MicroVision Inc (MVIS) 2015 Q3 法說會逐字稿

Welcome to the Third Quarter 2015 MicroVision, Inc. Financial and Operating Results Conference Call. My name is Ellen 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 Ms. Dawn Goetter. Ms. Goetter, you may begin.

Thank you. I'd like to welcome everyone to MicroVision's third quarter 2015 financial and operating results conference call. In addition to me, 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 and growth in demand; plans to manage cash used in operations, as well as statements containing words like believes, goal, path, 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 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 operating 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 Alex Tokman.

Thank you, Dawn. Good morning. Thank you for joining us today for an update on MicroVision's third quarter 2015 results. We have made important progress during the last quarter as both Sony and Sharp announced exciting new products incorporating our technology. Our revenue for the first nine months and for the quarter is approximately 2.5 times higher than the year prior. We continue supplying product to our primary customer, and we are proceeding with our plans to expand production. In Q3, we did encounter some unexpected supply challenges with one of the components, however, the issue was promptly addressed by one of our key suppliers. I will cover both the market related activities and supply chain situation shortly.

Q3 was an exciting time for us, with two product introductions. In September, Sony announced the introduction of a new companion product targeted for mobile users called MPCL1. The product has garnered very favorable media reviews highlighting the product's salient features which include infinite focus, high definition, long battery life, small form factor, and great image quality. All of which are hallmarks of MicroVision's PicoP technology.

The product rolled out in the Americas and most parts of Asia in October. Also in early October, Sharp announced a new and exciting smartphone product called RoboHon, a small robot with integrated smartphone and projection functionality. The product received huge buzz and very positive media coverage after its launch at the CEATEC conference in Japan. Sharp's exhibit, specifically with RoboHon, had a lot of traffic during the show because of this new product.

We announced our cooperation with Sharp in 2014 to design a display engine based on MicroVision's PicoP display technology tailored for the specific needs of Sharp's mobile RoboHon. MicroVision's technology and approach to laser beam scanning delivers all the required capabilities such as infinite focus, high definition large screen from short distances, ability to project on any surface, all from a compact and low power display engine. This combination of performance and size was essential for Sharp's product. The teams addressed a unique set of requirements and form factor challenges to give the robot the ability to project information from short distances. Sharp has indicated that the product is expected to be available in Japan in the first half of 2016.

We have received an initial purchase order, Steve will tell you more on this, for the key components for Sharp's display engine. These components are for early production units and we expect to ship them in early 2016.

MicroVision's technology inclusion as an integral feature of RoboHon is an excellent case study in the versatility of our solutions.

In addition to these product announcements, we continue to engage with other OEMs to facilitate adoption of PicoP technology inside their products through the display engines produced by an engine partner, Sony.

Since Sony made their engine available to others, the commercialization cycle of new products has been simplified and shortened. It is also important to point out that Sony with global reach much broader than ours, owns the sales and marketing process for their engine to OEMs. And we are supporting them on a need basis in a number of design win and design in activities.

There are no material updates related to customers in the automotive or industrial segment during the last quarter.

Now, let us switch gears. So let us talk about year-over-year growth. Our Q3 and nine months revenue was significantly higher year-over-year, representing 150% and 160% increase respectively. And the product and the royalty revenue was on par with what we did last quarter, in the second quarter. Recall that in Q2, we had 3x increase in shipments of MicroVision components over shipments we did in Q1, which contributed to the increased product revenue over that period.

Our internal plan was to further increase the volume in Q3, however, we maintained similar to Q2 volume in the quarter due to unexpected supply issues that reduced the quantity of the parts delivered to us from one of our key suppliers. The good news is that after the issue was discovered early in the process, the supplier diagnosed and fixed it promptly. More on this later in the supply chain segment update.

Our gross margin for product and royalty has improved from 17% in the second quarter to 24% in the third quarter. Reduced scrap was the major contributing factor. We are pleased with this trend but we are not done yet. Our goal is to continue to improve gross margin as we increase volume moving forward.

