Q3 2019 Earnings Call
Good day and welcome to the Microvision third quarter, 2019 financial and operating results conference call.
Participants will be in listen only mode should you need assistance. Please signal a conference specialist person the Starkey followed by zero.
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Please note. This event is being recorded I would now like turn the conference over to Lindsay Goldberg. Please go ahead.
Thank you good afternoon, and welcome everyone to micro patient third quarter, 2019 financial and operating results conference call.
Joining me on today's call or Perry Mulligan, Chief Executive Officer, Steve <unk>, Chief Financial Officer, and so much Charlotte Chief operating officer.
The information in today's conference call includes forward looking statements, including statements regarding expected customer orders.
Progress under and benefits of existing contracts and license agreements and the negotiation of pure trade agreements customer product launches advantages of our technology litigation progress with perspective customers business execution project.
I wouldn't have future operations and financial results.
<unk> development applications and benefits availability and supply of products and a key component.
Commercialization of our technology.
Market opportunities and growth in demand as well as statements containing words like opportunity significant target intent confident believe go well focus pack expects plan will.
Oh, it would likely resulting optimistic and other similar expressions.
These statements are not guarantees of future performance.
Actual results could differ materially print a future results implied or expressed in the forward looking statements.
We encourage you to review our various FCC filings.
Including our annual report on Form 10-K filed on March six 2019.
Our Form 10-Q s filed on April 26, 2019 July 19th 2019, and other as he see filings made from time to time in which we discussed risk factors associated with investing and Microvision.
These risk factors could cause results to differ from those implied or expressed in our forward looking statements.
All forward looking statements were made out of the date of this call and except as required by law, we undertake no obligation to update this information.
The financial numbers presented on the call today are included in our press release and in the 8-K filed today. Both are available from the Investor Relations section of our website. This conference call will also be available for audio replay in the Investor Relations.
Section of Microvisions website at Www Dot Microvision Dot com.
And now I'd like to turn the call over to Perry Mohegan Perry.
Thank you Andy and good afternoon, everyone.
We made considerable progress in the third quarter with Oems across multiple segments in our product portfolio, but could have significant positive impact on our 2020 result.
Production unit shipments for our April 2017 contract customer began in the third quarter and continued to proceed smoothly.
Meeting our customers' production schedule.
Our activities related to our interactive display solutions.
Resulted in a major step forward during the past few months has customer due diligence work has now led to negotiations for a couple of purchase agreement that we aim to complete this quarter for a targeted launch of our.
Rocked it display module in 2020.
As costs most products come to market, we expect our company revenues could reach $100 million over a 12 month period following product launches that we expect to start no second half of 2020.
On today's call I'll provide you update on the interactive display products.
Automotive radar and our April 2017 contract.
While we continue to work with customers on our consumer wide our solution, we plan to provide updates on that product in future calls.
So let's take a look at some of the detail.
Our interactive display module has been exceptionally well received by multiple talk to your Oems.
The capability instantly producing these large.
All right wide area short throw display on virtually any surface and allowing the user to interact with the image multi finger touch is very powerful.
Coupled with our OEM. He I'd platforms, we believe that this module significantly augment users access.
To the customer solutions.
Since this module bolt on from previous generations of ours laser beam scanning designs, our manufacturing capabilities are already in place.
And ready to support the 2020 production ramp.
So where are we with our customers.
During the past few months, we've been actively engaged with our customers.
They have bettered our manufacturing processes supply chain and pricing models.
We're currently working on a component purchase agreement with the goal to close by the end of the current quarter to support 2020 product watch.
These engagements over the past few quarters continue to reinforce our belief.
That microvision has the potential with our interactive display product to sell one two or 3 million units. During the first 12 to 24 months of production.
On our previous call, we discussed how our class one new laser safety solution was truly unique meeting safety requirements, while still producing a large right image.
We believe that this capability expand potential market for our interactive display products to include personnel mobile gaming devices.
With a larger potential market, we believe that we have increased the opportunity for our interactive display product to so well in excess of 10 million unit to multiple customers.
So let's recap.
The capabilities are very interactive display module and our overall ability to support the business have been well received by customers.
We are working to close OEM agreement.
We are preparing for product launch from 20 point.
We have multiple Oems interested in developing products that use our solution.
We believe that our future products could be very significant to our qunar targeted AI platform customers.
And also opens markets the on smart speakers for us such as high volume handheld gaming devices.
