Official Transcript
Corresponding Presentation
Perry Mulligan at 9th Annual Craig-Hallum Alpha Select Conference (webcast)
Excerpted Transcript
The following transcript has been posted on MicroVision’s website for the reader’s convenience
and prepared by third parties. Readers should refer to the audio replay, when available, on
this site for clarification and accuracy.
9th Annual Craig-Hallum Alpha Select Conference
November 15, 2018
Perry Mulligan, Chief Executive Officer:
Okay, good afternoon everyone. My name is Perry Mulligan. Welcome to this
presentation. I'm here to give you an update on MicroVision, Inc. So with that as a
backdrop, I'll let you spend 10 minutes reading the Safe Harbor statement [slide 2] and
give you a sense of what we're about.
Everybody understands the relevance of the artificial intelligence platforms and the
investment going into that ecosystem. We're not about that ecosystem.
What we're about is enabling unique input and output for artificial intelligence connected
products, servicing four targeted verticals [slide 3]. So, we enable those products in a
unique way to interface with the AI platforms.
If you think about it today, most people who have experience with AI enabled devices
understand that they can answer simple questions that they have the ability to perform
basic functions and they can listen to you, speak. With our components and our modules
they are allowed to display images, they recognize touch and gesture and they sense with
3D clarity, the space that surrounds them.
We're focusing on the user experience, making it easier and more natural and seamless to
interact with the AI products [slide 4]. We said we are targeting four verticals [slide 5].
Those verticals are the interactive products through our interactive display or display only
through our licensed partner, consumer LiDAR through smart homes and security
applications, automotive LiDAR, focusing on collision avoidance, and Augmented and
Mixed reality through integrated display and sensor modules for binocular headsets.
How do we bring value to these solutions, these verticals? It's really through the
embedded sensing and edge compute modules that we make and sell, enabling high
fidelity. user interfaces, services, security and driver safety [slide 6].
Let's start to talk about what those applications look like those verticals look like.
Everybody understands that the smart speaker market is growing, but today still very
limited to voice activated transactions. The numbers you see there units shipped in Q2 represent a huge marketplace, but it's a marketplace that's hard to monetize today using
voice only.
With our module embedded into that smart speaker, we can add interactivity [slides 7-8].
We project a bright, wide display image using time-of-flight, allowing people to interact
with that display image, as though it's a capacitive touch screen. We have a very natural
instant-on characteristic to it, so when it's not required, if the unit's not visible, it's not
projecting. It's constantly in focus and it's very user friendly to apply.
Furthermore, we've taken and license the display portion of that, not with the interactivity
to a display partner [slide 9]. We announced that license a few months ago. The partner
we picked was someone who shared our go-to-market strategies, so they too are focused
on products that are connected to AI ecosystem. They shared our go-to-market strategy,
they have the right attributes to be successful and we really believe that the volume
component purchases that they were going to bring through their products was going to
help us achieve reductions throughout the entire supply chain.
So, we're excited about the economy of scale that this is going to bring to us. The basic
elements of the agreement is that they paid us $10 million in license fees this year, 2018,
that they will be purchasing from us components our ASICs and MEMS as an ongoing
basis and that there are minimum hurdles required to maintain that exclusivity on an
annual basis.
I think it's pretty obvious, and I won't spend any time here illustrating again, that the
smart speaker market is growing at a pretty exponential rate [slide 10]. What's of interest
is when we think about the fact that they are growing quite considerably in Asia as well.
So it's not only a North America phenomenon, but rather a global phenomenon.
One of the verticals that we targeted and that we wanted to bring to your attention here
was consumer LiDAR [slide 11]. In this space the image that you see on the screen at the
bottom center, right, it's about the size of a Snickers chocolate bar. That device has a very
high-density image point cloud that it predicts or gathers at approximately 20 million
points per second.
With machine learning embedded at the device with very low power and very low
latency, we can pass to the AI product a very strong sense of what's happening in that
room. We, in essence, become the eyes of the AI product, but the marvelous thing about
this is, as you know with the LiDAR product, this is X, Y, Z data and some density
information.