Steve will provide further financial details on revenue margin and other key metrics in a moment. But, first, let me talk about our progress of ramping the production capacity of our key components, including more color on the temporary supply issue we encountered in the third quarter and addressed. Just as a background, even before we began ramping volume of our components with the suppliers, we made a strategic decision to prioritize quality over all other metrics until a steady operating state is reached. Our supply chain priorities, therefore, are, first, quality; second, output volume; and third, internal efficiencies and cost.

To ensure high quality component deliveries to Sony, we implemented additional quality control screens for components received from our suppliers at these early stages. In early August, one of these quality control screens for MEMS die discovered an anomaly that appeared in a component manufactured by one of our suppliers. This anomaly was not observed previously, hence we had to understand what it is in severity and frequency.

Our initial analysis indicated that the newly observed anomaly could have a possible future quality impact on some small percentage of products. We decided not to take any chances so we acted quickly and decisively, and told our component supplier to stop shipments to us until the problem was properly diagnosed and corrected.

At the same time, we immediately engaged them to establish the severity, root cause, develop a solution to the problem in their process before we restarting the deliveries. Within a few weeks after the initial diagnosis, our supplier identified the root cause in their fabrication process and implemented a solution in September that fixed the problem. Starting this month, we expect to receive a higher quality of die based on the improved supplier process. The timing difference between when they addressed the problem, which was September, at their fab and us receiving higher quantities in November is gated by the cycle time in the wafer fabrication process. It's a normal lead time, normal cycle time.

Until November, we have continued receiving die from this supplier, albeit at lower volumes than we had planned particularly in September and October. Sony is fully informed of the situation, they understand and agree with our plan, priorities, and actions. For us, and for you, the most important take-away from this short story is that the decisions and investments we have made early in the process allowed us to catch the problem before it became a real problem, contain it, and correct it at the source without impacting customer future product quality.

And with this, I will now turn over to Steve for a recap of Q3 and nine months financials.

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

In the third quarter, we continued to show solid year-over-year revenue growth, Q3 revenue was $2.4 million, which is well above the $1 million of revenue we had in Q3 of last year. Additionally, revenue for the first three quarters of this year was $7.3 million, which is up 160% from $2.8 million in the first three quarters last year. We do want to note that product revenue in Q3 was below our expectations due to the component shortage Alex discussed. Q3 product revenue was $2.1 million, which is about on par with the $2.2 million of product revenue we had in Q2.

Gross margin for the quarter was 24%, down from 29% last quarter. The decrease in overall margin is due to the fact that Q2 included margin on contract revenue, and there was only a very small amount of contract revenue and margin this quarter. The good news is that product gross margin did improve in Q3. Q3 product gross margin was 13%, up from 5% last quarter and product and royalty margin combined was 24%, up from 17% last quarter. The improvement in product gross margin was driven primarily by less scrap in the manufacturing process.

We do want to make everyone aware that during production ramps, supplier issues like the one we experienced in Q3 can happen. Our plan to mitigate these risks is to keep the appropriate processes in place to protect the product quality.

Q3 operating expenses were $4.1 million compared to $4 million in operating expenses in Q3 of 2014. Operating expenses for the first three quarters of 2015 were $11.9 million, down from $12.1 million for the same period last year.

Our third quarter operating loss was $3.5 million. Our third quarter operating loss last year was $3.4 million. Operating loss for the first three quarters of 2015 is $10.3 million and compares to a loss of $9.8 million in the same period last year. Our third quarter 2015 net loss was $3.5 million or $0.07 per share compared to $3.4 million or $0.08 per share in the third quarter of 2014. Our year-to-date net loss was $10.2 million or $0.22 per share. Our 2014 net loss for the same period was $14.8 million or $0.36 per share.

Cash used in operating activities was $3.6 million in the third quarter, compared to $3.2 million in the same quarter last year. Operating cash for the first three quarter of this year, the cash usage for the first three quarters of this year was $2.2 million which is significantly better than the $9.9 million used in the first three quarters of last year. The improvement this year is mainly due to the $8 million license fee we received from Sony in Q1.

Cash and cash equivalents on hand at September 30 were $11.2 million. In the third quarter, we did not use our ATM facility or have any other significant equity related transactions. And finally, backlog at the end of the quarter was $13.5 million. Most of the backlog is related to the Sony orders but there is approximately $350,000 of Sharp orders. We plan on fulfilling these orders the remainder of 2015 and in 2016.