I think that's pretty exciting.
Let's move onto our automotive radar product.
The market for advanced driver assistance systems is experiencing high growth that we expect to accelerate what the need for safety features a new regulations targeted to come into effect in the next three to four years.
Has the era of new mobility models appears including expected high growth in electric vehicle market, we believe the need for supporting autonomous driving in the near future is clear.
Combine these influencing factors.
Customers looking for safer automobiles.
New mobility module models.
New electric vehicle market, new regulations going into effect in the U.S. in Europe .
There will be a large market for sensors.
We believe that a small form factor Mems based scan Eli Dart is key to achieving solid state wide are that will be required.
Leveraging our years of laser beam scanning experience and our demonstrated capabilities and lighter the automotive wide our vertical is a natural fit for microvision.
That said, we needed to develop critical additional capabilities to meet some of the performance requirements in this space.
With new IP for these innovations recently filed we believe we have the right solution at the right time.
Early in 2019, we engaged several talk to your automotive Oems.
And presented an outline of our first product.
This product would be intended to support Ada es level three autonomy.
Microvisions 200, plus meter wide our module would include our proprietary.
Purcell Chin system on a chip ESCO C.
Key innovations we have developed will allow this slide our module.
Which is targeted to be 80 millimeters by 80 millimeters by 35 millimeters insights.
To operate in all sunlight conditions.
That range.
And he knew to other Lidars president within Q.
Our innovative wider captures high density point cloud data in three different ranges, which would allow safety and path planning at speeds.
Fall far field range, while maintaining safety boundaries with cars near and mid field from the C lighter.
We believe a vehicle with our module as part of its safety system would have the ability to predict.
The intent of other cars surrounded with high accuracy and low latency at highway speed.
We are actively engaging and talk to your Oems and their tier one automotive suppliers to develop partnerships and expect to have engineering samples available in Q4 2020.
With this schedule, we believe we would be able to support a 2023 launch.
Finally, let me cover the products, we're supplying under the April 2017 contract.
We are currently running production per the customers plans and our products are shipping smoothly.
At the end of Q3, we had a backlog of $5.5 million.
In addition to that backlog, we have received additional component orders in Q4 that represent approximately $5 million.
With the product up they complete I'll turn the call over to see our CFO , who will discuss the financial side of our business.
Thank you very.
Afternoon, everyone.
For the third quarter revenue was 1.2 million with approximately 1 million other revenue related to product revenue 174000 contract revenue.
And the balance due to license revenue.
Product revenue came from two sources first we began shipping components to our April 2017 customer for about $639000 and second we recognize 360000 of revenue on projection engines, we built for Reagan Tech Youre able to sell to another customer.
In comparison last quarter, we recognized 1.2 million of revenue.
With virtually all of it from contract revenue related to the development portion of the April 2017 contract.
Cost of revenue was 2.1 million, resulting in a negative gross profit of 882000.
During the three third quarter, we wrote off $1.3 million worth of Mems die that were incompatible with our class one solution.
On April on the April 2017 cost customer, we had negative gross profit $23000. Although we experienced good yields and had no product quality issues. The negative gross profit was a function of the low volume.
Because the Reagan Tech units have been previously written off they had a positive gross profit of 360000.
Contract revenue and had gross profit of 141000 and licensing royalties contributed 70000 in gross profit.
In comparison gross profit was negative 583000 in Q2.
Third quarter operating expenses were 5.3 million.
37% reduction compared to the prior quarters a point fourmillion.
The reduction in Opex in the third quarter was caused by reduced spending on a six and other outside services and since we had we're nearing the completion of our large development contract, we reduced our workforce in Q2.
At the end of Q3 or head count was 82.
At the end of Q2 head count was 80.
And a year ago it stood at 109.
For the third quarter, our net loss was 6.1 million or five cents per share.
Compares to a loss of 9 million or eight cents per share last quarter.
For the third quarter cash used in operations was 3.4 million, which compares to cash use of 8.7 of the prior quarter.
We ended the third quarter with cash and cash equivalence of 6.6 million.
We ended the second quarter with.
4.6 mill.
During the third quarter, we raise $2 million from an investment from a longtime shareholder and we raise 3.7 million from the Lincoln Park facility that we announced in April .
$2.7 million remains available on the Lincoln Park facility should we choose to utilize.
So with the cash balance of 6.6 million are significantly lower cash usage rate and access to the Lincoln Park facility. We expect that we have cash to carry us into Q1.
