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2Q 2018 Conference Call Transcript Excerpt and Summary

  • Technology and business milestones are tracking to plan
  • Q3 2018 revenue guided to over $15M
  • Tier 1 $24M contract customer advises they will launch product in 2019
  • Interactive Display dev kits to be provided during Q3 to AI platform players (read: Amazon, Google, Apple)
    • Smart speaker demonstration to targeted customer showed how easy, fast and natural it is to make e-commerce transactions via touch projection display
  • Full year 2018 revenue guided to $25-26M vs. $9.6M in 2017 
    • $10 million from the license agreement for display only 
    • $8.5 to $9 million from the $24 million Tier 1 contract
    • $4 million from the Ragentek order 
    • $3 million of NRE related to the display-only license
  • $21M in cash on hand at end of Q2

Audio: Q2 2018 Microvision Financial and Operating Results Conference Call

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Seeking Alpha Full Transcript with Q&A Segment

Lindsey: Forward Looking Statements Disclaimer

Perry Mulligan: Thank you Lindsey. Good afternoon everyone. When I assumed the CEO role 9 months ago, I believed we had an exceptional opportunity to transform Microvision from being an R&D company into a solutions provider -- a solutions provider with innovative technology that could unlock significant value for Tier 1 technology companies, and ultimately reward our shareholders.

Today, because of the customer reaction we see, and the technical progress we've made, I'm more convinced than ever that this is the case. We are moving in the right direction. We are doing what we said we would do: We are working to have the product ready at the right time and at the right price when the market is ready.

During the second quarter, we raised cash to bolster our balance sheet through a public stock offering and signed a display license agreement that provides for payments of $10M in license fees this year. Throughout these activities, we remained focused on our goal of achieving profitability at some point during 2019.

Investors attending our Annual Shareholders Meeting in June had the opportunity to see first hand why I'm so excited. At the Shareholder Meeting, we demonstrated several of our technical solutions, including our new display engine that has improved video image quality and is capable of projecting at 80 lumens, approaching twice the brightness of our previous solution.

Later this quarter, we plan to provide investors with the opportunity to view these demonstrations along with improvements in our interactive display product, through videos that we plan to post on our website.

On prior conference calls, we discussed our go-to-market strategy and commitment to five vertical markets. We're targeting Tier 1 technology companies where we can bring compelling value to enable them to introduce disruptive solutions to the market. On this call, I would like to update you on our progress in those verticals, namely Display Only, Augmented/Mixed Reality Displays, Interactive Display, Consumer LIDAR and Automotive LIDAR.

On the last call, I reported a new worldwide exclusive license agreement with a leading global technology company for the manufacture and sale of Display Only products. As part of that license agreement, the licensee agreed to pay Microvision a $10 million license fee. The transfer of our technology to the licensee is progressing well, and to date we have received the first of two $5 million payments; and we expect the second payment in early October.

Our licensee has been actively meeting with Tier 1 customers about the sales opportunity using Microvision display technology. We understand that they're getting good response from these customers and remain optimistic that they will be successful in landing them. Of course, this will result in sales of our components to them in 2019.

We also continue to make progress with the $24 million contract that we signed a year ago with a Tier 1 technology company. We're about two-thirds of the way through that contract and we believe the difficult technical tasks are now behind us. Through the first seven months of this year, we have received $5 million in payments for the completion of milestones, bringing the total payments under the $14 million development portion of this contract to $9 million. We remain on track, and expect to complete the development agreement in Q1 2019. We have been advised by our customer that we should expect a product launch some time in 2019 and that they are still determining the size and timing of their launch.

On our last call, I also discussed several technical initiatives that were underway to meet our product requirements for production in 2019. Initial feedback from our new 1440p MEMS scanner, Time of Flight ASIC and next-generation Analog ASIC have been encouraging. We are also on track to tape out our new Digital ASIC this summer, in time to meet our product requirements for production in 2019. [Editor's Note: To "tape out" an ASIC (application specific integrated circuit) means that all the stages in the design and verification process have been completed. The next step is for samples of the new chip to be produced by the semiconductor manufacturer. End Note]. In other words, all of the core elements of our technology required to meet production launches of Display, Interactive Display, and Consumer LIDAR products in 2019 remain on track.

Also, our Machine Intelligence team continue to develop their capability. For example, we recently did customer demonstrations where we equipped a smart speaker with our interactive display. To highlight how easy it is to order goods and services with an interactive display, we simulated ordering various products. These demonstrations clearly captured how fast and natural it was to custom order an item with many different options using an interactive display with an artificial intelligence, or AI, assistant.

We expect our next developer kits incorporating these capabilities to be ready to ship later this quarter to targeted Tier 1 technology companies.

For smart home and security applications, our next generation development kits for Consumer LIDAR solutions is scheduled to be available in Q4. Our Consumer LIDAR solutions project a significantly higher resolution than is available today, and when combined with machine intelligence capabilities would represent another major step forward in this category's evolution.

In Automotive LIDAR, we believe our technology can provide a smaller form factor, higher line count resolution and a more cost-effective solution to those in the market today. Additionally, we believe the latency advantage that our system should have through the deployment of machine intelligence at the sensor will provide a feature that will be especially important as we look to adapt this solution to collision avoidance applications.