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).

And our first question comes from Mike Latimore from Northland Capital.

Thanks. Congratulations on the Sony and Sharp launches. On the -- just on the supplier topic here, Alex, did you say that the issue has been fixed? And are you back to the volume capacity you thought you were or it's fixed but still a little bit lower volume capacity than you thought you would be at?

Yes, Mike. So basically, a couple of things. First of all, the issue that lowered the volume has been fixed, and we will start receiving the higher output of MEMS die this month. Until then, we were utilized. And so, specifically in September and October, we had lower volumes coming due to that specific anomaly. And our goal, basically, is to get back on track.

Okay, so sometime in November, you'll be back on the volume basically you thought you'd be at.

Get back to our internal plan, that is correct.

Yes, okay, got it. And I mean, what is the volume amounts that you could, that you should be producing, let's say, or expecting to be producing on a monthly or quarterly basis?

You know, we obviously don't share this information at this point in time. But it is just simple math that shows, we -- our internal goal was higher than what we produced, what we produced in Q3 was equivalent to Q2, and our goal is obviously to use this as a baseline to improve further and to increase the volume.

Yes. And then, obviously, over the last couple of years, you put a lot of your efforts into Sony, that module launch, can you redirect those to new prospects? And you said if you look at the new prospect lift, is the idea that maybe you are getting another Sony that would -- where you would put a lot of effort behind that or would the prospect be more diverse, let's say?

It's a great question. You know, it actually -- I hate to use this word, depends, but here is what is happening. Now that Sony engine is commercialized, we have already distributed our technical resources into several growth areas that we are interested in. They include not only pico projection applications but also augmented reality, 3D sensing, and obviously head-up display.

And in terms of the type of collaboration or business model with prospective future customers, it's just going to depend on application. And on their level of commitment and involvement. Because Sony is more vertically integrated, that's why we went really deep with them. Some people just want the off-the-shelf solution. If they want off-the-shelf solution, they would go to our primary customers such as Sony to get the engine to build whatever products they want to build.

Okay. And then you mentioned you're supporting Sony on design-ins and design wins. I guess have there been new design wins in the last quarter or so here? And then if so, what's the sort of total number of design wins you got?

We have a number of activities in the pipeline and they're making progress. And again we're not really privy to discuss other customer launches and dates. But what we can tell you is that we actually are working on several new opportunities. When they come to market it's going to be up to the OEMs to provide the data or information. Once they do that, we will provide more color.

Got it. And just last question, the target gross margins you talked about in the past, are those still kind of the logical ones? Or has that changed?

Absolutely, 40% is our target, and we believe with increased volumes and reduced scrap to improve efficiencies, we can get there.

All right, great. Thanks. Good luck.

The next question is from Henry James with State of Michigan.

Good morning, gentlemen. My first question has to do with the gross margin and whether you would expect sort of sequential gross margin improvement.

We expect margin to improve over time, but as we're ramping up the production process, we can encounter events that they could make it so that it's not a linear or a constant improvement. But we're working on improving it every quarter. With that said, events can happen that it may not always be improving from quarter-to-quarter.

Henry, on the positive side, as the volume increased on the key contributing components to cost and margin as you know is the manufacturing overhead. As the volume increases, our cost per unit reduces, and that should give us a boost. But as you said sometimes you cannot predict, you may run in terms of some temporary situations like we've done last quarter, that had to be fixed and quality is above all.

Okay, okay. And also I know, last quarter with respect to royalty revenue, you highlighted the potential with this early stage for a sort of irregular patterns in the royalty revenue. And so, would you say this quarter is a more indicative of the normal pattern or should we still be sort of operating on this potential for irregular patterns in royalty [revenue]?

Not yet, not yet. Remember, Steve was consistent over the past couple calls, he said there's lag. [I pushed] the quarter lag between when component revenue is recognized versus when royalty actually received, so that's one component. Second component, because these are the early stages, there's no consistency right now. To be able to say this is what I expect the following quarter. I think, you're going to see when we reach a steady state, higher volumes and steady state, you will be able to be more predictive around this specific metric.

Okay.

We're still in that variable stage.

