MicroVision, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Financial statements are unaudited. MicroVision develops PicoP laser-display technology for licensing and integration into customer products.
Financial results
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Revenue | $4.043 | $0.611 | $4.944 | $1.830 |
| Gross profit | $1.187 | $0.443 | $1.044 | $1.663 |
| Gross margin | 29.4% | 72.5% | 21.1% | 90.9% |
| Operating loss | $(2.770) | $(3.406) | $(6.732) | $(6.461) |
| Net loss | $(2.769) | $(3.401) | $(6.731) | $(11.419) |
| Net loss per share, diluted | $(0.06) | $(0.08) | $(0.15) | $(0.29) |
- Q2 revenue comprised product sales of $2.182 million, royalties of $0.324 million and contract revenue of $1.537 million. First-half revenue included product sales of $2.923 million, royalties of $0.468 million and contract revenue of $1.553 million; development revenue was zero.
- At June 30, cash and cash equivalents were $15.085 million, versus $8.349 million at December 31, 2014. Current assets were $17.295 million and current liabilities $6.529 million. Total liabilities were $13.599 million and shareholders’ equity $6.577 million. The balance sheet lists no debt balance.
- First-half operating cash flow was positive $1.461 million, compared with negative $6.666 million in 2014; investing cash outflow was $0.719 million and financing cash inflow was $5.994 million. Operating cash flow benefited substantially from the $8.0 million upfront license payment recorded as deferred revenue, rather than solely from cash generated by recognized revenue.
Changes and notable items
- Revenue rose sharply year over year, largely from component sales to a prominent electronics customer and the completion of a $1.5 million customer support-services contract. The prior-year first half included $1.461 million of development revenue, while 2015 did not.
- Under a March 2015 PicoP license, MicroVision received $8.0 million upfront and will receive per-unit royalties. The upfront amount is being recognized over an expected eight-year service period; deferred revenue totaled $7.937 million at quarter-end.
- Product cost was $2.074 million against Q2 product revenue of $2.182 million; first-half product cost of $3.111 million exceeded product revenue of $2.923 million. Management cited material, inspection and manufacturing overhead costs, excess-capacity costs, and inventory scrap provisions.
- Q2 R&D expense decreased 10.1% year over year to $2.011 million; first-half R&D fell 18.2% to $3.909 million. SG&A increased 5.7% in Q2 to $1.946 million. The 2014 comparison included gains on sales of previously reserved inventory and a $4.967 million warrant-exchange loss in the first half.
- Product backlog was approximately $15.0 million at June 30, compared with $147,000 a year earlier, and was primarily orders from the same customer, scheduled for delivery within 12 months. Contract backlog was approximately $14,000.
- Common shares outstanding were 47.216 million at June 30; the company raised equity through an at-the-market program and warrant exercises during the first half.
Outlook, risks and contingencies
- Management expected available cash to fund operations through June 2016, but said further cash would be required thereafter. Planned sources include product sales, licensing and potential equity or debt issuance; availability and terms are uncertain. If funding is insufficient, the company may substantially reduce operations, investment, staffing and spending.
- MicroVision reported substantial cumulative losses and expected a substantial loss for 2015. It cited the prior-year auditor’s explanatory paragraph expressing substantial doubt about its ability to continue as a going concern. Management cautioned that results to date are not necessarily indicative of full-year results.
- One commercial customer accounted for 99% of revenue in both the three- and six-month periods and approximately 99% of net receivables. The filing identifies customer dependence, market adoption, delivery execution, manufacturing capacity and reliance on single or limited-source suppliers as significant risks.
- A supplier, Asia Optical, seeks $3.6 million plus fees, interest and arbitration costs over alleged unaccepted orders. MicroVision contests the claim; the outcome and potential loss could not be predicted. The company also reported a $0.5 million accrual for excess purchase commitments related to the SHOWWX pico projector.
- Management said interest-rate and foreign-exchange exposure was not material. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Key facts for investors to verify
- Whether the $15.0 million customer backlog converts to shipments, recognized revenue and collected cash on schedule, and the resulting product margins.
- How much of operating cash flow and reported liquidity depends on the upfront license payment and other customer prepayments, and whether additional funding will be needed earlier than management’s June 2016 estimate.
- The progress and commercial durability of the PicoP license, including actual unit royalties and the assumptions behind recognizing the upfront fee over eight years.
- The outcome and potential financial impact of the Asia Optical arbitration, as well as the recoverability of inventory and the adequacy of purchase-commitment accruals.
- Customer concentration, supplier continuity, and the company’s ability to fund ongoing R&D and production requirements without materially diluting shareholders.