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Microvision (NASDAQ:MVIS)

Q3 2013 Earnings Call

November 12, 2013 8:30 am ET

Executives

Dawn Goetter

Alexander Y. Tokman - Chief Executive Officer, President and Director

Stephen Holt - Chief Financial Officer and Chief Accounting Officer

Analysts

Michael Latimore - Northland Capital Markets, Research Division

Operator

Welcome to the Q3 2013 MicroVision Conference Call. My name is Katrina, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded today. I will now turn the call over to Dawn Goetter, Director of Marketing Communications. Ms. Goetter, you may begin.

Dawn Goetter

Thank you. I'd like to welcome everyone to MicroVision’s third quarter 2013 financial and operating results conference call.

In addition to myself, participants on today’s call include Alexander Tokman, President and Chief Executive Officer; and Stephen Holt, Chief Financial Officer.

The information in today’s conference call may include forward-looking statements, including statements regarding benefits under existing contracts and the negotiation of future agreements, our competitive advantages, progress with prospective customers, projections of future operations and financial results, product development, applications and benefits, availability and supply of product and key components, market opportunities and growth in demand, plans to manage cash used in operations, as well as statements containing words like believes, goal, pass, expects, plans, will, could, would, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission under the heading Risk Factors Relating to the Company’s Business and our other reports filed with the Commission from time to time.

Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in circumstances or any other reason.

The agenda for today's call will be as follows: Alex will report on the operation results, Steve will then report the financial results. There will be a question-and-answer session, and then Alex will conclude the call with some final remarks.

And now I'd like to turn the call over to Alex Tokman.

Alexander Y. Tokman

Thank you, Dawn. Good morning, everyone. We appreciate you joining us today for an update on the business results for Q3.

This year, our primary goals are centered on securing design wins, strengthening the supply chain and aggressively managing cash used in operations. And during the third quarter, we made progress on all 3 primary goals.

Let's focus first on design win activities. First, in Q3, we successfully continued the development activities with a Fortune Global 100 electronics company, with whom we are developing a custom display engine based PicoP display technology. Specifically, we completed third quarter development milestones, and the customer was happy with the results and deliverables. Overall, the Global Fortune 100 team has been very impressed with the capabilities of the technology and the support they have been receiving from our team. We are roughly halfway through the development cycle, and we're dedicating a significant amount of resources on this development project to ensure success.

Concurrently, with the development activities, we are engaged in negotiations on supply and license agreements for the components they would procure from us for their engine. We can't discuss the potential terms or other details of these negotiations yet, but both parties are pleased with the technical and business progress we are making, and we are excited about the opportunities the relationship can open up for MicroVision.

Second, in early September, we announced that we are supplying scanned engine systems prototypes, we call it SES, to a global Tier 1 automotive supplier for characterization and reliability testing. SES is the heart and brain of a head-up display solution, which contains our display engine and optics technologies.

This milestone is important step in the design win process with this particular automotive customer. While we are completing these deliverables, the respective business development and technical teams are negotiating the next phase of activities that would lead us closer to commercialization of PicoP display technology inside head-up display with this Tier 1.

Finally, we are continuing to make progress on the new business opportunities beyond Fortune 100 brand and beyond global Tier 1, focusing specifically on a group that contains several major consumer electronics OEMs. We are aggressively pursuing the companies that we believe have the market-making capabilities to jump start this emerging market that offer best fit with our go-to-market model and could bring compelling pico projections products to market next year, the products that are differentiated from what is available today.

Our business model offers OEMs options to either create their customized engine using the reference design and buy components from us or to procure a more standardized solution from established supply chain partners.

This gives perfect segue into supply chain. We made additional progress in ramping several new supply chain partners to make PicoP technology available to OEMs. Important milestones have been completed in several areas including MEMS and opto-mechanical module development.

Finally, in line with the third goal of further reducing cash used in operations, we reduced cash in operations for the quarter by approximately 5% but, most significantly, we reduced cash over the first 9 months by over 40% versus previous year.

With this insight, on the financials, I will turn it over to Steve for more details.

Stephen Holt

Thank you, Alex. In Q3, we successfully raised $6.6 million of gross proceeds in an equity offering, and as a result of our aggressive cost management, our operating expenses and cash used in operations continue to be in line with our expectations.

I'll be discussing our third quarter and year-to-date revenue, operating expenses, operating and net losses and our cash usage.

First, revenue. Third quarter revenue was $964,000 compared to $2.6 million for the third quarter of 2012. Year-to-date revenue was $4.6 million compared to $5.6 million for the first 9 months of 2012.

Operating expenses were $5 million, which is lower than the $5.5 million in operating expenses in Q3 of 2012. And for the 9 months ended September 30, operating expenses were $14.1 million, down 26% from $19 million in the same period last year. The reduction in operating expenses over the prior year reflects the impact of the restructuring that we initiated in Q2 of 2012.

The operating loss for the quarter was $4.1 million compared with $4 million for the same quarter in 2012. For the first 9 months of 2013, the operating loss was $11.2 million compared to an operating loss of $18.8 million for the same period in 2012.

