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Q3 2005 Conference Call Transcript

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Brian Heagler, Investor Relations: Welcome to 3Q 2005 Conference Call. Introductions, forward looking statements disclaimer.

Rick Rutkowski, CEO: Thanks for joining us. Today we're reporting 3Q revenue of $3.3M. It is short of our target, principally in the contract area. Delay in Ethicon. Bright spot is that product revenue continues to track nicely for us, we expect to be able to report good results with regards to Flic in the short term going forward. [Review of financial results.] Good bookings success for Flic, increasing the sales funnel, 200k backlog going into Q4, sizeable chunk is related to Flic. Nomad sales for the quarter had a heavy component from GD/Army for Stryker Brigade in Iraq. 4th quarter, Nomad sales principally transportation maintenance. Good strong growth for year to date contract revenue. Backlog also up substantially. Well positioned going into 4th quarter especially with regards to Flic. Operating loss. $5.1M in non-cash charges associated with restructuring of debt and conversion of convertible preferred. Substantially reduced the debt on the balance sheet. Today $13.2M in convertible debt and preferred. Restructured to remove exchangeability into LMRA shares from $10M financing.

Also include our share of LMRA's net loss, non-cash charge. $610k, $2.5M for nine months. Net loss $.56 a share including extraordinary items. Net loss $1.13 vs. $1.18/share last year. $1.4M in cash at end of quarter.

Elaborate a little bit on near term goal of continuing to focus on ramping product sales, real opportunity with both products to substantially increase product sales. Alec will lead discussion on Nomad and Flic. Refining our focus in segmentation, applications.

Alec Tokman, President and COO: As Rick has mentioned, our near and mid-term focus is on driving growth on Nomad and Flic. Have done detailed interviews to understand what people like about our product, what people didn't like about our product. Several areas of focus -- commercial effectiveness, placing more rigor on segmentation of addressable market. How we pre-qualify our customers. Is there a net need that needs to be solved. Quantify ROI and economic value before we proceed with the sale process. Spending time to understand what infrastructure is in place within a segment, and whether we have content for head up display. Extending training and acceptance of this product. We realize that people who really like the product after they use it for a period of several weeks. Spending more time at the site, babysitting the end user until they are satisfied with the performance of the product. Built a service organization to support customer needs post-sale. Created escalation procedure and resolution process. We are implementing this as we speak to improve our readiness to support the user, whatever they need.

On the Flic side, we're not growing as fast as we would like to. Healthy backlog for 4th quarter on Flic. Addressing low hanging fruit. In a nutshell this is a summary of what we're doing for product growth.

Business operating plan for 2006. Transplanting it from General Electric, implementing it at Microvision. Strategic roadmap and vision for the next 5 years.

RR: Development of appropriate kind of channel to bring Nomad to market. Need for training for support, after-installation support, Network integration, qualification, modification of content. Developed some software tools to optimize content display on Nomad. Talked about a couple of significant partnerships in the pipeline so when we brought our partners on board we could quickly train them. Allow us to move more quickly, including transactional tools, training, timelines, ROI metrics. Have talked about work with Hunter, very promising. Interest in Hunter's distributors overseas as well. Good example for another theme, scaling our market footprint by partnering with systems integrators, and applications that have clear economic benefit. Done some work with Fortune 100 companies. Lots of time spent of the front end of these, important to more rapid adoption. OEM potentials with Nomad. Heavy focus on strategic accounts, work with SIs on strategic accounts. Big names on account side and SI side. Focus beyond that would be to grow channel partners, system integrators and longer term, OEM partners.

Started to see interest from some very large OEM partners. Not during 2006 operating plan. Potentially branding Nomad product. Another piece of segmentation, Hunter is a part of it, military maintenance, go in, document success in terms of ROI and then sell that, focus on trucking.

AT: Quantifying value proposition, customer expressed interest to help us in getting this information. Lack of quanitifiable ROI has been barrier to adoption of Nomad as productivity tool. Grow in strategic accounts and use these as reference for everyone else.

RR: More powerful connection with the ball. Modest gains in each of those areas result in significant gains in batting average. Flic, strong validation of fundamental premise of the product in the marketplace. Getting the infrastructure below the waterline in place to support the product. Can I integrate Flic w/ BlackBerry, tablet PC. Compatibility matrix. Clarity on which connectivity to emphasize. Couple low-cost bar code solutions with PDAs, BlackBerries, for field force and asset tracking applications. Introduced some improvements to the product, there are more to come, continue to see that growth through 2006.

In addition to focus on executing in the market with Nomad/Flic. Part of the contribution that Alec is making is allowing us to take enterprise approach to this. From engineering support through manufacturing, integrating those functions to produce better quality overall customer experience. Very strong focus. Enthusiastic for substantial additional progress in OEM side of the business. Work with Ethicon is a good example. Potential partnership with Bosch continues to develop in a very positive direction. Work with one or more of large Tier 1 suppliers to provide product to OEM vehicle manufacturers. Very important in this effort are technology milestones.