Okay, okay, because I know that if we looked at sort of your product revenue and I know this is not a sort of necessarily a proxy for what some market business is doing or the marginal business is doing, but it's sort of - it has been on, at least in this quarter, has been on an increasing trend. But your royalty revenue was actually smaller this quarter than it was the prior quarter. So that was just a little bit of a concern to me.

Yes, like I said, there are just lags and fluctuations from the time that we ship components, to when those components are made into display engines, and then when those engines are shipped to customers and then reported to MicroVision. So, again, we're early and I would caution you not to draw too much of conclusions from what you're seeing from the last two quarters. The numbers are very similar, we see that as well, but I would not draw conclusions yet.

Okay. And so last my question, I'm just curious, Alex, as to your opinion as to sort of what are the sort of most important things that have to happen for your business to go to a significant increase in run rate, from where we are now?

Yes, so on our side, just basic blocking and tackling that we know how to do, basically stabilize this flight, increase the volumes, maintain obviously the highest level of quality for Sony and others. That's what we control and we believe we can do this. In terms of what the other factor is -- general market awareness, because these products are new. Even though you know and most of the people on this call understand what pico projection is, believe it or not, 97% of people that we studied do not, have not heard about this.

So market awareness is going to be huge to get the sell-through rates increased. And partnering with Sony, and Sony having much larger sales and marketing team, much more resources that MicroVision ever had, we believe that that will help to proliferate this to the next step. Because, again, remember Sony is not just selling products, they sell -- their main product is actually engine that they want to sell to as many OEMs as possible in and outside of Sony.

And so, you would say market awareness? And it's not so much an issue of, say, cost or improvement in the technology?

No, if you look at -- if you use existing evidence, it's limited, but it's factual. Sony just introduced their product a month ago. And Celluon has been selling products since March we believe. And if you look at just example, one channel, Amazon, they are top in all the pico projectors sold, all, and there are quite a few. Those two, that based on our technology, are in top five and they are $300.

Okay. All right. Thank you.

The next question is from Randy Hough from Pro Equities.

Good morning, fellows. Let me frame my question as kind of a follow-on or dovetailing into the last sequence of questions from the fellow from Michigan. In terms of volumes, Alex, to launch the company into levels that we had all set expectations on years ago that we derive from applications in mobile devices and smartphones, cell phones at that times, smartphones now. And my question is this, it appears, on the one hand, that the engineering and form factor targets over the past several years for MicroVision has been to reduce the size of the pico projector of the integrated photonic module, down to where its represented on the website, it's something on the order of the size of the quarter. However, in these final form factors, in particular let's talk about the Sony standalone projector. It appears that the final platform is considerably larger than that. In fact the device measures five inches in length over appears that their projector platform is considerably larger. And when we talked to Steve here a couple of weeks ago, it was mentioned that the current platform from Sony would not fit in a smartphone and it's questionable about whether or not it will fit in a mobile device. So what I'm asking then is with that premise for you to explain why it appears -- what appears to be the case is true, why Sony had to increase the form factor significantly in order to make the device work?

Okay, understanding your question, Randy. So, first, I'll start with most important thing. The smartphone is still very much target for us. Let's start with this premise, nothing has changed. We believe that a smartphone with our technology would be a great product that would be embraced by consumers because of the low power, small size. Sony is just one of the examples of the engine that they chose to pursue with specific markets that they want to target. It doesn't mean that this is the limit. We actually know that it's not the limit. And it can't and would be much smaller.

We believe the advantages we have in these areas, which Sharp is a perfect example. Sharp really wanted a tiny engine that can offer focus-free, high-definition, large screen size from short distances. And it's an evidence that, if you target a specific application and optimize your engine for that application, you're going to achieve it with our technology. I can't and Steve can't answer for why Sony made certain decisions for how to optimize. But the point is that there are several players that are looking at different technologies in different markets and may make the ultimate choice how to structure this. Remember in this life, you cannot have everything. You always have to tradeoff depending on what is more important and less important to you.

And Sony decided based in their internal analysis and external feedback that that specific engine that they developed has ability to penetrate many more markets than if they chose to do something potentially smaller, lower power, but had a limitation related to other attributes that they deemed to be less important.