And Additionally, we have the expectation that we will receive payments for capital equipment and or other customization is from a customer in the fourth quarter.
Now I'd like to go back fermented and talk about the April 2017 contract.
You may recall that when the agreement was signed the customer made a 10 million dollar payment to microvision.
If we fail to perform our development obligations, the 10 million would be refundable to the customer.
They canceled the program the $10 million would be our sticky.
If the customer move forward with the program the 10 million would be used as a prepayment toward future purchases of components.
Fortunately the program didn't move forward and as a result of our completing the development portion of the agreement we're past the point, where we might have to repay the 10 million for failure to perform.
10 million is now classified on the balance sheet as a contract liability previously it was classified as some other current liabilities.
As we shift components to the April 2017 customer a portion of the invoice will be paid in cash and unfortunately of course will be credited against the $10 million prepayment.
Additionally, microvision is entitled to a payment on each unit our customer ships, we record that payment as license and royalty revenue.
And that payment will be applied toward the $10 million prepayment until it is consumed.
Yes, the 10 million has been fully used the per unit payment will be made in cash.
[noise] naturally many of you want to know the timing of the application of the prepayment against future invoices.
This amount will be disclosed in the revenue footnote in our 10-Q's and 10-K's that we file in the future.
The amount, we disclose will be based on the forecast on the orders that we have from the customer.
Which will be subject to change.
Based on the orders we had at the ended the quarter, we estimate that the amount of the $10 million prepayment to be applied to invoices should be about 800000 to $1 million over the next six months. That's over Q4 2019 in Q1 of 2020.
Finally, I'd like to give you an update on backlog and 2019 rather.
All of the backlog relates to our April 2017 customer at September Thirtyth, we had $5.5 million a product orders and backlog.
As for 2019 revenue, we sit on the last call. We expected product revenue from the April 2017 customer to be between three and 5 million over the last half of that have 2019.
Currently don't see any change from that guidance. So since we shift around 600000 in Q3 that would indicate that we would do 2.4 to 4.4 million.
Shipments in the fourth quarter.
Since our revenue through the third quarter is 4.3, we see total revenue for 2019 to be in the 6.5 to 8.5 million dollar.
I'll now turn the call back over to Perry for some comments before opening the call for questions.
Thank you Steve.
I'm pleased to report that we are delivering on the plan, we discussed in the past and reiterated today.
We have successfully vetted, our manufacturing process supply chain and pricing models with customers in the Aiotv speaks.
We are working to close agreements to launch our interactive display module in 2020 .
We have outlined on this call and shared with potential customers our capabilities in the automotive wide our space as a result, we have seen significant interest in our planned automotive slide our product.
We are executing on the April 2017 contract and are on track with product shipments.
The major takeaways from today's call are one we are executing on our strategy.
Two we are working to close a commercial agreement this quarter and have never been in a better position to have production solutions in mass production in the market you 2020 .
And three our future products are targeting high growth markets.
With that we will now open the call for questions.
We will now begin the question and answer session to ask the question you May Press Star then one on your Touchtone phone.
Sure you're seeing a speakerphone, please pick up your handset before person the keys to.
To withdraw your question. Please press Star then to at this time, a pause momentarily to assemble a roster.
Our first question comes from Amman, Garanti with B. Riley FBR. Please go ahead.
Hey, guys. Thanks for taking my question, So I guess first.
Talk about the April 2017 contract.
Now that you started shipping units are you able to disclose who the customer it had a little trouble with the.
Operator getting to the question section can you hear me.
Yes.
Im sorry, where you're not able to get to hear my upfront.
No I, well, let's not able to hear you.
Our non you arrive to the questioners.
Yeah. So my question is about to 2017 April contract.
Now that years.
Shipping units are you able to disclose who the customer is.
Hello.
Oh parents that are speakers have.
Dropped.
Oh, the operator is.
Dropped off the call contact.
Hopefully will come on given.
How are we back on second too.
Okay back online Oh pardon me everyone. It appears the speaker Ryan has dropped.
One moment, while we reconnect them.
Oh, yes.
Pardon me, everyone, we have reconnected with the speakers.
Hello, Brian [laughter].
Are you still able to hear me.
Hi, we can hear you and I think we are ready to take questions. If okay. The other right.
Our first question comes from a mechanical Ronnie with FBR go ahead I'm on.
