Wednesday, August 6, 2014

Conference call Transcript (partial)

I transcribed this myself. I did not get any part of the transcription from any source other than listening to the conference call. I made efforts to be accurate while still removing extra words that made it difficult to understand.

A couple of questions (and the financial portion of the call) were omitted. (One will be included at a later date.)

If I got something wrong, I'm sorry.

If I got something wrong and you were speaking, please send me a correction and I will update the text as soon as I am able (and include a notation to that effect if you wish.)

After listening, copying and re-listening to this call, I find that while it wasn't an exciting call with new and eagerly anticipated news, it is very positive, shows Microvision to be on track and doing the hard work that it takes to bring a new technology to market. Those of us who appreciate what it takes and have the patience to hold shares in this company until the exciting news happens will be well rewarded.


THE CALL

Tokman: In the second quarter, we continued to make tangible progress on our three primary operating goals for the year.

Outside of major announcements with the Fortune Global 500 company which we communicated in June, Q2 was about completing less visible but essential blocking and tackling milestones associated with completing design and development phases and beginning the transition into the production phase.
Let’s start with the first goal, which entails three elements:

·         First completing the display module development phase with the Fortune Global 100 customer.
·         Second, supporting them with their productization and commercialization efforts.
·         And finally, supplying them with key Microvision components.

Now many of you know, our customer announced in January that it aims to bring a high-performance high definition image quality display module to market to use in picoprojectors and other devices with projection functionality.

We have been closely supporting the development of this module which incorporates Microvision’s patented PicoP laser scan beam display technology. We are currently focusing on production planning and support phase with our partner, now that the design and development phases are nearly complete. We also made progress on the negotiations related to the commercial agreements which we are targeting to complete later this year. (probably will be announced.)

Now, moving on to the second operating goal which encompasses building a pipeline of consumer and automotive opportunities for Microvision’s go to market partners. In June we announced a collaboration with a second consumer electronic company, on the Fortune Global 500 list, to develop a display engine for an innovative smartphone product to be offered by this company. The new partner has communicated to us that it targets market introduction of the new product in the second half of 2015.

Shifting to the automotive segment, we previously announced we are working with a global tier one supplier and a major vehicle OEM. Microvision delivered multiple prototype HUD systems to the Tier1 supplier in the second quarter. The prototype head up display system for the vehicle OEM is slated for delivery this quarter. Third quarter. These programs are in the evaluation and test phases as we mentioned earlier which are critical steps to having a new technology adopted and embedded in automotive applications.

Next topic is UPS, we are currently on track to deliver custom PicoP display modules in the third quarter to UPS which is another Fortune Global 500 customer. The modules are part of a new package guidance  application targeted at increasing processing efficiency in real time package sorting and routing. UPS has informed us that it plans to deploy the system in a facility in the United States.

Our business development efforts are focused on forming go to market coalitions that involve all the key stake holders needed to enable a new market. In our case, the coalition involves display engine manufacturers, consumer electronics OEMS, and major retailers. In Q2 we continue to make important progress on several go to market paths involving some of these OEMs and major retailers that are interested in a variety of consumer electronic products utilizing PicoP display technology.

The final goal for the year is to ramp supply chain for high volume production of Microvision components in the second half of 2014. Recall that in 2013 we began development of supply sources for MEMs and other key components with some of the world’s leaders in their respective areas. In the second quarter of this year we began qualification cycles of production processes for Microvision specific components and we expect volume production capacity for our components to be in place in the fourth quarter of this year.

Stephen Holt’s financial presentation. ---

Questions and answers:

Andrew Uerkwitz Oppenheimer:
Q: Thanks, congratulations on the progress you’ve been making. Alex, question for you. As you enter the production phase and several of these potential customers are trying out the products, what are some of the milestones that you need to accomplish and what are some of the potential hurdles you could face to get there?

Tokman: There are several different milestones we need to complete on our own, and then with our partners. If you look at our own deliverables we need to complete qualification phases of Microvision specific components with our specific suppliers and have it ready for mass production in the 4th quarter. We feel comfortable that we can achieve this.

The other milestones include supporting our fortune global 100 and several other customers in development of their engines because we still are part of the cycle and we’re enlisted to support them with both technical and market support, in preparation for their own commercialization efforts.

Finally, product OEMS who are developing products based on our technology utilizing the engines of our partners also need marketing and technical support to help them to deliver products to market.
So we are working three fronts right now: our own deliverables, and then supporting our partners, both on the engine and the product side, to help them to introduce the best possible products as soon as they are ready.

Andrew: Opex Question….
Q: Mike Latimore, Northland Capital Management: You mention that the design and development is nearly complete with your fortune 100, when do you think that will be complete.

Tokman: We’ve basically completed 95% of the all the deliverables. The 5% that remains we submitted the final deliverables and right now it’s going through acceptance and evaluation phases --so for all practical purposes we expect it to be completed very shortly, and it’s not hindering any other progress on the production support nor on commercial agreement negotiations.

Mike Latimore: Does that have to be complete before the commercial agreement is complete?

