MicroVision, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited results; dollar amounts below are in millions unless stated otherwise. MicroVision develops laser beam scanning technology, marketed as PicoP, for projection, sensing, automotive LiDAR, and augmented and mixed reality applications.
Financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1.851 | $2.188 |
| Gross profit / margin | $0.608 / 32.8% | $0.315 / 14.4% |
| Operating expenses | $8.672 | $7.435 |
| Operating loss | $(8.064) | $(7.120) |
| Net loss | $(8.068) | $(7.132) |
| Net loss per share | $(0.08) | $(0.09) |
| Cash used in operating activities | $(7.647) | $(9.556) |
Revenue comprised $0.199 million of product sales, no license or royalty revenue, and $1.652 million of contract revenue. Contract revenue declined 24.1%, mainly due to reduced activity on the April 2017 development program. Gross margin improved as contract costs fell; product revenue was below its cost in the quarter. Research and development expense rose 23.7% to $5.973 million, primarily from LBS engine development materials and personnel costs.
Liquidity, capital, and balance sheet
- Cash and cash equivalents were $6.979 million at quarter-end, down from $13.766 million at December 31, 2018; including restricted cash, period-end cash was $7.414 million. Cash burn from operations and investing totaled $7.960 million, partly offset by $1.173 million of financing proceeds.
- Current assets were $10.605 million versus current liabilities of $17.859 million, a working-capital deficit of $7.254 million. Shareholders’ equity moved from $4.117 million to a deficit of $2.432 million.
- Total liabilities were $19.633 million. The filing reports no conventional borrowings; lease liabilities included $2.388 million of operating leases and $0.050 million of finance leases.
- In January, the company raised approximately $1.2 million gross from issuing 2.0 million shares. Common shares outstanding were 102.105 million at March 31; 103.523 million were outstanding April 22.
- Subsequent to quarter-end, MicroVision reported a $2.0 million gross registered direct offering expected to close April 26, 2019, and a Lincoln Park agreement: an initial $1.0 million stock purchase and the option to sell up to $10.0 million of additional shares over 24 months, subject to limitations. The company also issued 250,000 commitment shares.
Material changes and business developments
- Total revenue declined 15.4% year over year. Product revenue was $0.199 million versus none in Q1 2018; contract revenue fell from $2.177 million to $1.652 million; license and royalty revenue was nil versus $0.011 million.
- Operating expenses increased 16.6%, led by R&D. Net loss increased to $8.068 million from $7.132 million, although loss per share narrowed to $0.08 from $0.09 as weighted-average shares increased to 101.971 million from 78.610 million.
- Q1 2019 revenue was highly concentrated: one customer contributed $1.6 million (88%) and another $0.199 million (11%). A single customer represented 98% of accounts receivable.
- Backlog at March 31 was approximately $1.3 million for contracts, compared with $7.2 million a year earlier; product backlog was zero versus $4.3 million. The company attributed the product backlog decline primarily to uncertainty in fulfilling the remaining portion of a March 2017 Ragentek order.
Outlook, risks, and contingencies
- Management expected available cash to fund operations through July 2019, assuming expected development-contract proceeds and the $2.0 million April offering, and excluding further Lincoln Park sales. Milestone receipts under the development agreement are uncertain; additional capital is required beyond that point. The filing states that these conditions raise substantial doubt about MicroVision’s ability to continue as a going concern.
- Management expected a significant loss for 2019; the company expected significant losses and negative cash flow at least through 2019 and likely thereafter. It may need to raise equity or debt, secure product or licensing revenues, or substantially limit operations if adequate capital is unavailable.
- The April 2017 agreement with a major technology company may provide up to $15.1 million in development fees, contingent on milestones. By March 31, MicroVision had received $12.3 million and recognized $13.7 million in revenue, including $1.6 million in Q1. The $10.0 million upfront payment is recorded as a current liability, may be applied as a discount on future component purchases if the customer proceeds to manufacture, and is subject to repayment if the customer terminates for failure to meet milestones. The remaining $1.3 million of contract backlog was scheduled for completion in Q2 2019.
- In March, MicroVision initiated Hong Kong arbitration against Ragentek seeking $4.0 million plus interest and costs; it could not predict the outcome. Open purchase commitments were $5.2 million.
- Key risks include continued dependence on a small number of customers, single- or limited-source suppliers, uncertain adoption and commercialization of emerging technology, execution of customer milestones, and need for additional financing that could dilute shareholders.
- Adoption of lease accounting in January 2019 added a $1.559 million right-of-use asset and $2.388 million operating lease liability on the balance sheet; management reported no material effect on earnings or cash flows.
Important facts for investors to verify
- Whether development-contract milestones were completed and the related payments received, including the potential repayment exposure on the $10.0 million upfront amount.
- Actual cash runway and subsequent financing proceeds, share issuance, and dilution relative to the July 2019 runway estimate.
- Progress in commercializing PicoP products and conversion of the limited contract and product backlog into revenue and cash.
- Outcome and collectability of the $4.0 million Ragentek arbitration claim, and the company’s ability to meet its $5.2 million purchase commitments.
- Customer concentration and supply-chain continuity, particularly given the single-customer receivable concentration and limited-source suppliers.