Hey, guys. Thanks for taking my question.
Regarding the April 2017 contract.
Now that you're shipping units are you able to disclose who the customers.
We are not allowed to do that at this time.
Okay all right.
Are you able to disclose if the customer is if the products available in the market.
No we can't make any comments about the customer their product launch plans.
Okay all right.
Moving on to a light our in your explore kids.
Are you able to maybe quantify how many customers you've delivered to explore kit to.
Yeah, we we had targeted a handful of AI platform orders that were.
Important for us to get these kids to and and they've all received.
They are exploring kits in are evaluating them.
Got it okay, but are you seeing a little bit more interest this quarter at all relative to last quarter, how would those explore kit.
Yeah. It there.
The the people that we have provided the kids too.
As we outlined I think in the last call recognize that this is pretty a pretty innovative technology and they're evaluating to see how this can be integrated into their product roadmaps. So.
Okay, Okay, and then I mean, well Kid Opexa, obviously, it's come down quite a bit I think largely due to the head count reduction.
You know they.
Back for this quarter is that sort of a good run rate to look at for the remainder of this year and next year.
Well, we expect to start preparing for 2020 product launches. So we could see some increases in opex in Q4.
No we expected to stay below last years levels.
Okay and then.
Is there any updates on the litigation did it seems like that sort of resolved now is that the case.
No we're still pursuing some.
Total remedies with the customer that we had.
But there's nothing to report on that this time, it's just making its way through the process. Okay.
Okay, and then you mentioned, you're getting a lot of positive feedback for your cost one laser.
Any updates on that front are you seeing more activity.
This quarter relative to.
The second it first quarter.
Yeah, Yeah, I think I think significant and that was the the intent of us describing the fact that we are in discussions.
On commercial agreements that we expect to close this quarter.
And it is in fact word that interactive display module. The class one version of the device that weve been cherry with customers.
Got it okay.
That's helpful I'll pass it on.
Excellent. Thank you.
Our next question comes from Glenn Mattson with Ladenburg Thalman. Please go ahead.
Hi.
Thanks for taking the question.
So Perry thanks, a lot of color on the commentary there.
And I know you talked about this.
Potential customer last quarter, a bit as far as the interactive display goes but can you give us just a little more.
Color as to why you feel so confident as to kind of put yourself out there to say that you expect to sign a deal this quarter.
Just maybe a little more color on the background behind those comments.
Well I think first of all again when I appreciate and I think you understand that this is a journey that's taken us while to get here and and with that we're now at a point where I.
I think we've demonstrated the requirements necessary to move to the next stage in the next stage that we are discussing is this agreement that we're working on closing so the fact that it's in flight in fact that we're working to bring it to to fruition I think is why were comp.
Is that.
Timing of the contract signing this years that's relevant to the.
Kind of.
The ability for the customer to get the product out on a timely basis next year I just wonder about there.
Currency.
Closing a deal.
Quarter or is it just that you feel like you've reached the point.
And then negotiations during the discussion.
It is getting pretty close to being finalized.
Well I think you covered a couple of points.
Glenn to maybe I'll just try to attack try to update you on on cost for a couple of them first you know the thing we said during the call today was that our processes and the product reviews have been exhaustive and been going on for awhile.
And it's nice to get confirmation that those past the scrutiny and and appear to be a adequate insufficient for for our product launches. So it's great to hear from customers that they're comfortable blow where we are in the second relative to just general timing the customer will determine the timing of how they want to bring things to closure we think the.
Cadence that they have is in keeping with supporting of the 2020 launch that were describing and that's why we're.
Putting the two together there's no.
Restrictions in any way shape or form that I can think of its just the natural cadence that that seems to be 50.
Okay, Great and then just two more quick ones on the backlog the.
On the new order I think you've said you had its second order for $5 million from April 17 customers that.
Any any thoughts on how.
The timing of how that would ship it would be like first half or over the course year and maybe.
<unk>.
Yeah, I think it would be expected to ship over the first half of next year.
I don't have the quarter breakdown yet the order just came in and we're working through it but it'd be front end loaded to the year.
Great and then I'm just a clarification on the last comment you said it would be up.
As far as Opex, because you said it might be up from this quarter sequentially, but less than last year, but that's a very wide margin because last year.
Almost.
Two X what it was this quarter.
Most of that.
Well, yes.
Yes.
Yes, we're focused on keeping it down.
