareholders meeting this year, you'll be very, very impressed with the progress.

Plus we have a roadmap. We're not done. We have a roadmap for 50 and 100 lumen devices, so we are on track to do that.

Now, where do you see the biggest risk factor in being able to have a product come to market? Is there any technological issues that still have to be resolved?

And when we're talking about -- obviously your Fortune 100 Company has been revealed that it's Sony. Are there any bottlenecks or any technological issues that are refraining from us progressing to the next step?

Right now, Tom, I'm [liking] a path where green laser was the biggest limitation we had -and inhibitor to us. Right now, I don't see any major technological barriers for us to get into market.

I think, really, the [only] -- if you want to call it the barriers, time for others to develop their products, to socialize their concepts internally within their organizations -- to decide what they want to build and then to build it and launch it and sell it successfully. That's really the largest risk and it has nothing to do with MicroVision.

Now, in one of your recent press releases, after your fundraising, you stated that you are starting to do preproduction ordering and starting an internal ramp for, I believe it was several hundred thousand units. Where do you stand with the progress on that ramp?

We continue to ramp our supply chain partners for MicroVision specific components to be ready for mass production in the second half of this year. That's our goal. We made a decision to do this.

We monitor outside activities, obviously, on a daily basis. And so far, we haven't made any adjustments, so we feel pretty comfortable right now about the investment we -- decision on investing into this earlier this year. And we continue to do this.

As we learn more, as time progresses, if we determine that we need to -- the volumes could be even larger than what we anticipate, we'll invest more as necessary.

Now, when we talk about -- in your press release, you said it would take about three to four months to ramp to volume production. Theoretically, if you were to receive order for a million or two million of these units, is it possible for you to be able to ramp to those kinds of numbers? Or is that something that will take --

The short answer is yes. The partners we're dealing with are world-class winners in their specific expertise areas. We haven't announced yet our supply chain partners because per our agreements, we want to do the announcements whereas we get closer to commercialization.

But once you see who -- you already know who produces -- who produces one of the engines for us, and that's a major world winner in technology, such as Sony. And we have several other very compelling component suppliers that once we articulate them and making them publicly known, you'll see that they're major players in the mobile industry.

And one additional question -- I see that an awful lot of patents are being filed -- applications. And I'm wondering is there a way to talk about some of these patent applications and grants? Because it seems like the intellectual property that you have tends to be a hidden asset that a lot of people aren't aware of what you have here.

That's a great question. Yes, it could be a double-edged sword, because once you start emphasizing certain things, you give competition especially a -- you [flash] -- you point to certain things that they can start assessing further and finding potential weaknesses, strengths, whatever.

So, you really -- what you want to do with the intellectual property that we're developing is to convince your go-to-market partners that your IP is valuable and unique. And [by partner], if it's MicroVision, they will benefit longer term because they will not be able to get this from anybody else. And that's what we've been doing.

I also saw recently here that Osram announced a 50 lumen green LED. Have you started to see additional LEDs being provided from other suppliers besides Sony, like this Osram? And who else is in the field producing these green LEDs now?

You're probably referring to laser diode, right?

Correct.

Okay. Yes, absolutely. We have -- there are three green and blue laser manufacturers right now that -- capable in producing commercial volumes of green and blue lasers. And Osram is one of them.

And each one has said it will improve on the performance of their green lasers. And every time they do this, which is normal cycle, it allows us to go to higher and higher and higher brightness.

For example, in 2010, when we first introduced our first product, the green laser did not allow us to go beyond 10. Then performance of the laser somewhat improved -- we went to 15. Now we're at 35 and pretty soon -- and we already have results in the lab that show that we can go much higher than what we have today. And that's part of our roadmap and it's part of our collaboration with our named and unnamed partners.

So, the good news is there has been significant progress on a green laser landscape. And it's ceased to become a barrier as it was in the past.

And heat being an issue, not -- is it an issue or not an issue at this point, the heat generated from these LED -- laser LEDs?

Lasers? You know, it's a relative term. You're always going to have heat generated when you increase the brightness. And when you have -- when you try to compact too much stuff into a small space [which] small device -- so, that's part of life. Now, how you manage it determines whether you can create a successful product or not.

And luckily for us, we have some significant advantages on the heat dissipation and heat generation versus LED and DLP, or LED core based systems. Because we use single mirror and because we use lasers, our system efficiency is much higher, which allows us to produce and dissipate a fraction of the heat that the others do at high brightnesses.

Great. I'll leave the line open and get back in the queue. Thank you, Alex.

Thank you, Tom.

