MicroVision, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Financial statements are unaudited. Amounts below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Business context and financial performance
MicroVision develops and commercializes PicoP laser beam scanning technology for projection and 3D sensing. Its strategy relies on licensing technology and selling components to OEMs and ODMs; management said it planned to begin selling scanning engines directly to OEMs and ODMs in 2017.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $4.000 | $2.398 | $11.856 | $7.342 |
| Gross profit | $1.207 | $0.585 | $3.882 | $1.629 |
| Gross margin | 30.2% | 24.4% | 32.8% | 22.2% |
| Operating expenses | $5.284 | $4.104 | $14.999 | $11.880 |
| Operating loss | $(4.077) | $(3.519) | $(11.117) | $(10.251) |
| Net loss | $(4.070) | $(3.513) | $(11.102) | $(10.244) |
| Net loss per share | $(0.08) | $(0.07) | $(0.22) | $(0.22) |
- Product revenue was $3.617 million in Q3 and $10.302 million for the nine months, up 74% and 106%, respectively. Higher Sony component shipments drove the increase.
- Royalty revenue was $0.331 million in Q3 and $1.482 million for the nine months. It includes ongoing Sony royalties and recognition over time of the $8.0 million upfront Sony license payment.
- Contract revenue was $0.052 million in Q3 and $0.072 million for the nine months, versus $1.564 million in the prior-year nine-month period, which included completion of a $1.5 million Sony support-services contract.
- Research and development expense rose 37% in Q3 and 39% for the nine months; sales, marketing, general and administrative expense rose 19% and 13%, respectively. Management attributed increases principally to personnel, subcontractors, professional fees, and business development.
Cash, liquidity, and capital
- Cash and cash equivalents were $5.803 million at September 30, 2016, down from $7.888 million at December 31, 2015. Restricted cash was $0.435 million.
- Nine-month operating cash use was $10.858 million, compared with $2.161 million in 2015; investing cash use was $0.282 million, and financing provided $9.055 million. The prior-year operating cash flow benefited from the $8.0 million Sony upfront payment.
- Current assets were $9.337 million and current liabilities $7.575 million. Total liabilities were $13.203 million versus total assets of $11.907 million; shareholders’ deficit was $1.296 million. The balance sheet lists no debt balance.
- Management estimated that, without additional proceeds from its stock purchase agreement or ATM facility, available cash would fund operations into January 2017. Additional capital would be needed thereafter. It intended to seek equity or debt financing and/or licensing proceeds; availability and terms were uncertain. If financing was not obtained, substantial operating reductions could be considered.
- Financing included a March public offering that raised $6.9 million gross and a September agreement with Lincoln Park for up to $17.0 million of stock sales, including an initial $2.0 million purchase. Further sales are subject to terms including a $1.00 minimum share price. MicroVision issued 522,556 shares as a commitment fee and incurred additional issuance costs.
Changes, outlook, and risks
- Gross margin improved year over year, which management attributed mainly to higher product sales volume to Sony. However, operating and net losses widened as expenses increased.
- Product backlog was approximately $1.4 million at September 30, 2016, versus $13.5 million a year earlier, and was scheduled for Q4 delivery. Contract backlog was approximately $0.931 million, versus $0.005 million, and scheduled for completion within twelve months.
- One commercial customer accounted for 99% of Q3 revenue and 91% of nine-month revenue. The same customer represented 92% of net accounts receivable at September 30, 2016.
- Management expected a significant loss for full-year 2016 and expected significant losses and negative cash flow to continue at least through 2016 and likely thereafter. It cautioned that results to date were not necessarily indicative of full-year results; no specific revenue or earnings guidance was provided.
- Key risks include dependence on a major customer and limited-source suppliers, uncertain market acceptance and product demand, competition and rapid technological change, financing needs and potential shareholder dilution, and difficulty forecasting revenue and cash flows.
- Asia Optical arbitration seeks $3.6 million plus fees, interest, and costs. MicroVision contests the claim; it said the likelihood and range of potential loss could not be predicted. Separately, $0.5 million was accrued for adverse purchase commitments related to SHOWWX pico-projector materials.
- Management reported disclosure controls and procedures were effective at quarter-end and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm financing availability, restrictions on additional stock sales, and the cash runway, given the stated January 2017 funding horizon without further proceeds.
- Track Sony shipment demand, royalties, customer concentration, and the substantial year-over-year decline in product backlog.
- Assess whether higher revenue and improved gross margin can offset rising R&D and administrative expenses and ongoing cash burn.
- Monitor the Asia Optical arbitration, the $0.5 million purchase commitment accrual, and dependence on limited-source suppliers.
- Review share issuance and potential dilution, including the Lincoln Park agreement and other equity financing activity.