MicroVision, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial statements are unaudited. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and financial performance
MicroVision develops laser beam scanning (LBS) technology, marketed as PicoP, for applications including projection, consumer and automotive LiDAR, and augmented and mixed reality. Its strategy includes selling scanning engines and components and licensing its technology.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.190 | $11.572 | $4.281 | $15.774 |
| Gross profit (loss) | $(0.882) | $8.927 | $(0.857) | $9.575 |
| Operating expenses | $5.263 | $8.639 | $22.335 | $24.858 |
| Operating income (loss) | $(6.145) | $0.288 | $(23.192) | $(15.283) |
| Net income (loss) | $(6.141) | $0.289 | $(23.199) | $(15.302) |
| Loss per share, basic and diluted | $(0.05) | $0.00 | $(0.21) | $(0.18) |
Gross margin was approximately negative 74% in Q3 2019 and negative 20% for the first nine months of 2019, versus positive margins in the comparable 2018 periods. Product revenue was $0.999 million in Q3 and $1.198 million year to date; contract revenue was $0.174 million and $3.066 million, respectively. License and royalty revenue was $0.017 million in each period.
Cash, liquidity, and obligations
- At September 30, 2019, cash and cash equivalents were $6.642 million, with another $0.435 million of restricted cash. Cash and cash equivalents were $13.766 million at December 31, 2018.
- For the first nine months, operating cash use was $19.733 million, investing cash use was $0.671 million, and financing provided $13.280 million, mainly from common-stock issuance. Cash, cash equivalents, and restricted cash declined $7.124 million.
- Current assets were $7.962 million versus current liabilities of $15.866 million; total liabilities were $17.363 million and shareholders’ equity was a deficit of $4.969 million.
- The filing reports operating lease liabilities of $2.133 million and finance lease liabilities of $0.039 million. It does not identify a conventional borrowing balance in the presented balance sheet.
- Open purchase commitments were $2.6 million. A $10.0 million contract liability represents an upfront payment already received for future component purchases; recognition depends on future sales, and the filing says the timing of the remainder is uncertain.
Material changes and unusual items
- Revenue fell sharply year over year, particularly because Q3 and nine-month 2018 included $10.0 million of license revenue recognized on completion of obligations under a five-year license agreement. The 2019 comparison also reflects lower contract activity as development work under the April 2017 agreement neared completion.
- Product costs included inventory write-downs of $1.4 million in Q3 and $2.2 million in the first nine months. The filing also reports $0.204 million of property-and-equipment impairment and $0.097 million of intangible-asset impairment for the nine-month period.
- After completing development work under the major technology company contract, MicroVision reduced its workforce by approximately 27%. Severance expense was recorded in Q2; $0.284 million was paid in Q3, with remaining payments planned for Q4 2019.
- Shares outstanding increased from 100.105 million at year-end 2018 to 119.417 million at September 30, 2019, reflecting stock sales and compensation. The company raised $13.295 million net from common-stock issuance in the first nine months.
Outlook, risks, and contingencies
Management expected cash, including anticipated proceeds under its Lincoln Park purchase agreement, to fund operations into the first quarter of 2020. The company stated it would need additional capital thereafter and that availability, timing, and terms were uncertain. Management said these conditions raise substantial doubt about the company’s ability to continue as a going concern; absent adequate capital, it could substantially limit operations. MicroVision expected a significant loss for full-year 2019 and anticipated continued losses and negative cash flow.
- Product revenue backlog was $5.5 million at September 30, 2019, primarily from initial production orders from a major technology company; contract backlog was approximately zero. Backlog is subject to customer and company performance and timing uncertainty.
- Customer concentration was high: one customer contributed 69% of Q3 revenue and 86% of nine-month revenue; a second contributed 30% and 13%, respectively. One customer represented all accounts receivable at quarter-end.
- The company relies on single- or limited-source suppliers, and described risks from supplier disruption, manufacturing capacity, market acceptance, competition, and the long and uncertain commercialization cycle for its technology.
- MicroVision sought $4.0 million plus interest and arbitration costs from Ragentek in a Hong Kong arbitration over an unfulfilled purchase order; the company said it could not predict the likelihood of a favorable outcome.
- Nasdaq had notified the company that its share price had been below the $1.00 minimum bid requirement. The compliance deadline was December 10, 2019; the filing reported a November 1 closing price of $0.74 and noted a reverse stock split as one possible response.
Most important facts for investors to verify
- Cash runway assumptions, actual remaining availability under the Lincoln Park agreement, and the company’s ability to raise capital after Q1 2020.
- Whether major-customer orders convert into sustained product sales and acceptable gross margins, particularly given inventory write-downs and the $10.0 million contract liability.
- Progress toward Nasdaq’s minimum bid-price requirement and any resulting listing action or corporate response.
- Outcome and timing of the Ragentek arbitration, and any changes in customer concentration, backlog, or supplier availability.