Thank you. (Operator Instructions).

Our next question comes from [Jeff Harvey], Private Investor. Please go ahead.

Yes, good morning. In the past, speaking of patents, it seemed to me that there was discussion of potentially trying to monetize some of these patents that may not be important in your future development. Is there any more consideration of that?

That's a great question, Jeff. We continue looking for opportunities in this area. And we do have some interest, but some of the [opportunities] we've been receiving did not meet our expectations, so we basically continued to assess and explore this opportunity. And once something important comes out, we obviously communicate to you and everybody else.

Okay. Now, in the past, you've indicated that there were potentially I guess 50 companies that would potentially be partners for your technology. It seems at this point, we only have really two. And I'm wondering what do you need to do to speed up this process to get more companies signed up for your product?

Well, let me just refresh everybody. We did have interest for close to 50 companies. But given our size of our company and size of how many people we have, we [can't even] close to enable this many opportunities.

[Once], you [remember] as I mentioned to you over the past five calls, we purged that list to top five opportunities and we fought -- we put all our efforts on the first top five. And of the top five that we discussed a year ago, we announced developments on two top five -- actually, three out of top five. And we're working the other opportunities [in part].

So, it's not just two opportunities we're looking at. We're looking at essentially a coalition of go-to-market partners that include major retailers, consumer electronic OEM and engine manufacturers. So, we're looking at each opportunity as a go-to-market path -- when you have three separate players, combined together that will utilize MicroVision's technology to launch their products to market.

We have been announcing few of those because the others we're not ready to announce. But it doesn't mean that we're only working on two opportunities.

All right. Thanks very much.

Okay.

Thank you. We have Tom Szulist from No Limits Capital with a follow-up. Please go ahead.

Yes, Alex, the interactivity where you're able to interact with your field of vision using additional invisible projection within it -- are you pursuing, or is anybody pursuing any activities that would include that?

Tom, we have -- so, with the feature that Tom is referring to, it's that MicroVision has developed a technology which allows you to do air touch of the object that you project. For example, imagine you have your cellphone and you're projecting an image of something -- let's say it's a PowerPoint presentation or it's a game.

And today, you have to use cellphone controls to move the object. We developed technology that you can use your finger in the air to articulate all the objects, just like you would on your touchscreen.

People who we show this technology really, really like it. And it's part of the product roadmap for several people we're discussing the product definitions with. So, it's actually part of the product roadmap. So, yes, there is a lot of interest. And it's staged as a part of the roadmap for the product introduction.

And is it realistic to think that we may be seeing a consumer product released by the end of this calendar year this year? Is that a high probability, or is it still too early in the stage of development to expect to see something of that nature?

For this specific feature?

For this -- not the interactivity, just for straight projection.

Well, listen. It's a loaded question. You're going to get in trouble with our partners.

But what I can tell you is that we can't comment on when they will introduce their products. Even though we know what timelines are, we can't say anything until they are ready to communicate. I think you can use your judgment by listening to what we're doing about our supply chain.

So, our supply chain is being positioned to be ready for something like this in the second half of this year. Whether everybody else will be ready, we will see. But right now, we're counting that something is going to happen outside of MicroVision to take -- [probably] take the components we're ramping right now for [mass volume].

Great. Okay, thank you, Alex.

Thank you. We have no further questions. I will now turn the call back to Alex Tokman for closing remarks.

Again, thank you for joining us today. We are pleased with strong measurable progress MicroVision made in the first quarter, specifically completing the development milestones with our Fortune Global 100 customer to help them create their pico projection module that has potential to be incorporated into many different and exciting product categories, progress in targeted consumer electronic and automotive activities, ramping our supply chain to provide high volume, low cost PicoP components and continued aggressive management of cash used in operations.

Now, as we're building momentum and moving this year into commercialization phase, our primary focus is to help companies to incorporate our technology into their products so they can offer consumers pico projection solutions not seen or available before. And new market data further supports the need for what we would offer.

According to the Global Video Index, in fourth quarter of 2013, it was reported from Ooyala, the share of time spent watching videos on tablets and mobile phones has increased over 700% in the past two years and 160% over the past one year.

At the end of last year, more than half of mobile phone viewers' time spent watching videos that were longer than 30 minutes. What does it mean to us? A larger screen will be a must-have feature for mobile devices and we expect that MicroVision and our partners will offer video solutions that consumers will embrace.

As you know, everybody at MicroVision is working tirelessly on your behalf and we thank you again for joining us today. On behalf of Steve and Dawn, have a good day and we'll speak to you soon.

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