MicroVision, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2015; comparisons are with the same 2014 periods unless noted. Financial statements are unaudited. MicroVision develops and licenses PicoP laser-display technology and sells related products and support services.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $2.398 million | $0.968 million | $7.342 million | $2.798 million |
| Gross profit / margin | $0.585 million / 24.4% | $0.600 million / 62.0% | $1.629 million / 22.2% | $2.263 million / 80.9% |
| Operating loss | $3.518 million | $3.356 million | $10.250 million | $9.817 million |
| Net loss | $3.513 million | $3.355 million | $10.244 million | $14.774 million |
| Net loss per share | $0.07 | $0.08 | $0.22 | $0.36 |
- Q3 product revenue was $2.078 million and royalty revenue $0.309 million; contract revenue was $0.011 million and development revenue was zero.
- At September 30, cash and cash equivalents were $11.160 million, versus $8.349 million at December 31, 2014. Current assets were $12.546 million and current liabilities $5.410 million. Total liabilities were $12.192 million, including $7.403 million deferred revenue. The balance sheet shows no material funded debt.
- For the first nine months, operating cash outflow was $2.161 million, investing cash outflow $1.011 million, and financing cash inflow $5.983 million. Financing included common-stock sales and warrant exercises. Cash generation from operations benefited substantially from the $8.0 million upfront license payment.
- Weighted-average shares rose to 46.292 million for the nine-month period from 40.605 million a year earlier. The company had 47.216 million shares outstanding at September 30.
Material changes and unusual items
- Revenue growth reflected increased product sales to a prominent electronics customer and royalty revenue under a new license. Product revenue rose from $18,000 to $5.001 million for the nine months; royalty revenue rose from $26,000 to $0.777 million.
- Gross profit declined despite higher revenue, as product costs increased with production volume, quality inspections, and manufacturing overhead. The company also recorded $0.287 million of inventory write-downs in the first nine months and expensed $0.651 million of excess-capacity manufacturing overhead.
- In March 2015, MicroVision received an $8.0 million upfront payment for a non-exclusive PicoP license. It expects to recognize that payment over eight years; ongoing per-unit royalties are recognized as earned.
- Nine-month 2014 net loss included a $4.967 million loss on a warrant exchange. The company also recorded a $0.455 million gain on sale of previously reserved inventory in the 2014 comparable period, versus $0.001 million in 2015.
- Product backlog was approximately $13.5 million at September 30, 2015, compared with $2.0 million a year earlier, primarily from orders received in March. Delivery was scheduled within 12 months but depended on component supply and production execution.
Outlook, risks, and contingencies
- Management expected available cash, excluding additional proceeds from its ATM facility, to fund operations through June 2016; additional funding would be needed thereafter. Management planned to pursue equity or debt financing, product sales, and licensing, with no assurance funding would be available on acceptable terms or on time.
- The company expected a substantial loss for 2015 and substantial ongoing research and development spending. It warned that insufficient funding could force significant reductions in production investment, R&D, staffing, operating costs, and capital expenditures. The 2014 auditor’s report included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern.
- Customer and supplier concentration is significant: one customer accounted for 96% of Q3 revenue and 98% of nine-month revenue, and approximately 99% of receivables. MicroVision also relies on single- or limited-source suppliers; a supplier delivered fewer components than expected during Q3, limiting customer deliveries.
- A supplier, Asia Optical, seeks $3.6 million plus fees, interest, and arbitration costs over alleged undelivered and unpaid orders. MicroVision contests the claim; the filing says the outcome and potential loss cannot be predicted. The company also accrued $0.5 million for excess purchase commitments related to its SHOWWX product.
- Other stated risks include uncertain adoption of PicoP technology, long sales cycles, competitive and technology changes, dependence on third parties and foreign contract manufacturers, possible dilution from future financing, and potential inability to meet customer orders. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the $13.5 million product backlog converts to timely deliveries and revenue, given the reported component shortages and supplier concentration.
- How much of the $8.0 million license payment remains deferred, the pace of per-unit royalty generation, and the customer’s product sales and market adoption.
- Cash burn, financing access and dilution under the remaining ATM capacity, and whether the stated June 2016 cash runway remains achievable.
- The status and possible financial impact of the Asia Optical arbitration and the adequacy of the $0.5 million purchase-commitment accrual.
- Whether product volumes and manufacturing efficiency can improve gross margins, which were materially below the prior-year comparable periods.