So, if somebody has to try to tap into that as they would with perhaps a camera feed,
they'd get a set of information out of it that's unintelligible. It's not like having a camera
on you in your house because nobody can tap into it to get that information out. It's very
difficult. So, this allows the AI platform to have the sense of the space that it is working
in, have a sense of what's going on in the room, the number of occupants, the number of things that are going on. And it gives that AI platform and that AI connected product a
way to help control a smart home in the future.
When you think of Automotive LiDAR [slide 12], people asked us last year, why are you
not talking about autonomous driving vehicles? Aren't you talking about 200-meter
LiDAR? We absolutely believe that the solutions we had were relevant to collision
avoidance. And it's interesting to see that with the safety regulations that are coming to
pass in Europe and subsequently through North America at Level Three, collision
avoidance is, in fact, the market driving volume element of that play.
So, I fully respect the autonomous driving vehicles are a 40-year out, 20-year out, 30-
year out timeframe, but the near term market demand is going to be covered by Level
Three, safety requirements, collision avoidance, emergency braking, emergency steering,
and we believe our technology gives us an advantage to be able to provide those solutions
to the automotive makers. And I think everybody in the room understands the
significance of the volume and the significance of the materiality of that play.
Finally, if we think of Augmented and Mixed reality [slide 13], I'm sure that each of us in
the room would have a different opinion of when that market becomes mature. I'll leave it
to you to decide whether that's 2020, 2021 or beyond. But if you believe that Augmented
and Mixed reality or Augmented or Mixed reality is going to have an inflection point and
displace Virtual Reality as a prime source of use case, then you have to believe that laser
beam scanning technology is in fact a solution that's required to make that happen.
Our technology provides a resolution of display, wide field of view, low persistence,
small size, small power, small weight - factors absolutely required to enable that
technology to mature. So we're very comfortable that our core technology allows us to be
a predominant player in that space.
I've been with the company a year now and I was thinking, how do I help convey to you
where we've come in that period of time, and I thought it was pretty interesting to me as I
thought of what we were trying to convey last year and where we are today.
The team has absolutely demonstrated thought leadership [slide 14]. Last year we were
trying to convince you that AI was the product and that products connected to it needed
to have input, output capabilities. I think that decision is obvious and conveyed. I think
we told you last year that we were focused on collision avoidance in the automotive
space and that decision is, I think, being played out and is obvious.
Relevant now, I think we're showing thought leadership as it relates to our consumer
LiDAR approach to problem solving as well. Second were migrating as a company, we're
going up the evolutionary curve, moving from a solutions provider technology element
that was typically handcuffed to licensing its product solutions to someone else into a
company that's going to scale and move into module production with our technology.
We have the partnerships with the OEMs and key suppliers that will allow us to bring
those products to market and deserve, achieve the revenue deserved from that. And
finally, we believe our products in each of the verticals are already aligned with the OEM
product path. I don't think we're in this stage where we're a product looking for a solution.
We're actually providing solutions to meet that OEMs have with their product portfolio.
For those of you unfamiliar with us, I wanted to explain how our engine works [slides 15-
16]. The display engine, the extremely tiny item down on the picture on the page
represents probably the size of the end of your thumb. And it allows us using control
discreetly have a red laser, green laser and blue laser and MEMS mirror to control the
picture dot on each place that we paint that image. And subsequently, if you see how that
works, using a 3D or our MEMS mirror or 2D scanning mirror in a raster pattern, we
paint pretty pictures. They're high definition pictures, they're constantly in focus pictures,
and they create a relatively wide viewing experience.
So, if we now expand that and say, well, how do you generate a LiDAR image out of that
[slide 17]? Fortunately for us, all we have to do is add an IR laser and a photo diode. And
with that coupled with our time-of-flight capabilities, we can generate the X, Y, and Z
coordinates of any point in space in front of this scan. So, we end up with a LiDAR
image of that environment.