And the timing and the the ramp which we need to prepare for launch made may dictate.
You know what did it will dictate what that Opex spend is we're not seeing it though get up.
Hi, I just don't.
Because I'm a little unsure about exactly what we're going to be doing in the fourth quarter here. Another guy I'm Little a couple of given your forecast, but I don't think it's going to go up very much.
I'll jump back in a good thanks guys.
Thanks Glenn.
Our next question comes from like Maloof with Craig Hallum. Please go ahead.
Oh, great. Thanks for taking my questions.
First off or if I could just get a little deeper on this commercial agreement that you're looking to side. This quarter of another we've been focused heavily on on the interactive display and the interactive all sort of separate agreements I'm wondering are you talking about getting two separate commercial agreements side.
Or is one going to encompass both of those and a and then just maybe a little bit of color on the multiple Oems are we talking about just one OEM for both of them or multiple Oems.
And then I think we've got to break that apart a little bit Mike. So if you recall, we're dealing exclusively with our interactive display modules here, we had previously license our display only technology to.
Global.
Technology leader and they were pursuing a similar engagements.
We are not commenting on where they are in those engagements in this call. We're simply talking about the progress were making for our class one interactive display product with a tier one Oems. So as we talk about the agreement we keep it singular, but we talk about the fact.
Machines with multiple Oems for who are interested in using this product in their applications.
Does that clarify.
Yeah. That's that's helpful. I Didnt I didn't realize if this was specifically for for interactive display on that so that's that's helpful.
And that.
If I could just ask one more question you know just recently you know Alex kept men, who has been really though the girl were behind the hollow lends to the this whole presentation about a month ago talking about how lens to and in that it showed a slight actually in the prototype of the device and that's clearly.
Seen on their them you know microvision logo on the PCB Board. So I'm just kind of curious you know.
That sort of a public you know a validation that you're on the hobbled, that's too and I know I'd love to get a little bit.
Comment specifically tied to that presentation that Alex gave thanks.
Yeah. So just though we're on the same page Mike I believed that this is you're referencing the presentation that Alex maiden October 3rd at each a global electric series in Zurich.
Right and it was titled the title the how loans to impact.
Great. So he call he referenced some of the pictures I think hollow ends to model and in that picture. It looks like you can see the microvision logo on some of those components. We can confirm that it appears to be our logo.
And beyond that I can't make any other comments.
Okay, Great. That's a that's good to hear.
And that is that's what I had push it out.
Hey, Thanks, Mike.
Our next question comes from Kevin D with H.C. Wainwright. Please go ahead.
[noise] Afghan gentlemen, thanks for taking my question, Steve just some clarification on that facility you still have available to you I missed the number that you offered.
2.7 million is still available dollars.
Okay, and what's been used.
Yes.
Yes, I think for the total you gave us that number two it's in your prepared remarks in the quarter. It was three seven.
And.
Over the and Q2 was 4.6 that comes to Eightpointthree.
Okay.
What's the full share count.
No not average, but full share count as that as of the ended the quarter. What do you expect it to be at the end of year.
[noise]. We're currently go to 190 million I don't have a forecast on what's going to be it in here, but.
Currently 219.
Right, Okay fair enough. Thanks.
Yep.
Barry I you know I.
The whole when things really cool hadn't heard about that but you mentioned handheld gaming and I don't know that I've heard you talk to that before can you just kind of help me conceptualize how your product works in that application.
I think there there's a.
There's a capability that weve demonstrated and that work that we're bringing to market Gray, we talk about art interactive display having class one laser safety at the module level and by doing that Kevin and maintaining brightness.
Of the display we're unable to now explore higher power.
Larger field of view kinds of displays larger projection displays that are still interactive.
So beyond the smart speaker application, we look at these handheld device is think of the portable handheld solutions that companies like Nintendo or Sony as examples might be using not cell phones, but these handheld gaming devices that are these companies been American could leverage our.
[noise] larger brighter interactive displays and we think it's.
An interesting opportunity for us to go explore.
Okay. Thanks.
That's that's all I was curious about this time.
Thank you answered the question and answer session I'd like turn the conference back over to Perry Mohegan for any closing remarks.
Hi, Thank you operator, we appreciated the pause in the call everybody had a coffee in closing I'd like once again to thank our employees our business partners and their investors for their continued support.
We are committed to keep you informed of our progress as we go forward and remain excited for the opportunities ahead.
Thank you operator.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.