The Q3 net loss was $3.7 million or $0.13 per share, which compares to $3.8 million or $0.15 per share in Q3 of 2012. And for the first 9 months of this year, the net loss was $10.8 million or $0.40 per share, down 42% from a net loss of $18.6 million or $0.91 per share in the same period last year.

Cash used in operating activities in Q3 2013 was $3.7 million. This compares to $3.9 million used in Q3 of 2012. For the 9 months ending September 30, 2013, cash used in operating activities was $9.9 million versus $17 million used in the 9 months ending September 30, 2012, a 41% decrease.

Cash and cash equivalents on hand at September 30 were $8.3 million. And finally, on backlog at the end of the quarter, there was $3.2 million in backlog, most of that was related to our development agreement with the Fortune Global 100 customer.

That concludes the financial results and we will now open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Andrew.

Unknown Analyst

Can you give a little bit more color on the timeline that we should expect completion of your work with your tier -- or the Fortune 100 partner?

Alexander Y. Tokman

Yes, Andrew. Recall that when we issue -- we, basically -- when we publicly announced in April, we stated that the development agreement will run from April to April, from April 2013 until April 2014, and all of the payments are expected to be received during that specific time.

Unknown Analyst

Okay. Is that still on track? I mean, it sounds like you've hit some milestones here and things are going well. Is there any...

Alexander Y. Tokman

Yes. So far everything has been on track and the development activities are going in line. We've seen the latest outputs from our partner, performance looks very good and we, concurrently, are negotiating the supply terms and the licensing terms for the commercialization, yes.

Unknown Analyst

Perfect. And then how are you doing on -- if I remember -- if I recall correctly, beginning of the year, you were looking at about, I think, 5 to 10 other companies to hopefully get something similar ...

Alexander Y. Tokman

Yes. We -- in addition to Fortune Global 100 and the Tier 1 that we announced, we are focusing right now on a group of handful consumer electronic OEMs to align, to try to launch products next year. These consumer electronic OEMs are recognized names, and we're focusing specifically on market makers. And progress has been made, but not enough to announce publicly yet.

Operator

Our next question comes from Mike Latimore.

Michael Latimore - Northland Capital Markets, Research Division

Yes. Just curious on the Fortune 100 development work. I guess, I would imagine the company would strive to have products out for next holiday season. I guess, is that a fair assumption or given the development timeframe here?

Alexander Y. Tokman

It would be -- Mike, it's a great question. I'm sure everybody wants to know the answer. We're not privy to give out the specific times. I'd just tell you that the company is looking at multiple use cases for several product lines and they are not necessarily tied to Christmas introduction, it's -- they introduce products throughout the year.

Michael Latimore - Northland Capital Markets, Research Division

Got it. And then, I mean, just generally. If we were to think about the revenue sources in fiscal '14, what would be the top 2 in your view?

Alexander Y. Tokman

Well, we hope that the top would be the royalty and component sales to the OEMs who introduce their products and also development revenue that will come from a development contract.

Michael Latimore - Northland Capital Markets, Research Division

Okay. And the -- how many employees do you have at this point, and what percent are in R&D?

Alexander Y. Tokman

We have about under 70 employees and about 40-plus, 40, 45 are R&D.

Operator

All right. We have no further questions at this time.

Alexander Y. Tokman

All right. Since we have no more questions, let me just close this call by stating we made solid, measurable progress in the quarter. Specifically, we completed third quarter development milestones with our Fortune Global 1 (sic) [Fortune Global 100] customer, and the customer was pleased with the deliverables. We made an announcement with a global automotive Tier 1 to deliver head-up display system prototypes for reliability testing and characterization. We made additional progress in ramping our supply chain partners to make PicoP technology available to OEMs in higher volumes and lower cost. And finally, we reduced cash used in operations for the quarter and significantly reduced it over the first 9 months versus previous year, while improving the balance sheet.

And I hope you could see these as the benchmarks or stepping stones towards our ultimate goal. We fully understand that all investors interested in our quest to revolutionize the display industry with PicoP display technology want to know one essential thing, how close are we to having customers bringing products to market? That's the question, really, that we focused on and everybody wants to know about. Measurable progress is being made with Fortune Global 100 brand and few other undisclosed opportunities that we are developing, but we are limited in what we can say. Let me only assure you that 100% of our energy here at MicroVision is devoted to the cause of securing customers and helping them to launch products. And 3 of our primary goals that we discussed today are intervened to achieve this outcome. There is much that goes into launching a new technology to market and perseverance is a quality that is essential in a quest for success. We strongly believe that the technology we have defined and developed can be at the heart of products that offer an experience to consumers that they would not have expected was possible and wasn't -- is not expected from anybody else. The entire product category for pico projections is still an emerging phenomenon. The cycle for having pico projections become -- to become a widely known and demanded product has -- had been longer than we and anyone expected. But we have persevered and we believe that the great potential is still there, particularly because the green laser issue that had been holding us back has been alleviated last year.

We thank our investors and supporters who have persevered with us. And with this, we will conclude this call, and wish everyone happy the rest of the year and happy holidays. And we'll speak shortly -- we'll speak early next year. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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