[Video Presentation Start, slide 18] .....I encourage you to go to the [MicroVision] website and take a look at it [video
demonstration] and I think you’ll find it a very easy, very seamless to use, a transparent
experience for anyone that walks up to the device to order items, very efficiently,
effectively. Think of it as the micro-transaction - the ability using a smart speaker to
interact and seamlessly order food, order devices. One of the tests that we think of is
ordering $400 or $200 worth of groceries from Whole Foods within four minutes going
through the menus and the selections, and that's what we allow people to do using that
interactive display.
So, at the basis of this, somebody would say, it sounds like you have an interesting
portfolio [slide 19]. Why would not a large entities simply come and do it faster, cheaper,
better? The answer to that question lies in the fact that it's taken us a long time to get here
and this is a journey that's a byproduct of a lot of work, including 500 different patents
that we've filed, our core IP wrapped around our embedded software.
Again, if I think of where we were last year at this time, we were talking to people about
adding machine learning and machine intelligence to our sensors to allow them to do
things very quickly and efficiently in a low power manner. And people were telling us
that the market for those skills was very tight. But we've managed to accomplish that and
are doing that and we're shipping products with that into the Dev Kit platforms we're
releasing today.
We have custom ASICs and MEMS that again are differentiator for us, custom hardware
and finally advanced manufacturing capabilities that allow us to compete and scale, as
required.
From our financial highlight perspective [slide 20], based on the numbers from the
September 30, you'll see that we’ve basically doubled year-over-year as far as revenue is
concerned. We carry zero debt on our balance sheet. We have approximately 93 million
shares outstanding and warrants and options at around the $2.50 [slide 21].
We've talked repeatedly about having the right product and the right technology, but I
think you all recognize that without the right product, the right technology at the right
price point, when the market needs it, you don't necessarily have revenue.
So, when we map the four verticals [slide 22] that we're talking about onto that grid, we
look at it and we say we definitely have the quality of features and the right price point or
cost point for Augmented and Mixed reality. But we don't believe the volume for that
products will have an inflection point in 2019. We actually think those volumes happen
further out and again, I'll let you determine where that is.
So, when I think of 2019 revenue opportunities for us as a company in that space, I think
there's a chance we will sell a small number of units, but we will probably have a chance
to do non-reoccurring engineering work for people in that space.
With regards to the IoT products, which are our display, and interactive display or display
through our licensed partner, we absolutely believe that the quality of the solution we're
providing today meets what's required in the marketplace. The cost structure is
appropriate and scalable and that the customers’ products or market timing is ideal. So,
we are of the mindset that we expect to see volume productions or volume ramp at that
product in 2019.
Essentially, consumer LiDAR on the other hand, while it has the quality features and
costs that we expect, we think that it's disruptive enough that this product is going to take
a year of our customers working with it to be able to launch and decide the features they
want to bring to market with. So, we're counting on that as a 2020 potential launch
candidate.
And then automotive LiDAR again, we think might be further out. We believe that the
technology and features we have are ideal. We think we're approaching it from the right
cost perspective, but we think more research has to be done to bring that solution to
market. So, we're looking at that as a 2020, 2021.
Again, I'm stressing the fact that we're customizing these solutions and bringing to
market these products predicated on a strong core base of IP and those customizations
being applied to each of the vertical markets.
To help you clearly understand, what we're trying to accomplish here [slide 23] we
expect to sell our interactive display and our consumer LiDAR modules with software to
manufacturers and OEMs. We're going to sell component parts and software to licensee
and display-only modules. And as some of you may know, we have a $24 million
contract and we expect to sell components to that $24 million contract owner.
The keys to ramping this [slide 24], requires that we have world-class ODMs and
contract manufacturers already in the supply chain for OEMs for modules. We're not
trying to reinvent this and we're not trying to get qualified. We are already affiliated with
these folks.
The ODMs allow for low manufacturing investment and control of expenses during this
ramp. World-class large contract manufacturers help reduce our financial and working
capital needs as we go through this inflection point. And common components between
the display-only interactive display and consumer LiDAR products should drive the costs
down due to shared volume.
