MicroVision, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. MicroVision develops laser beam scanning (LBS) technology and related engines, components, and licenses, marketed under its PicoP brand. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance and position
- Revenue: $2.188 million, up from $0.568 million in Q1 2017. Contract revenue rose to $2.177 million from $0.471 million; royalty revenue declined to $11,000 from $97,000. No product revenue was recognized in either quarter.
- Profitability: Gross profit was $315,000 (14.4% gross margin), compared with a $48,000 gross loss in Q1 2017. Operating expenses increased 26% to $7.435 million, including research and development of $4.828 million, up 45%. Operating loss was $7.120 million versus $5.946 million; net loss was $7.132 million versus $5.949 million. Net loss per share was $0.09 in both periods.
- Cash flow: Operating cash use was $9.556 million, compared with $6.729 million in Q1 2017. Investing cash use was $182,000, mainly capital expenditures; there were no financing cash flows. Cash, cash equivalents, and restricted cash fell $9.738 million during the quarter to $7.663 million, including $7.228 million of unrestricted cash.
- Liquidity and liabilities: Current assets were $16.054 million and current liabilities $18.703 million, a working-capital deficit of $2.649 million. Total liabilities were $19.232 million and shareholders’ equity $3.286 million. The filing does not report a separate borrowings balance.
- Other metrics: Total assets were $22.518 million. Inventory was $4.519 million. Accounts receivable was $2.502 million, of which one customer represented 99.9%.
Material changes and notable items
- Higher contract activity drove revenue growth; $2.1 million of Q1 revenue related to the April 2017 development agreement with a major technology company. The company recognized $6.8 million in cumulative development revenue under that agreement by March 31, 2018, against potential development fees of $14.0 million contingent on milestones.
- Contract costs rose to $1.635 million from $403,000, primarily reflecting work on that development agreement. Management attributed higher R&D spending to subcontractor costs, increased headcount, and personnel-related costs for LBS engine development.
- MicroVision adopted ASC 606 using the full retrospective method. The standard changed the timing of certain license and product revenue recognition and restated prior-period figures; Q1 2017 net loss increased by $302,000 to $5.949 million. Adoption did not affect cash flows.
- Product backlog was $4.3 million; total backlog under open orders and agreements was reported as $11.5 million. The April 2017 development contract accounted for $7.2 million of contract backlog and was scheduled for completion in Q1 2019.
Outlook, risks, and contingencies
- Management expected available cash to fund operations through December 2018, based on its operating plan, anticipated milestone payments under the development contract, and $10 million of expected 2018 license fees under a May 2018 agreement. The license agreement was signed after quarter-end: it grants a customer an exclusive five-year license for display-only applications, with $5 million scheduled for Q2 and $5 million for October 2018, subject to agreement terms. Additional potential payments include engineering work, qualification milestones, and component sales.
- The company stated it will need additional capital after that period and that uncertainty around milestone completion, revenue, margins, expenses, and financing availability could require earlier funding. Management explicitly said these factors raise substantial doubt about MicroVision’s ability to continue as a going concern. It expected significant losses in 2018 and ongoing losses and negative cash flow at least through 2018 and likely thereafter.
- Revenue was highly concentrated: one customer generated 95% of Q1 2018 revenue. The company also relies on single- or limited-source suppliers and third-party manufacturers; supply disruption could delay deliveries or increase costs.
- MicroVision had $5.4 million in open purchase obligations and a $500,000 accrual for SHOWWX pico-projector material commitments exceeding estimated future proceeds. An arbitration claim by supplier Asia Optical seeks $3.6 million plus fees, interest, and costs. The company contests the claim; it could not predict the likelihood or range of loss.
- Other risks include uncertain market adoption and commercialization of LBS products, competition and rapid technology change, dependence on partners, and potential need for shareholder-dilutive financing. The company anticipated a material balance-sheet impact from adopting the new lease accounting standard.
Important facts for investors to verify
- Whether the $10 million May 2018 license payments are received on schedule and what conditions govern exclusivity and payment.
- Progress against development-contract milestones, associated cash receipts, and the $7.2 million reported contract backlog.
- Cash burn, financing needs, and the basis for management’s projected runway through December 2018, given the stated going-concern doubt.
- Customer concentration, accounts receivable collection, product backlog conversion, and the reliability of limited-source suppliers.
- Updates on the Asia Optical arbitration, the $5.4 million purchase obligations, and other material commitments.