MicroVision, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise.
Business context
MicroVision is developing its first-generation Long Range Lidar (LRL) sensor for automotive safety and autonomous driving applications. It completed its A-Sample module in April 2021, tested it on an outdoor track during Q3, and demonstrated it at a trade show in Munich. The company also continues to seek strategic alternatives, but reported no agreement or commitment for a transaction. Its only customer is Microsoft, which generates license and royalty revenue from an existing arrangement.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $0.718 | $0.639 | $1.943 | $2.695 |
| Gross profit | $0.728 | $0.639 | $1.989 | $1.297 |
| Operating expenses | $10.797 | $3.457 | $33.237 | $11.348 |
| Operating loss | $(10.069) | $(2.818) | $(31.248) | $(10.051) |
| Net loss | $(9.382) | $(2.826) | $(30.575) | $(10.064) |
| Basic and diluted loss per share | $(0.06) | $(0.02) | $(0.19) | $(0.07) |
- Revenue in Q3 increased 12% year over year, while nine-month revenue declined 28%. All 2021 revenue came from Microsoft license and royalty revenue; product and contract revenue were zero. The royalty revenue is applied against a prior $10.0 million customer prepayment, so it does not generate cash until that prepayment is exhausted.
- Reported gross profit included product-cost credits of $10,000 in Q3 and $46,000 for the nine-month period, reflecting warranty-liability reversals. Consequently, reported gross profit exceeded revenue.
- R&D expense rose to $5.8 million in Q3 and $17.6 million for nine months; SG&A rose to $5.0 million and $15.6 million, respectively. Management cited higher share-based compensation, increased headcount and lidar-development materials and equipment, as well as higher professional-services costs.
- Cash and cash equivalents were $125.1 million at September 30, 2021, versus $16.9 million at December 31, 2020. Total assets were $134.1 million and shareholders’ equity was $122.3 million.
- For the first nine months, operating cash use was $21.2 million, investing cash use was $2.0 million, and financing provided $131.6 million, primarily from common-stock issuance. Net proceeds from common-stock issuance were $125.4 million.
- Long-term debt was $0.7 million, all current, at September 30; operating and finance lease liabilities totaled approximately $1.0 million. The company recorded a $0.692 million gain after receiving partial forgiveness of its PPP loan.
- Current liabilities included a $5.8 million contract liability for the Microsoft prepayment. The company expected to recognize $0.582 million against it during the remainder of 2021 and $2.5 million in 2022; timing of the remaining balance was uncertain.
Changes versus the prior comparable period
- Q3 net loss widened to $9.4 million from $2.8 million; nine-month net loss widened to $30.6 million from $10.1 million, primarily alongside substantially higher operating expenses.
- Share-based compensation expense increased to $12.3 million for the first nine months, from $0.8 million a year earlier.
- Product shipments ceased after production transferred to the customer in March 2020. Revenue shifted from product sales to royalties, which increased year over year but are being credited against the existing prepayment.
- Cash increased substantially following equity financing. Common shares outstanding were 164.1 million at September 30, compared with 152.9 million at year-end 2020.
Outlook, risks and unusual items
- Management said available cash was expected to fund operations for at least the next 12 months. It expected a significant loss for 2021 and disclosed expectations of significant losses and negative cash flow at least through 2021 and likely thereafter. No revenue or earnings guidance was provided.
- Two new Redmond office leases were signed: approximately 16,681 square feet for a 128-month term, with minimum payments of $6.4 million, and approximately 36,062 square feet for a 120-month term, with minimum payments of $13.0 million. These forward-starting lease commitments are in addition to existing lease obligations.
- COVID-19 and supplier capacity constraints could delay component availability and development. The company also depends on single- or limited-source suppliers and third parties for manufacturing and commercialization.
- Revenue remains highly concentrated: Microsoft accounted for 100% of revenue in the first nine months of 2021. Management noted that existing royalties are not significant and that it had not secured additional product-launch customers.
- A material weakness in controls over determining equity-award grant dates remained unremediated at September 30. Management concluded disclosure controls and procedures were ineffective, while stating remediation was expected before year-end 2021.
- Management reported no legal proceedings believed reasonably likely to have a material adverse effect. The filing also cited substantial accumulated losses, uncertain commercialization, competition, potential additional financing needs and stock-price volatility as risks.
Important facts for investors to verify
- Progress toward completing and commercializing the LRL module, including customer validation, manufacturing readiness and product timelines.
- Whether MicroVision secures additional customers, strategic arrangements or a strategic transaction; none was committed as of the filing.
- Cash use relative to the stated 12-month funding outlook, and the timing and terms of any further capital raising or share dilution.
- Microsoft royalty volumes and the pace at which the $5.8 million contract liability is recognized, noting that current royalty revenue does not produce cash receipts.
- Supplier availability, the effects of supply-chain disruption, and remediation and testing of the equity-award controls material weakness.