Microvision Q2 2005 Conference Call Transcript

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Brian Heagler: Welcome, introductions. Forward looking statements disclaimer.

Rick Rutkowski: Thanks everyone. Review of financial report, discussion of outlook going forward. Introduce Alec Tokman, will comment on initiatives he has undertaken and some that he has planned over the next 30, 60 , 90 days in particular. $4.7M is a record quarterly revenue for the company. Variability due to Ethicon contract structure. Excellent performance year over year, bit of a spike in terms of contract revenue, some of that may taper coming into the third quarter. Product sales helped by military sales, GD will help in second and third quarter. $4.7M, 124% increase over 2004 Q2. Expect favorable comparisons to continue over third quarter and over the rest of the year. Contract revenue more than doubled for the first half of 2005 versus 2004. Product revenue topped $1M in 2Q05. $6.8M backlog as of June 30th. Sets the stage for continued growth in product revenue for the third quarter, targeting 30% increase in 3Q for product revenue. Also speak to what the contract picture looks like for the 3Q, will put that backlog in context. Reduce operating loss, $5.8M. Prinicpally due to increase in revenue and gross profitability. Reported consolidated net loss was 23 cents a share vs. 40 cents a share in the same period of last year. Includes net non cash gain related to warrants and seven cents per share on sale of LMRA shares. Ended quarter with $2.3M. Earlier today announced raising $5M in new equity capital, converted $5M preferred stock into common equity. Increased equity, reduced debt. Puts us we think in a stronger position going forward.

With that summary of financial highlights for the quarter, would like to offer remarks to frame the activities going forward. Satisfied with overall direction of the business. OEM development activities and product sales, focusing attention acutely on areas that can benefit from improvements. In particular, expect to see product sales accelerating, has been a key focus, in this case the bright spot is our work with the military, equipping the Stryker Brigade with the ND2500 unit. We think there is substantially more opportunity there. Commercial sales of Flic looking for good solid growth in Q3, expected flat quarters to start year, expect to see some acceleration of that activity in the second half. Made some organizational changes, focused on channel development, leverage existing resource by growing account base of resellers and systems integrators.

Marketing commercial Nomad continues to be our greatest challenge. Need to leverage our presence into distribution channels that include systems integrators, applications developers and other solutions providers. Starting to see ourselves being effective in that regard. One deal in particular that has been in discussion for a long period of time, we think that will soon come to fruition for the automotive space. I think Andrew, you also mentioned a deal with an overseas distributor very soon as well. Another key aspect in terms of channel development and application development is ther recent announcement with Hunter Engineering. Hunter Engineering produced a version of WinAlign software that enables Nomad user interface to wheel alignment system. Powerful application. Measure discretely and quantify the benefit of Nomad. We think user acceptance can be quite high. Very large installed base, roughly 65,000 locations today that house Hunter wheel alignment systems. Strategy is focused, to begin in the Southeast. Andrew, offer some words on this and targeting truck maintenance and fleet customers.

Andrew Lee, VP Sales: Will move 4 teams this week into the Southeast to work with Hunter wheel alignment reps. Methodical process to take advantage of WinAlign. 25-30% increases in productivity from some of our trial efforts, we want to share that with the market. Truck space tremendous acceleration in activity. Recently signed a nine store deal, secondary deployment with a Volvo Truck dealer down in Texas. Results are coming in now and tend to indicate great promise with truck and heavy equipment area this quarter.

RR: Continue to refine focus on how to effectively market and sell into this segment. Turn call over to Alec Tokman to take generally about his approach to Flic and Nomad and his mandates in terms of driving product sales.