But even more fundamentally, it starts with a manufacturable design [slide 25]. We've
approached this with a sense of consumers scale. We've leveraged industry standard
MEMS, silicon, ASICs and lasers. We use highly automated manufacturing processes
proven to operate at high first-pass yields. This is not requiring us to engineer and invent
on the shop floor. We've established manufacturing lines that are easy to replicate so we
can scale as the volume increases.
And we can leverage a balance between our in-house process experts and the in-country
manufacturing experts to support to scale. So that's why we feel comfortable that we're
going to be able to accelerate and achieve the inflection point that we expect to have.
Historically, we, as a company have offered four different paths to generate revenue
[slide 26]. We've done module sales. We've done custom modules and components.
We've licensed modules and we've provided engineering service. I hope after this
conversation you clearly understand that our focus is to capitalize in the module sales that
we think we have in front of us.
Lastly, the company is focusing on large emerging markets [slide 27]. They have
significant opportunities and we said repeatedly on our earnings call that in our desire to
get to breakeven profitability at some point in time in 2019 with that desire, any one of
these verticals has the capability, the volume, the demand that could achieve that for us.
We have a strong experienced management team. I joke that I think that's a polite way of
saying we're getting old, but I think we've been around the block once or twice and know
how to get this done.
We have a great intellectual property portfolio and we're leveraging that. And I hope you
understand that the leverage means that a lot of the deep, R&D work required to make
these products and these solutions available is done. We're now working on customizing
these solutions to make them work in the specific applications. And we have
opportunities in front of us with our own modules, with the $10 million licensee
agreement that we signed this year as well as the $24 million contract we've been
working on since April of 2017.
So at the risk of running over, I wanted to say thank you for taking the time with us
today. We're going to open up for any questions that you might have, tried to get us back
on schedule but not quite there. We're open for questions.
Q&A
Question
You talked a little bit about having visibility on the smart speaker market, whether that's
on the display-only or on the interactive side. Can you talk a little bit about why you feel
like you have visibility there and when we might share in that visibility?
Perry Mulligan, Chief Executive Officer
The wonderful thing about working with large OEMs is that there is a cone of silence
about – just about everything you do. So we know that we're not going to divulge much
in the way of forward-looking activity. I joked with someone that the first time you'll
know where there is after the unit ships and somebody does a tear down on it and they would see that it would, you'd see MicroVision inside and you'll get a sense of what the
cost of the bill of goods is.
The natural cadence that we would expect to see is that you would begin to see a product
readiness. Lead times for silicon are pretty extended. So anybody in the room that
monitors technology understands that those are reasonably long. So when you start to see
some of those purchase orders or activities from us that, that identify those purchases that
would be evidence of it. I don't think he'd ever get clear indication until the product
shipping as to who the customer is and what the exact form factor is might.
Question
So I guess it's safe to say that you have – you're starting to get very specific – internally
specific, now these targets and your products that are going up?
Perry Mulligan, Chief Executive Officer
Well, there's two things, I think we make it sound like this is – with a little bit of luck, we
will fall onto the solution. I want to make sure that people understand, it's a journey of a
couple of years. Right? We're not at this stage of a product readiness without having had
many discussions of what solution we're trying to bring to the market, what problem
we're trying to solve for the customer.
During our last earnings call, we actually alluded to the fact that we saw money move
out. We thought we were going to have some NRE monies from our licensee partner, but
it turns out that the reference design that we provided didn't need to be customized. That
the feedback they're getting from the OEM implies that it might be adequate and
sufficient. It does two things. It tells me that they're getting traction or they might be
getting positive feedback. And it also tells me that it reduces the likelihood that there's a
delay. Right? Because anytime you have to customize something that takes time and
energy. So, we've characterized this through the course of this year is the journey of a
thousand steps, you know and I know no can be [said] at anytime but we're feeling pretty,
pretty optimistic that we will be successful.