Okay. But then can I infer from that, Alex, that with respect to Sony and tailing back into your comments about Sony reselling their engine to a number of other OEMs, if their engine is larger than the form factor that we've been expecting to be necessary for application to mobile devices including smartphones, if that engine being sold or marketed to other OEMs, will not be the proper form factor or insertion to be embedded into mobile device such as a smartphone or --

Randy, it depends on the specific use case. This engine absolutely -- I personally, this is my opinion, there's no reason this specific engine cannot fit inside most of the tablets, for example. There is no reason why this would not fit in a larger form factor smartphones. So, again, all of the possibilities are still up open. Sony chose to do the first generation, obviously they have a strategic road map, just like we do, they have a strategic roadmap, we are aware of what their strategic roadmap, can't share it with you, but I understand that they're aware about embedded market, companion market, attachment market, and they point in accordingly. So this is -- don't view this as end at all, this is just a beginning.

Okay. And then just to follow up last thing on this line of questioning, in that list of other OEMs that you're talking about potential, remember we started with 50 and you broke into groups of five or 10, are we in fact talking to any large OEMs about an embedded device in a smartphone and tablet to some degree or another?

We're actually - remember when we discussed this two and half years ago, so when we said we had 50 and we have to prioritize by top five, second top five because our bandwidth was limited?

Right.

Well, now our bandwidth has increased order of magnitude because Sony is doing that with much larger team.

Okay. And then last question and I'll get back in the queue. With respect to the glitch in the manufacturing that you identified earlier, are there any -- I hope we're not in a situation where some of the components we took on that had to be anomaly and they are something that we're going to get stuck with as unusable components? Or does that go back to the manufacturer and we are to get stuck with inventory risk like that?

The good news is, you heard it from Steve, our margin has improved from Q2 to Q3. That means that supplier took responsibility of that, for majority of the cost.

Okay. Great. Thank you, Alex.

The next question is from Mike Scott with Stephens.

Yes, thank you for taking the call. The questions I've got, number one, is obviously, there's a lot of -- well, all things that we've tried to glean as far as potential business and potential clients from ours and from Sony is kind of, I guess, a waste of time and sorry for discussing that because we're not going to be bale to talk about that. But one thing I'd do want to see if you could provide for us specifically since it's an existing product has Sony given us any, or you guys, any ideas on MP-CL1 actual product they are producing currently, as far as volumes, they're expecting to sell worldwide. I mean that product is actually exists today and be purchased today. And while nothing is -- no numbers are set in stone, have they given us any idea what they think they can do as far as sales of that product, first question?

And second question, just to check and look at the financing, I know, we've got $13 million roughly in backlog, which you expect to fulfill, I suspect, what you said I think for the rest of 2015 and then 2016, and cash on hand of $11 million. Is it feasible to say that, financially speaking, we're going to be okay as far as needing a new financing equity or otherwise for the foreseeable future? And I'll get back in the queue also.

All right, Mike, I think you had three separate questions. Question number one, where has Sony introduced this new product, MP-CL1, and how are they selling? I think I get this. The second question was when we expect to fulfill the backlog. And the third question was do we have enough cash and --

No, one of the questions I did -- had they given us any idea on their projections on sales volume, not specifically to the unit, but what is their overall expectation to what they can sell worldwide whether it'd be standalone through Amazon or any retailer? And then, again, there has been talk about there's been a product (inaudible) PlayStation unit. We give any -- I mean they're clients of ours. Should I give any idea as far as the products they actually use, actually producing, as far as what kind of volume we might look expecting on those items?

Well, the easy answer to your first question is their total volume should be predicted by the backlog that we have to fulfill since it's basically they would not order something if they didn't think they would sell it. So that's number one. And specific to all other products that they're looking at to put the engine in, so this is not only inside Sony, but also outside Sony.

In terms of the specific product, MP-CL1, they launched it broadly. They launched it in Americas, in U.S., South America, and most parts of Asia, which are the primary markets. So because they just began in October, it's too early to see the numbers. As we go through the year and next year, we will have better feeling, how are they doing? If early facts are our predictor, then this product has been great, rceived well. I mean if you look right now at Amazon, as I mentioned, it's a number one best selling pico projector on Amazon right now and they just arrived. If that is repeated in other channels that they're pushing these products to, then we should smile. But again we have to wait and see the results. In terms of the backlog, again, we expect to continue to fulfill backlog in Q4 into 2016, and obviously, our expectation is that this is just the beginning.