Alec Tokman, President: Thank you Rick. Some of our near term and mid term priorities are driving growth and profitability of Nomad and Flic. Break down efforts into several phases. Improve marketing effectiveness. Market segmentation and strategic segment prequalification. Improve customer prequalification within the segment. Pay more attention to product training and turn over. How do we train the customers, how do we manage the acceptance period, how do we baseline the quantitative gains that we can use to attract new segments. In doing so, we've put together several 'tiger teams' that are addressing these issues as we speak. Once the tactical issues get addressed and we have reasonable belief that we can improve our penetration into the existing and new segments which we already discussed, we'll focus on development on multi-year strategic roadmap and multi-generational product plan followed by a solid and sound 2006 operating plan to communicate in early January. That's about it for me, third week on the job, learning a lot. The team is great here, everybody wants Microvision to succeed. Going through major learning curve. Need to understand product, technology. What customers like, don't like. Look at assessing the current strategies and goals and baselining them, as well looking operational effectiveness of various functions, marketing, sales, R&D and manufacturing.

RR: Thank you Alec. One of the things we're able to do now with Alec on board is to be rigorously analytical about what we're doing in the market as we're doing it and then increasing cycle time so we can effectively position and reposition. One of the things that I would amplify is in the process of turning over product to customers is to go into customers and ensure they are recognizing the full benefit of the product. Documenting that proof of ROI is very significant especially in this particular segment. In parallel, ideas for additional segments we will qualify with respect to strategic accounts in particular. Field service, already using computers in the maintenance process, many organizations have this. Major consumer packages goods company having great success with product with respect to truck maintenance. Looking at trucks and heavy equipment is a useful and constructive segmentation. Targeting trucks as another beachhead opportunity. Average repair order for a truck repair has higher cost than automotive service. Compounded economic return. Leveraging capital equipment that you're maintaining, focused on uptime, wheels on the road time. Applies to whole array of capital equipment. Relationship with MSFT can begin to bear fruit, path into these markets is selectively targeting strategic accounts, or alternatively working with one or more systems integrators. MSFT has helped us and will continue to help us promote awareness.

In short we feel a greater and more informed conviction than ever with respect to the long term prospects of the product. Steps to execution we can take this quarter and next quarter to see results pretty quickly.

Alec: Focus our efforts on Fortune 500 companies, specifically manufacturers of various equipment be it medical or other industries. One of the intangibles to further penetration of Nomad products. Is to be part of a top down organization where operational leaders measured on productivity gains every year. We believe this will be a success factor as we have quantitative information of double digit savings and benefits from using Nomad for various applications.

RR: So, just to summarize Nomad commercial activities. Organizational alignment is a component of this, turn over in the sales force, substantially upgrade that force, several decades of experience at ReyRey and ADP. More work to do in terms of alignment and effectiveness. Leveraging partners, strategic accounts, integrator distribution and channel partners, qualifying new segments.

Andrew Lee: With the interest in trucks, seeing military also embracing the commercial variant of Nomad in a way that we hadn't fully appreciated seen at start of last quarter. Acceleration in the military side for usage of Nomad. Installations that service and repair heavy equipment have seen staff draw down in light of Iraq war. Good leading indicator, commercial experience being sold into the military market.

RR: Organizational development, targeted development of resource. In addition to trucks, Hunter application, is the military application. Closed business with 3 regional readiness centers for the Nat'l Guard. US military spends $56B on maintenance. Automotive, expect partnership executed very soon to help us address that market as well. Flic scanner, focused on process. Moving new accounts through qualification funnel and scaling what we're doing now. Sales force has substantial capacity to manage additional reseller and systems integrator accounts. Driving infrastructure that surrounds the product. Emphasizing the handheld.

Tom Sanko, VP Marketing: Appears there's a definite need for Flic for mobile field forces, service, sales, delivery. Had concerted effort in that area. Flic can be connected by Bluetooth to a variety of mobile devices. Certified Palm, PocketPC, BlackBerry devices. Actually ahead of the game for next generation devices. Certified for Flic connectivity. SDK for Flic, over the last year it has matured to the point where the developer's kit enables developers to seamlessly integrate Flic into their offering. Now Flic is plug and play. Dozens of integrated applications, growing everyday. Powerful way to sell the product, part of a solution.

