Saturday Morning Thoughts

Some quick-hit thoughts on a Saturday morning:

I was surprised how much I enjoyed watching Elon Musk with Joe Rogan on the now infamous Thursday night podcast. This was a wide-ranging and fascinating discussion that touched on the merger of human and machine intelligence, and humanity's destiny among the stars. The mention of I/O for AI was made, but talking about the bandwidth limitations on the human side, rather than on the machine side, which is the problem that MVIS is working to address.

Whatever you may think of Tesla's business, or Elon's use of Twitter, or his management of the company in general, I found the conversation riveting and found myself rooting for him to at least stay out of jail. (That said, I was not affected by his $420 go-private funding-secured tweet fiasco and understand the seriousness of the whole thing).

The contrast between Musk's "spray and pray" approach to communications vs. what we have seen in the last year from MVIS could not be more striking. I noted on my initial audio blog on August 14 that I felt there was a concerted effort taking place to rebuild the credibility of the company after the disappointments of the prior year. To rebuild the credibility, the approach is to under-promise and over-deliver, and to do what they said they were going to do.

So, I was quite struck by the inclusion of this slide in Mr. Mulligan's most recent investor presentation:

To me, this essentially codifies doing what they said they would do as part of the company's mission.

So, that's all fine and good. What is really interesting here though, is that what they say they are going to do is nothing less than achieve pretty radical hyper-growth between now and a year from now.

Here's what they said they were going to do on the last conference call, relative to just the current quarter:

  • Finish the new Digital ASIC
  • Release new video of Interactive Display
  • Deliver Interactive Projection dev kits to the leading AI platform companies
  • Complete the technology transfer to the Display Only licensee (for $3M payment)
  • Recognize the $10M license fee from Display Only licensee
  • Recognize $2.5M from the $24M NRE customer
By my count, that is $15.5M of revenues against an expected operating cost of around $7.5M (if history is any guide). So that's a theoretical $8M in profit over 93M shares, for something like $0.08 profit per share, unless there's some kind of extraordinary costs this quarter or I'm missing something. And if they end up selling any modules to Ragentek during the quarter to support their new projector phone launch, well that would be great too. 

Unless I'm misunderstanding something, what they say they are going to do is actually achieve a profit in the current quarter, although they haven't announced it as such. Somebody tap me on the shoulder if you think otherwise.

So, pretty great. I'd suggest that if they achieve what's outlined above, that would go a long ways towards rebuilding the company's credibility and put us on a whole new footing for Q4 and beyond. 

There was some other commentary in the Q&A at the very end of Mulligan's presentation on Tuesday. 
Historically we’ve advertised that our burn rate might be $7-7.5M a quarter. Module margins in the range of 35-40%, or component margins in the range of 30%, somewhere in the range of $20-25-30M in that range in a quarter would be adequate and sufficient to cover the burn, depending on product mix.
Given the statement about achieving profitability at some point in 2019, if we give them as much leeway as possible on that and say that it's Q4 2019 for profitability, we can take this to mean that we could anticipate $25M in Q4 2019 revenue from component and/or module sales to hit breakeven. 

So, if we assume:
  • Ragentek consumes the bulk of their module order in Q4 2018 (MVIS did not make any guarantees about that)
  • $25M in product revenue in Q4 2019 for breakeven
  • Straight 30% margins on those sales
  • A smooth ramp between those two points (admittedly a leap)
Then this is what it could look like:

That would be OK by me. 

Another thing that struck me about Mulligan's emphasis on credibility goes back to the vertical $$ chart (which is actually included as the very next slide after the credibility rebuilding slide):

We were told that the Display Only licensee has a minimum purchase commitment of around $20M in components to maintain exclusivity. So logic would suggest that $20M/year minimum corresponds to three 'directional' dollar signs: ($$$).

Now here's where it gets interesting -- given the importance of credibility that Mulligan has established, there must be a real sense of confidence about Interactive Display having a customer ready to go to market in 2019. Because, as the new leader of the company, making a point of emphasis about building the company's credibility, why else would you make this chart, put the check on "Customer Product or Market Timing" and have four $$$$, directionally implying more than $20M in revenue potential for 2019?

What they say they are going to do is something special indeed.