On your third question about the cash, Steve mentioned we have $11.2 million. As you know our average burn over the past X number of years has been about $1 million, plus, minus couple of hundred thousand per month. We're continually evaluating options available to us. And we usually -- when we make a decision to do something, it's something that we believe in the best interest of shareholders in MicroVision.

All right, thank you for your time.

The next question is from Tom Szulist, Private Investor.

Hey, gentlemen. Thank you for taking the call. My understanding is that someone had reported that the Sony unit has a variable speed fan to help dissipate any heat. Have you guys been able to verify if that is true? And does that also open the door to being able to increase the lumens of the projector because of that heat dissipation?

That's a great question, Tom. Our technology does not need fans, so this one has something. We just know this because it's too early. It's just been released, so we haven't had a chance to actually look inside, but it does appear it has some opening. Why they did it? Probably to enable in the next generations of products that may be brighter. That's correct. We don't have - they obviously don't tell us why they did this, we're just speculating at this point.

Right.

But it looks like you would create something for the future opportunity, yes.

Has your supply chain disruptions changed and altered their rollout plans? In other words, has it caused them to slowdown their rollout because of the lack of products coming through you?

No. The temporary supply issue that we experienced has no impact on any of our customers including Sony.

Okay, perfect, very good. The other thing is cash wise, you did not use any of your ATM during the last quarter, was that correct that I heard?

It's not related to this. We continue to evaluate. We decide -- we always -- for us -- as Steve and I were continually mentioning, for us, financing, we view that as a process not an event. And we always, always continuously evaluate opportunities including when to use and not to use our ATM and we just decided not to do it last quarter.

Perfect. Now, as a shareholder I commend you to that because I think it is an exciting time to just raise capital if you see the things are progressing. I think it makes much more sense to have a little patience here. Steve, pertaining to the financials, the continuing operation segments at the present time and if you continue on this push, do you anticipate that, that will not be in the financials anymore that the accountant's statement about our ongoing concerns?

Of ongoing concern statement. We will evaluate that when we do the audit at the end of this year and look, depend on our cash position at that time. And so, I really don't have a prediction on that.

Right, at the present time in the quarter, are you going to able to eliminate that cost at this point? Is that correct?

Well, that's part of the opinion, which is an annual item not quarterly. Our financial statements are reviewed and not audited, and so there is not a going -- there is not an opinion on the quarters.

Okay, excellent. Pertaining to the actual drive engine, now Sharp is not using Sony's drive engine, is that correct?

That is correct. So for Sharp, we help them to develop their own engine for their application.

So Sharp is the actual manufacturer. Can you disclose where the lasers are coming from?

Sharp and its suppliers manufacture the engine. We're not allowed to disclose the specifics. But they obviously get red, blue, and green lasers from somebody although we're not privy to discuss.

And the lumens on that projector that's in the RoboHon, could you talk about those specs?

Tom, we will provide a little more color once Sharp launches the product and actually has the specification announcements. They haven't announced it publicly. They haven't provided these details. We cannot comment on their future product at this point in time.

Okay. And internally with R&D. a few questions, number one, how is your progress towards higher lumens, number one? And number two, are you pursuing additional ways to decrease the size of your drive engine designs?

We're always looking. We always focused on the innovation with completion of Sony program last year, a considerable amount of internal resources without increasing the OpEx were reallocated to strategic areas, which include platform, reducing the size, power, increasing brightness of the engine, as well as looking at other verticals or applications beyond projection, which include eyewear and the 3D sensing, which are very hot areas.

And as far as lumens, can you talk about anything on the R&D front there as far as what do you think the limitations are for your technology?

It's a good question. It's a good question. All we can tell you without providing the specific numbers is that we already show our ability to increase lumens well beyond where we are today. The reason we're not disclosing this unless we've shown strategic roadmap to our prospective customers because there is a market today that our customers were selling the existing technology. We don't want to compromise anything that -- and create unnecessary wait period for somebody if they're interested in metrics that we don't have today, but we will have tomorrow.

