MicroVision, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited financial statements. Dollar figures below are in millions unless stated otherwise.
Business context
MicroVision develops laser beam scanning technology, including PicoP modules for display, sensing and automotive LiDAR applications. After an OEM said in February that products using its interactive display module would not launch in 2020, MicroVision reduced headcount by approximately 60%. It shifted attention to strategic alternatives, including a possible sale or merger, sale of part of the company, strategic investment, licensing or other transactions, while continuing development of its first-generation long-range automotive LiDAR module. The company reported no product or contract backlog at September 30, 2020.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0.639 | $1.190 | $2.695 | $4.281 |
| Gross profit (loss) | $0.639 | $(0.882) | $1.297 | $(0.857) |
| Operating expenses | $3.457 | $5.263 | $11.348 | $22.335 |
| Operating loss | $(2.818) | $(6.145) | $(10.051) | $(23.192) |
| Net loss | $(2.826) | $(6.141) | $(10.064) | $(23.199) |
| Net loss per share | $(0.02) | $(0.05) | $(0.07) | $(0.21) |
Q3 gross margin was 100% because reported cost of revenue was zero, versus a gross loss in Q3 2019. Nine-month gross margin was approximately 48%, compared with a gross loss in the prior-year period. The filing attributes lower costs chiefly to reduced shipments and inventory write-downs, and lower operating expenses to reduced personnel costs and other spending.
- Revenue mix: Q3 product revenue was $0.100 million, license and royalty revenue $0.539 million, and contract revenue zero. For the first nine months, product revenue was $1.347 million, license and royalty revenue $1.323 million, and contract revenue $0.025 million.
- Cash flow: Operating cash use was $11.847 million for the first nine months, versus $19.733 million in 2019. Investing activities provided $0.431 million, including $0.525 million from selling production assets to a customer. Financing provided $10.606 million, including $9.054 million in net stock proceeds and $1.571 million of PPP loan proceeds. Cash, cash equivalents and restricted cash declined $0.810 million to $5.462 million.
- Liquidity and debt: Cash and cash equivalents were $5.027 million; current assets were $5.775 million and current liabilities $11.615 million. Total liabilities were $13.154 million, and shareholders’ deficit was $4.193 million. Reported current and long-term debt totaled $1.578 million, primarily the PPP loan.
- Equity: Common shares outstanding were 143.906 million at September 30. The company reported 146.406 million shares outstanding on October 26.
Material changes and management outlook
- Q3 revenue fell 46% year over year, mainly because product shipments to a major technology customer declined. Nine-month revenue fell 37%, primarily reflecting the completion in 2019 of a major development contract; increased royalty revenue partly offset the decline.
- In March 2020, the major technology customer took over production of components MicroVision had made. MicroVision earns royalties applied against an $8.2 million customer prepayment; it expected to apply a further $0.4 million in Q4 2020. The timing for recognizing the remainder was uncertain.
- One customer represented 84% of Q3 revenue and 96% of nine-month 2020 revenue. The filing also warns of reliance on single- or limited-source suppliers.
- Management expected available cash, including anticipated proceeds from its Lincoln Park stock-purchase agreement, to fund operations through Q1 2021, and said additional capital would be required thereafter. It warned that financing might not be available on acceptable terms or in time, and that absent adequate capital it could substantially curtail operations. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Subsequent to quarter-end through October 26, the company raised $5.8 million from Lincoln Park stock sales. On October 8, it increased authorized common shares to 210 million. These financing steps provide capital but also create potential shareholder dilution.
Risks, contingencies and unusual items
- MicroVision expected significant losses for 2020 and acknowledged that it had not secured a customer to launch a module product. The proposed strategic alternatives might not succeed.
- COVID-19-related supplier disruptions, remote work, and uncertainty could affect shipments, development, financing and strategic transactions. The company also cited long commercialization cycles, competition, product acceptance and technology-development uncertainty.
- The PPP loan bears 0.98% interest and has a 24-month term. Management estimated approximately $0.690 million might be forgiven, subject to lender approval; forgiveness was not assured.
- The Ragentek arbitration and related distributor claims were settled and dismissed during Q3. A final $0.100 million distributor payment was no longer required and was recognized as product revenue.
- Management reported disclosure controls and procedures were effective as of quarter-end and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm subsequent cash usage, current cash runway and access to capital beyond the stated Q1 2021 runway.
- Track whether the estimated PPP forgiveness was approved and how much of the loan remains payable.
- Assess progress on automotive LiDAR development and any customer, licensing or strategic-transaction developments.
- Monitor revenue dependence on the major customer, royalty generation and the remaining customer prepayment balance.
- Review share issuance under the Lincoln Park agreement and the effects of the increased authorized share count on dilution.