Question
In this context and in respect are you – in some of these different end markets are you
sole sourced – it is a pretty specific technology. So are you in sole source situation or its
[indiscernible]?
Perry Mulligan, Chief Executive Officer
Well, let's look at the smart speaker market. Last data point, I think we showed up there
was 85 million units expected to ship in the year of 2021. We expect an install base of
350 million. If I’d say, identify the fact that I was going to be sole sourced and those
smart speakers, I think we'd be having a different conversation. What I will tell you though, while I do respect across that plethora of solutions, there will be many different
people trying to experiment with ideas and how to help monetize that AI platform, the
investment in the peripherals.
Within the context of that, some of the features that become pretty important if you
recognize that smart speaker’s voice activated are ultra-sensitive to fan. They use
MEMS’ mics, so vibration of any sort, disables them to a large extent. So when you think
of that, you say, okay, well if I wanted to have a nice large display, is there another
projector type solution that's available.
It becomes hard to find one that fits the power requirements without a fan. And then if
you couple that with the notion that says not only does it have to display, it has to have
3D interactivity and I don't want it to be a light plane. I wanted to actually be LiDAR
based so if you have a cutting surface in front of it, it can reflect, it can capture the fact of
different heights. It doesn't have to be perfectly level surface. It's always in focus. Then
I'd say to you within that context, I can clearly tell you I believe we are unique in our
space there. So I think we've got something that has some legs that solves a problem for
the OEM that has multigenerational applications to it.
Steve Holt, CFO
I’m Steve Holt, I’m the CFO, you just – I’m not sure where you’re going with that
question exactly but a part of it is – it is your thing about how the vendor or how the
customers might look at the risk of supply chain. If we have ASICS and MEMS that
made by STMicroelectronics and other top tier suppliers, so no concerns about them and
their ability to ramp. Also the actual modules that we sell are manufactured by a company
in China that’s several billion dollars that's in the supply chain for the tech Tier 1s
already. So there's no real concerns for them ramping. So our supply chain, we think is in
really good shape.
Question
Steve, still got a question with your potential and the opportunity and your understanding
what percentage of the market you could have, what percentage of the customers you
could have that – still be the question?
Steve Holt, CFO
Right. I think when you look at the installed base of these smart speakers. The first
version of them, right, is voice-only. And I think we're up to somewhere and we’re
almost 60 million installed. It's in that ballpark. The next versions are trying to figure out
the right solution for a display and interactive. And so you can see that there could be a
whole other generation and where there's a very high percentage that are of that.
Question We get – next-generation will get to be interactive, will it be multiple companies
competing for that technology so if I’m Amazon am I going to try to use multiple
vendors. might you be one of them or?
Steve Holt, CFO
We don't think there's anybody that can do what we can do. Yeah.
Question
If you think about – there is ways to have displays that are not just projection right, there
is LCDs, there is both plasma, it’s across geographies – it is a different type of
technology, but so if you are talking about a low power, low heat, you don’t require a fan,
quickly on projection solution that’s a solution on some of those – I think what they are
saying is true – there is really no competition in that?
Perry Mulligan, Chief Executive Officer
And if you think of it just if we pull the thread on that a little bit, when you think of a 15-
inch display or 20-inch display, most people that we talked to say, they don't want to
have more black screens in their house but they don't want to have more real estate
allocated to that kind of a device. So we think not to mention the cost advantage we'd
have at that size and performance.
So we think that there are some inhibitors that would prevent some competing
technologies to be fit form and functions the same. Whether or not are the people trying
different versions, we encourage them, lots of space for everyone.
Question
Your license – your $10 million license deal that is one and done or is that an annual
deal?
Perry Mulligan, Chief Executive Officer
The 10 million was one-and-done, the reoccurring requirements for them to support the
exclusivity imply that. And I think we did the math on this, Steve, we said that it was
approximately, you think of $20 million a year in component purchases from us to
maintain exclusivity.
Question
Gross margin on that?