So essentially yes. We've increased brightness. We show our progress under NDA to prospective customers. They understand the roadmap. And that's one of the reasons they sign up to build products because they know they can launch something today with this brightness and tomorrow it's going to be different.

Great, thank you for catching the problem early. It could have been a disaster had we -- in that product, we've gotten lot of products out. So, I know as a shareholder I love to see the growth. But having the ability to monitor the quality, that to me is number one in terms of bad product launch. It would have been a disaster.

So, great job, thank you, guys. I appreciate all your efforts.

Thank you, Tom.

Your next question is from Randy Hough with ProEquities.

Alex, I got an inquiry from one of my clients, who is a shareholder about Lenovo's Smart Cast concept phone, which if you watch their video clip shows a laser-based technology embedded in a cell phone. It's always been the case that in my mind anyway, perhaps I read this wrong, that we have our technology based on laser technology that's patented every way from Sunday. Could you comment on your understanding of what's being used in the Lenovo concept phone vis-a-vis our patents?

Unfortunately, Randy, we do not discuss the IP related matters publicly. We do actually monitor the market for products and technologies that fall in this area. And the best news about this specific predicament they choose to describe, it's not to be concerned that somebody or something may or may not have our technology. The best news for you and for everybody else for us included is that different major OEMs are experimenting with the new applications that are best enabled by technology such as ours.

So that is what is going to get this market going because consumer electronics market guys is the copycat market. Somebody has to show success first before everybody jumps on the bandwagon and says copy in it. And having Sony, having Sharp, having Lenovo, having others experimenting with the new applications that are particularly benefited when our technologies is used is good for everyone.

Okay. Fine, thank you very much, Alex.

That was our final question, I would now like to turn the call back over to Alex Tokman for closing remarks.

Third quarter was highlighted by big market wins. Specifically, Sony and Sharp announcing product launches. We had significant growth in the year-over-year revenue for both Q3 and nine months, and some unexpected challenges on the supply side that we addressed. Due to quick and effective actions on the part of our team, we were able to alleviate the temporary unexpected supply issue and address the root cause at the supplier. And we expect to get back on our ramp plans starting this month.

We were delighted with Sony announcing and launching their first product in Americas and most of Asia and Sharp's introduction of its new mini robot smartphone, which both came with quite a fanfare. Both products received extensive positive media coverage, Sony's projector has had the media and customer reviews garnering close to five stars. We're excited to see the product that our customers are introducing getting such positive reception, and we see that as a positive validation of what we have been doing.

We firmly believe that solutions with MicroVision's PicoP technology are poised to enable true differentiated end user experiences that are not attainable from other pico projection devices. Press and consumer reviews of the products with our technology often rave about benefits and features enabled specifically by our technology. These include infinite focus, slim size, silent operation, clear, bright images beyond expectation for the size of what you get it.

The recent Amazon update, as I mentioned, on best selling pico projectors, for example, shows that both Sony and Celluon are in the top five seller list, which is the strong validation point for us. And considering that there are lot more choices available to consumers from other technologies, having two products based on our technology being top five -- you should feel good about this because we do.

We continue to see widespread adoption of mobile video and believe that this behavior will be a key driver for consumer interest in the adoption of pico projection. The most recent global video index published quarterly by Ooyala found that, globally, nearly half of all online video plays in the second quarter of this year were on mobile devices with smartphones dominating all other categories. This represented approximately 74% increase from previous quarter and more than 800% increase from three years ago. And of course, it comes as no surprise that the reports find the younger consumers are driving the adoption of mobile video.

As we solidify our production capabilities and look forward to new products come into market in the Pico projection space, we're also continuing to innovate and enhance PicoP technology platform to address both the growing opportunity in the pico projection market which is driven by mobile video as well as other non projection market such as eyewear, 3D sensing, and HUD.

We're excited about the prospects in front of us and we expect to end this year with a measurable year-over-year growth. We're convinced that the achievements over the past nine months are a strong indication of that potential, we're focused on making our customers successful by providing them with high quality components and assisting them with their go to market effort. We're going to continue to this.

And now on behalf of Steve and Dawn, I'd like to thank you for joining us this morning, and we'll now conclude this call.

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