Extremely good progress on laser light source front. Retires risk associated with productization. Bosch characteristic of type of partner we're looking for. Eurpoean emphasis with Bosch. Production timelines, issue is availability of green laser. Important that we can go to OEMs with a certain delivery date, without qualification. Work hard to gain that certainty. Extremely encouraged by advances in laser side. Prototypes exceed customer expectations. Experienced this in an Audi in Munich. Early in the growth cycle for this product. Our contrast is ten times that of competition, package size half of competition, substantially lower in cost. Another aspect is that HUD is enabled by investment in Nomad.

Gain further leverage off of that, reason we've seen developments in laser technology, people are looking at desktop projection systems. They are targeting two hardcover book size. We believe that a scanning solution could be closer to a pack of cigarettes or a deck of cards. Nomad enabling auto HUD, in turn enabling Picoprojector. No product revenue from auto HUD in 2006 or 2007. Putting together the kinds of partnerships that will lead to commercialization of these kinds of products.

Steve Willey, President, Consumer Solutions: Picoprojector is response to 2" screen syndrome. Media content made available to cell phones, disappointing consumer due to small screen. Picoprojector Bluetooth to device. Develop that solution, next generation TV set, looking for $200-400 TV set for emerging markets.

RR: Seeing a lot of interest from several Asian consumer electronics players. Only way you get to a package that small is due to use of scanning method.

SW: Digital broadcast TV to cell phones in Asia, say projector must be small, low power, low cost. Looking for solutions with size, cost, power consumption of cell phone. Competitors create physically large packages, gives off heat, power consumption issue. Belief in industry is that scanned based solution is superior to LCD based products.

RR: AAPL has a million video downloads in 20 days for Apple iPod. Validation of market, but key limitation is the display. Connect a wearable display to these kinds of devices. See that as viable approach. Three paths -- out of HUD comes Picoprojector. One is synergistic with Nomad architecture. Potential partnerships brewing there, need EELEDs. New architecture involves very different implementation, scanning array, wide field of view, immersive experiences one might want in a gaming system.

SW: Two fundamental wearable architectures, Point Source architecture, EELEDs, visible laser diodes, leverage base modules of electronics and beam combining, tremendous leverage from work we've done. Tremendous opportunity. Mobility eyewear. Second architecture is LED array based. LEDs are widely available, iMAX like media viewing.

RR: Expectations, given level of interest and market trends, new kinds of visual experiences, put emphasis on putting the right partnerships toward commercializing these archtitectures. Important relationships for Microvision. Overall image quality, color quality, dynamic range unmatched compared to other head worn display solutions.

In the DoD arena, subsequent to delivery to GD, received additional development contract on Mounted Warrior program. Items in defense appropriations bill, has not been through joint conference, going-in position is strongest ever, $15.7M, expect that number to come down, but even if it comes down will be among our best ever.

Increasingly our activities with our partners in that space, when we take systems level approach is show that we can put a display that is unique in terms of daylight readability. Working on focusing on how content is delivered to display to enable real-time siutational awareness that we think can be unique and quite powerful with respect to the application. We've seen over the last two years a good consolidation of efforts, leverage our VCOP activities with Mounted Warrior. VCOP has resulted in dramatic reduction in size and cost of full color systems. Demonstrated substantial progress with productization of current configuration of ND2500, can be enhanced with tracking systems and further content enhancements.

AT: I hope you've seen that there's several exciting activities going on at Microvision. Focus on demand creation, focus on execution, marketing and sales effectiveness, deliver when we say we're going to deliver, product quality, multi-generational product plan. Rigorous development of business cases risk adjusted, take a holistic look at overall portfolio, place biggest bets on most promising opportunities. Give realistic but stretch goals, we'll hold everyone accountable to achieve these goals.

Q&A Segment:

Alan Robinson: Good afternoon, Rick, more information on potential additional order relating to Mounted Warrior, how much of $15.7M is coming your way.

RR: Not all is associated with Mounted Warrior. $4.5M is purely development dollars, continue spiral development, product improvements, integrate new features. Full color system development. Timelines and schedules, statement of work levels of procurement, early in first quarter, one of those elements of appropriations bill. Driving demand for this product, focus not on just delivery of hardware, but delivery of integrated solution. Hard to describe but easy to see how powerful this is. Has a lot to do with going from God's eye view, and ground eye view, which is what you would see. Overlaying content on battlefield scene. Adapt existing system, content is available to make more compelling offering that would be embraced by military.

AR: Opaque or multi-color see through?

RR: Not pursuing opaque display. Gov't is trying to integrate other program areas, will use occluded full color for next spiral phase. Questions as to what is the right display. Given the content, opaque is probably a good solution for that spiral phase. We believe strongly that see through display is, essential, color is nice to have. Mission being, soldiers correlate information to outside scene as quickly and as intuitively as possible.

Appreciate everyone listening. Apologize -- scheduling of call in conflict with LMRA's call was accidental. Room for substantial growth for Flic based on the funnel that we're seeing. During the next year, will focus on aviation HUDs as well as other verticals for HUDs.

Comments

  1. Ben, so what do you think? Is MVIS still on schedule to change the world?

    ReplyDelete
  2. There was something very different about this call than in calls past. Still sorting out my thoughts. I'm planning on an update about the call and the earnings PR later tonight.

    Thanks!

    ReplyDelete

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