We expect to demonstrate the proof-of-concept of our automotive solutions early in 2019.  Given the extensive testing and long sales cycle in this industry, we would expect to see limited initial revenue in late 2019 or 2020 with the opportunity for significant sales in late 2020, or 2021.

Let me conclude my opening remarks by saying we're moving in the right direction. We strengthened our balance sheet and we're doing what we said we would do to pave the way to achieve profitability during 2019.

We remain committed to five verticals that we believe have the potential to unlock significant value for our customers. We believe that enhancing our product strategy and incorporating machine learning into our sensor products will make it easier for Tier 1 technology companies with AI roadmaps to integrate our solutions into their products.

Our solutions should provide these companies with products that have a more natural end-user experience and a faster time-to-market path. We are convinced that our display-only products, provided through our licensee, and our interactive display and consumer LiDAR products can provide AI platforms with Input/Output capabilities that are unavailable today.

By enabling users to interact through voice, image, gesture and spatial awareness, it should be easier for them to interact with an AI platform, making it easier for the user to transact, increasing the monetization opportunities for our customers.

I'll now turn the call over to Steve, our CFO, who will discuss our financial performance in the second quarter and offer some commentary of how we see the second half of 2018 shaping up.

Steve Holt: Thank you, Perry, and good afternoon, everyone. I'll start by updating you on some of the cash items we discussed on the last call. First, related to the $24 million-dollar contract, we did receive in May the $2.5 million that we had billed our customer in Q1.

Additionally, we billed this customer for an additional $2.5 million in the second quarter, and that invoice was paid in July. Second, we received the first of two $5 million-dollar payments related to the license of our display-only business, and we expect to receive the second payment in early October.

Also, we have completed the evaluation of the revenue recognition treatment of the display only license and concluded that we will recognize the entire $10 million license fee when our performance obligations under the agreement have been completed. We expect to complete our remaining obligations, which include providing certain technical documentation, in the third quarter.

Now, I will turn to the second quarter 2018 income statement.  Second quarter revenue was $2.0 million dollars. Essentially, all of the quarter’s revenue was from our contract with our Tier 1 technology customer that we announced in April 2017.

The status with Ragentek, the Chinese smartphone maker, has not changed. As we mentioned last quarter, we understand that Ragentek plans to launch two new products this summer and we have agreed to give them time to launch these products. We did not ship product to Ragentek in Q2, did not recognize any product revenue, and the units we’ve built for them remain in our inventory.

For comparison purposes, revenue in the prior quarter was $2.2 million, while revenue in the second quarter a year ago was $1.3 million. The Q2 2017 numbers have been adjusted for the new Revenue Standard ASC 606, which we adopted on January 1st of this year, using the full retrospective approach. Gross profit for the second quarter was $333 thousand dollars compared with $315 thousand in the prior quarter and $346 thousand in the same quarter a year ago. The improvement over the prior quarter was mostly due to improved margin on contract revenue.

Second quarter operating expenses were $8.8 million and compare with $7.4 million in the prior quarter and $6.0 million in the same quarter a year ago. The main contributor to the increased OpEx was spending on ASIC development and prototypes of our interactive display. These items increased OpEx by about $900,000 over last quarter, and in total represent $1.9 million of spend. ASIC development fees, which are paid to third parties, should decrease over the next few quarters. We do not expect these elevated levels of OpEx beyond one or two quarters.

Our second quarter net loss was $8.5 million or 10 cents per share, compared with a net loss of $7.1 million or 9 cents per share in prior quarter and a net loss of $ 5.7 million or 8 cents per share in the same quarter a year ago.

We ended the second quarter with cash and cash equivalents of $21.0 million, compared to $7.2 million at the end of the prior quarter, and $17.7 million at the end of the same quarter a year ago. The increase was primarily due to the proceeds received from the stock offering completed in June. In the financing we raised $16.6 million net of expenses.

On our last earnings call I recapped the potential sources for 2018 revenue, and I will update that today. This year we expect to recognize $10 million from the license agreement for our display only products; $8.5 to $9 million from the $24 million Tier 1 contract; and $4 million from the Ragentek order.

We also expect approximately $3 million of non-recurring engineering or NRE related to the display-only license of. When one adds up these opportunities, we have 2018 revenue opportunities totaling $25 to $26 million. Last year, our revenue was $9.6 million when adjusted for the new revenue standard. I'll now turn the call back over to Perry for some comments before opening the call to questions.

Perry Mulligan: Thank you, Steve. Let me wrap up by saying we are doing what we set out to do when I assumed the CEO role. We refined our Go-to-Market strategy to target Tier 1 technology leaders who have the capabilities to bring to market our innovative solutions. We entered into a license agreement with a global technology company to address the display-only vertical. For our interactive display and consumer LiDAR products we are executing on the technical requirements, finalizing development kits and product demonstrations to share with potential customers over the next few months, in support of product sales targeting 2019.

We have also taken the necessary steps to shore up our cash position, while keeping our sights on achieving profitability at some point in 2019. We are well positioned to execute the plan we have laid out for you and are excited by the benefits we believe this plan will provide our customers, shareholders, employees and suppliers. I look forward to sharing more details with you as the second half of 2018 progresses on our journey from an R&D company to a solutions provider.