HoloLens 2 Update

Q12020 CC Notes and Analysis

It's a little bittersweet sitting down to write this, as there probably won't be very many more of these quarterly MVIS calls to go through -- we are now in the endgame where some tech behemoth finally takes over MicroVision and we all have to find something else to get obsessed about.

For me, it has been nearly 20 years of fascination, good friendship, and about a five year period of hard work, with the kind of excitement (and, alas, disappointments) you can't pay for.

Once more into the breach!

Here are my thoughts and takeaways (as always, my own, and not advice):

* The mission of MVIS as it exists today is to put laser beam scanning technology into the hands of one or more large companies, in exchange for as much value as can be obtained. They intend to sell the company (or their 'module product verticals' one at a time).

* "Selling" a vertical is a new language formation which has a different implication from "licensing" a vertical, which was the language used in February.

    • February 2020: "We are exploring licensing of technology and designs and other strategic alternatives."
    • May 2020: "Exploring all options including the sale of one or more of our module product verticals and related technology or a potential sale of the Company."

The "module product verticals" include: augmented reality, interactive display, consumer LIDAR and automotive LIDAR.

The term "sale" vs. the previous term "license" implies a finality, as in, once something is sold, there is no recurring revenue, whereas if you license something, you may get royalty payments in perpetuity, etc.

This suggests to me that after the conclusion of this work, there may no be entity MicroVision to whom royalties are due.

This change in language suggests to me they may have an acquirer who would buy the company but isn't assigning what the company is seeking as value for MVIS LIDAR applications. So they may seek to sell the LIDAR to one party and augmented reality to another.

My favorite part of the call was the detail on exactly what it is that they are selling:

"MicroVision's Intellectual Property includes over 450 issued and pending patents. However, that does not tell the whole story of the value of our intellectual property which includes trade secrets and proprietary know-how. In addition to the patents we have created, we have key algorithms in closed loop and phase locked MEMS control and laser controls, machine learning software, proprietary processes in MEMS fabrication, automated manufacturing capital equipment and a library of hardware designs which we believe comprise the deepest body of work, globally, in laser beam scanning technology. Laser beam scanning is key to enable high volume, low-cost solid state LiDAR products in a market which has seen a lot of interest from major OEMs who are poised to deliver augmented reality, interactive displays, consumer, and automotive LiDAR products."

What this means is that they are not just selling patent awards to hang on a wall. They are selling an entire suite of IP, algorithms, software, manufacturing processes, and hardware designs that enable a purchaser to bring laser beam scanning products to market in as close to a turn-key fashion as possible.

* Cash balance greatly improved: "In April we secured $1.6 million of funding under the Payroll Protection Plan. We also used our equity facility with Lincoln Park Capital to raise another $6.2 million, so that as of today our cash balance is approximately $9.1 million. Given our current expense rate, we believe this cash balance will fund operations through the fourth quarter."

So, they have enough cash to do this work related to a merger or sale of the company for the balance of 2020, without the need to issue new shares.

This suggests that whatever news is coming this year, it will not be the usual news of a new dilutive share offering.

Management took a 30% pay cut and no bonuses for current or past cycles. This is a wonderfully shareholder friendly thing to hear and puts the rest of management's commentary in a different light. Regarding the lost bonuses and salaries, they must feel they will be made whole on the other side of a merger or sale of the company and they have line of sight to achieving that.

* There was plenty of time dedicated to the discussion of Proposal 3, the Reverse Split proposal. The company management are of the opinion that maintaining their Nasdaq listing is important to create value for shareholders during the merger discussions. With the threat of potential delisting looming (which would happen no sooner than August 22 should they fail to evidence compliance) they may feel that they'd need to take a lesser offer than they could get if that was not an issue.

They are really emphasizing the importance of this as something that could help them "complete a strategic transaction including a sale or merger of the Company," so it's something for the shareholders to consider between now and the Annual Meeting on May 19. Indeed, if they split the shares and reduce the count to increase the price per share but do not issue any new ones, there would be no impact. (There is an "if" in that sentence.)

The Interactive Display language was changed from February's "the companies are not moving forward at this time with the products and timelines they had been negotiating" to yesterday's "the delay of an expected OEM product launch in 2020." One can choose to parse this language to look for a meaningful distinction in the evolution from 'not moving forward' to 'delay of launch'.