Tokman: We expect yes and we expect that this will be done prior to the commercial agreement being completed, yes.

Mike Latimore: On the new smartphone opportunity if they want products for the second half of next year, would that suggest you would see revenue during the first half of next year related to that.
Tokman: You’re right Mike, typically there’s a lead time on a component before they convert it into engines before the product, so if they target the second half of 2015, you would need -back probably three months, this is when we would start receiving something from them from the engine manufacturers who will be receiving orders from the product OEMS, that’s correct.

Mike Latimore: What’s in the 1.1 million of backlog?
Holt: UPS is a large part of that, and some additional development work for the Fortune Global 100. Those are the two main pieces.

Mike Latimore: Do you think you’ll see revenue from the Fortune Global 100 first or the smartphone manufacturer first?

Tokman: Most likely it will be from the Fortune Global 100.
Dennis: I wanted to know the commercial agreement with the first customer, the Fortune Global 100, can you shed any light on how sizeable that deal will be and how close that gets us to the breakeven point, and not needing to raise more funds.
Tokman: I’m going to try to stay within the framework of not disclosing something we’re not allowed to at this time and still give you hopefully enough information. The agreements we’re pursuing right now with the Fortune Global 100 include several. First, there is the supply agreement, second  there is the product support agreement which is independent, third the licensing agreement for the royalties of  incorporating our technology inside their offerings. There are several agreements ongoing, each with different terms and conditions and we have to cross each one to complete this. In terms of what is the size. The size is going to be determined by the size of the demand that this customer will generate for their own products, and for the products from other  customers they will pursue to incorporate their engines. So it’s their target plans, and we’re not at liberty to discuss what their target volumes are.  But we’re excited about this opportunity, this is the largest opportunity has had in the history of Microvision. So we want to see It come to fruition, and we’re doing our part to ensure that it will happen.

Dennis – Cash raising question.. response by Holt
David Morgan: As far as the UPS system is concerned, the deployment that you discussed, is that going to be in this calendar year?

Tokman: We’re delivering our modules this quarter and they will deploy it in the US. We cannot specify the timing, because it’s something they are sensitive about, but -you do your own math.

David: Originally you said this was pilot development, is it still in the pilot stage? Or will this be beyond that at this point?

Tokman: It’s a real implementation in one of their flagship sites. The goal – remember what the goal is, the goal for UPS is to quantify the potential performance improvements of their processes in terms of increase of throughput and reduction of error rate. So they need to quantify this information and they selected the site to implement this.

Unanswerable question – can’t comment..

David: You also discussed a large volume capacity by the end of the year, now is there two components, are some of your partners going to supply all of the pieces on their own, or will you be a supplier in every case of at least part of the module?

Tokman: We will be a supplier in most of the cases. It’s case to case specific. In some cases we will provide more, and others we will provide less. We should be a part of every endeavor, whether it’s engine manufacture, and We expect to be in every module.

David: You say large volumes by the end of the year,  any kind of  an idea what large means? Is that a million units, or more than a million units?

Tokman: It’s a sensitive question because it would guide the demand from some of our partners who ask us not to discuss this publicly. Our goal, as I mentioned -as Steve mentioned, our goal is to have volume capacity ready in the fourth quarter to enable whatever the needs are. We feel that what we have put in place  will satisfy the initial demand, and we have a plan to ramp that as necessary as we see the demand increase subject to lead times that everyone knows they need to provide to us to allow for higher demand.
David: And the commercial agreement that’s in progress, when that’s negotiated and final is that something you’re going to be able to announce?

Tokman: We believe so.

Closing remarks:

Let me start closing remarks by saying that a lot of work has been done by Microvision and our partners and we’re excited at the prospects in front of us. As we’re moving into commercialization stages for our own components, in the second half of this year. We’re concurrently providing both technical and market support to our go to market partners to facilitate their efforts in launching their solutions be it engines or products. PicoP display technology as you know can enable end user experiences that are not attainable by other picoprojection solutions; and that are well-suited for the mobile video consumption that consumers are now making part of their daily routine. We believe the rapidly expanding consumer behavior of watching video on mobile devices creates a perfect opportunity for picoprojection. According to Adobe, for example, online video views on a mobile device has experienced a 57% increase year over year. With smart phones leading the charge, followed by tablets. No matter how great your smartphone or tablet is, the screen is still too small to share information with others. And you have to admit it, watching a 1 and a half hour movie from your smart phone on a 100 inch screen is much more pleasurable than watching it on a 5 inch screen. That’s why having a device or a feature that works in tandem with your primary device and offers an immersive experience could be very valuable, we believe. Hence, if anyone wants to have an immersive experience from their mobile device of choice – experience that is characterized by enormous high-definition image that is always in focus and obtained from a low-power very slim and light device, then Microvision’s PicoP technology is for you. We are very excited about the business partnerships that we have developed and built and are developing and building with the leading industry players who are bullish on this emerging market. Who enlisted our support to bring their solutions to market. At this point we’ll conclude this call.

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