MicroVision, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited. Dollar amounts below are in millions unless noted.
Business context
MicroVision is focused on developing MEMS-based lidar sensors and perception software for automotive advanced driver-assistance systems (ADAS), targeting Level 2+ and Level 3 applications. It reported no product or contract revenue in the periods presented. All revenue came from royalties under its arrangement with Microsoft, its sole customer.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0.718 | $0.664 | $1.943 |
| Gross profit (loss) | $(0.045) | $0.728 | $0.597 | $1.989 |
| Operating expenses | $13.057 | $10.797 | $40.492 | $33.237 |
| Operating loss | $(13.102) | $(10.069) | $(39.895) | $(31.248) |
| Net loss | $(12.851) | $(9.382) | $(39.616) | $(30.575) |
| Basic and diluted loss per share | $(0.08) | $(0.06) | $(0.24) | $(0.19) |
Gross margin is not meaningful as revenue was zero in Q3 2022; nine-month gross margin was approximately 90%, but reflects only royalty revenue and is not indicative of a scaled product business.
- Cash flow: For the first nine months of 2022, operating activities used $29.6 million, investing activities used $31.0 million, and financing activities provided $0.3 million. Cash, cash equivalents and restricted cash declined $60.3 million to $23.4 million.
- Liquidity: At September 30, 2022, cash and cash equivalents were $22.0 million and short-term available-for-sale securities were $61.3 million, for total liquidity of $83.3 million. Management said current liquidity was expected to fund operations for at least 12 months.
- Debt and obligations: The $0.392 million PPP loan was repaid during the period; no long-term debt remained at quarter-end. Operating lease liabilities were $14.6 million, up from $5.8 million at year-end 2021, including obligations associated with expanded office space.
- Balance sheet: Total assets were $109.4 million and shareholders’ equity was $85.6 million at September 30, compared with $130.2 million and $112.8 million, respectively, at December 31, 2021.
Changes versus prior comparable periods
- Q3 revenue fell from $0.718 million to zero; nine-month revenue declined 65.8% to $0.664 million. The company attributed the decline to fewer royalty-bearing products reported by Microsoft.
- Q3 net loss increased to $12.9 million from $9.4 million; nine-month net loss increased to $39.6 million from $30.6 million.
- Research and development expense rose 30.1% in Q3 and 29.5% for nine months, largely reflecting higher compensation, headcount, facilities and purchased labor to advance lidar development. Nine-month sales, marketing, general and administrative expense rose 13.2%.
- Operating cash use increased to $29.6 million from $21.2 million for the first nine months, which management attributed primarily to higher operating expenses supporting lidar and software development.
- Cash and cash equivalents fell substantially from year-end, while investment securities increased to $61.3 million. The company reported $0.175 million of nine-month unrealized investment losses in other comprehensive loss.
Outlook, risks and notable items
- MicroVision said it was testing and demonstrating its ADAS solution and forecast small quantities of sales in 2022, but did not expect significant, sustained ADAS revenue in the near term. It expected significant losses for 2022 and likely beyond.
- The company has not secured the customers needed to launch its products commercially. Automotive OEM qualification and production awards can take years; failure to win awards could materially harm prospects.
- Key risks include continued losses and cash burn, potential need for additional capital (and shareholder dilution), dependence on a single royalty customer, competition and alternative technologies, limited-source suppliers and supply-chain disruptions, and uncertainty in ADAS adoption and product development.
- COVID-19-related supplier capacity, employee availability and customer engagement disruptions could delay development and commercialization. Management also cited inflationary pressure on labor costs.
- Share-based compensation expense was $11.9 million for the first nine months. The company granted executives 6.0 million performance stock units in June 2022, with share-price performance conditions through 2025.
- Lease commitments include a 36,062-square-foot office lease expected to commence in December 2022, with stated minimum payments of $13.0 million. Management reported no pending or threatened litigation it believed reasonably likely to have a material adverse effect.
- Management concluded disclosure controls and procedures were effective at quarter-end and reported no materially affecting changes to internal control during the quarter. The filing also notes a material weakness identified in 2021 relating to controls over determining equity-award grant dates.
Important facts for investors to verify
- Whether the company’s lidar development progresses to customer selections, production awards and revenue, and on what timetable.
- Cash burn and liquidity runway relative to the stated 12-month funding estimate, including the effect of office lease commitments and development spending.
- Whether revenue remains wholly dependent on Microsoft royalties and whether customer concentration changes.
- Progress in addressing the previously identified equity-award grant-date control weakness.
- Potential need for additional financing and the resulting dilution, as well as the impact of share-based awards on outstanding shares.