Perry Mulligan, Chief Executive Officer
I think – and again, I don't believe we ever talked about that, the gross margin on the
contract per se. I think historically, Steve, we've talked about gross margin at a
component level and gross margin at a module level being somewhat different.
Steve Holt, CFO
So we think on modules, it's moving towards 40, on component sales it'd be more closer
to 25, 30 range in those ballparks.
Question
So what is the incremental cost of the OEM?
Perry Mulligan, Chief Executive Officer
For the difference between the two?
Question
I’d probably say you said it is an add-on to the street, what is it going to cost the
consumer, where is it going to cost?
Perry Mulligan, Chief Executive Officer
Well, I think all of the OEMs recognize that there's a high price sensitivity. So this is
MSRP. It's really not our cost. I don't believe that anybody here is working on the
premise that by simply tacking on an additional cost onto a speaker, that it's going to
stand-alone. I think it has to fit within the models that they have.
Question
So how was – what are your costs?
Steve Holt, CFO
Yeah. We're not saying what our costs are per se, but we know that these guys want to
sell. It has to be absorbed at $199 – and $149 and $99. They want different versions of
the product.
Question
Is it I got – you’re saying you’re the eyes of the AI, the eye of AI.
Perry Mulligan, Chief Executive Officer
I/O.
Question
Right, are you familiar with some of the security technology, it seems like a perfect
application for security cameras, am I wrong to think it as another vertical for you?
Perry Mulligan, Chief Executive Officer
Well, again, we really think that it becomes much more linked to the smart home hub,
right. That we allow the AI interface device to have the level of awareness it needs in as
many rooms as you want and then controls that information flow back through the other
APIs that are open and connected with it because all of these devices connect into…
Question
But I understand, we are – these people put cameras in office buildings, cameras in
home, but they’re not intelligible cameras, right?
Perry Mulligan, Chief Executive Officer
Right, yes.
Question
[indiscernible] its not something call, off-the-shelf it is a – knowing that there is few
people that are entering the room, you can tell that you can identify them, I don’t look –
especially in the big office building, you know security people can’t look at the all the
cameras – they are out there now because learning – learn faces and movements and
recognize the things that this seems almost a better application than just AI?
Perry Mulligan, Chief Executive Officer
So if you think of it though, again what we're suggesting is that just as AI is prevalent in
your home today, we expect AI to be prevalent in business. And we expect that we will
enable those solutions as that evolves, right.
Question
You expect it to be on a factory floor?
Perry Mulligan, Chief Executive Officer
Wherever they want to take it.
Question So I’m fairly new to this story but I’m just wondering are you in current Amazon
shipping products, all these side of things or do you want to…
Perry Mulligan, Chief Executive Officer
Yeah. We're not shipping products with Amazon today. We are talking about an
interactive display solution for potential using the…
Question
You already have this spot vehicle, spot and other products that already have LCD
screen. So is there a road – are you in line with the roadmap for Amazon to go towards
the display projected image [indiscernible] are you going to see this product works well,
or how does that work in them?
Perry Mulligan, Chief Executive Officer
Yeah. I don't believe that I'm qualified to talk about Amazon's strategy across their entire
speaker portfolio. All I can tell you is that we believe within the range of speaker product
solutions, that there is space for voice-only, activated devices, voice plus display and
voice plus display and interactivity. So we think there's enough space in there for all three
of those solutions to coexist and how they want to deploy it as someone else suggested
there's going to be a plethora of solutions. I'm sure that they experiment.
Question
Well, there is no current roadmap [indiscernible]
Perry Mulligan, Chief Executive Officer
I can't comment on their product roadmap strategy.
Steve Holt, CFO
I think what we're saying is we're engaging with – we can identify A party or so we're
saying Tier 1 OEMs, which is Amazon, Microsoft, Apple, Google, those kinds of players
that have an AI platform. And those are the ones we’re engaging with and we're targeting
to launch a product in 2019 within that smart speaker space and Internet of things space.
And so that's what we're able to say today.
Perry Mulligan, Chief Executive Officer
Thank you all.
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