RR: Track this progress on Flicscanner.com. See the connectivity matrix grow, evolve into a forum for applications developers. Platform centric view, or application centric view. Hasn't been done, is significant eco system of developers of applications and applets. Put that together with the channel of wireless network providers, Sprint, Verizon, T-Mobile. Data capture automation, increase the data stream which is billed by the bit. Substantial interest in bar code peripherals from these providers, emphasis is on simplicity and affordability. View in the context of price points of mobile phones. Solid growth in Q3 for both Nomad and Flic. I did promise earlier on our OEM contract activities, contract revenue potentially coming down a little bit in Q3 vs Q2. One of the reasons we have the range that we do is there is about $3-400k in variability in contract revenue that really relates to how soon we get under way on one or more development contracts. Development contracts are becoming more comprehensive as in the case of Ethicon, entered into a multi-year term, many millions of dollars, back-end supply and royalty arrangement. That is our goal to do more of those kinds of deals. Numbers in some cases are very very large. Consumer electronics categories, one can imagine the numbers associated with portable media players and electronic gaming and some of the other wearable display consumer applications. Negotiating those deals, driving around a timeline that will allow us to bring product to market and maximize our economic potential on the back end of those deals. We are anticipating we may see some of those activities soon.

Part of the reason for that is that the technical breakthrough that we have made in our wearable systems design is profound in that it will enable a very wide field of view consumer solution. If I want to create the effect in a wearable display of an 100" diagonal HDTV display, the consequences from a market share perspective can be profound. We believe this optical system can only be enabled by a scanning display architecture. We are not the only people who believe that. Attract strong attention and interest who immediately understand the implications of what we're talking about. We want you to be tuned into the way in which we're viewing these high volume opportunities. Two other significant technological milestone. First full color images with a laser microcamera, 5mm diameter of camera. Outstanding image quality, resolution, spectral quality, field of view 140" diagonal field of view. Resolution, depth of focus, package size. Market potential evident going forward. Expect to report more developments going forward. Promoting these architectures to our customer base as we get into the latter part of this year. R&D productivity and progress through the pipeline.

Another key development relates to a whole range of products, vey significantly to commercialization of head-up display product aimed at high-volume automotibles. Audi has made public statements about their use of laser scanning HUD. We will be able to say more as the summer progresses about the go-to-market strategy for MicroHUD. Go-to-market with a two-color display. REd and green will give us amber yellow as well as red and green. A green laser that can be modulated at video rates is key to that effort. Had to have laser than can modulate at high speed. Best case is what we're looking at today is that we have developed a proprietary method of modualting lasers to the desired rate. Reduces a key risk item to bringing that product to market.

Steve, you might want to talk a little bit more about where we are with consumer architecture and edge emitting LEDs.

Steve Willey, President, Consumer Solutions: We continue to make strong progress with the LED architecture. It really is promising the combination of features that is exciting, very wide field of view 100" plus you get a new, immersive experience. This is very compelling. Set benchmark of 100" diagonal plus. Must enable HD widescreen resolution, wearable by a consumer, comfortable and light. No other party has achieved this combination. Breakthrough is very significant and we now add it to our portfolio of consumer platforms. EELED platform, current focus is manufacturing and commercialization of that platform working with EELED vendors, again we can relate some good progress in that area.
A third platform relates to a microprojector. Emerging development in light sources, green laser starts to enable a highly miniaturized projector for consumer markets. 'Picoprojector'.

RR: Interesting point, we've been approached by numerous companies re: handheld projector peripheral to allow for presentations to allow for a micromicrocomputer. Development in laser modulation is very promising. One of the lasers will afford very efficient power consumption, which is a key requirement as well.

Steve Willey: OEMs are searching for projectors that will untap the potential of the mobile device for them.

RR: Laser projection uniquely enables this as power efficiency and heat dissipation are key to this as well. Turn over to Q&A, pleased with year over year results. Execution, strategic accounts, partnering, Hunter arrangement is very positive to leverage in pursuit of that. OEM activities across the board, technological success we are seeing what we have targeted which is the move to comprehenisive deals that go through production. Thanks.


  1. Thanks Ben for the transcription
    New term for me:
    Web definitions for Tiger Teams
    A group of experts brought together to solve a problem using cross-functional integration.

  2. Thanks Ben for the transcription
    New term for me:
    Web definitions for Tiger Teams
    A group of experts brought together to solve a problem using cross-functional integration.


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