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MicroVision Annual Shareholder Meeting June 5, 2018 notes

CAVEAT
I am human. Mistakes will be made. The SEC and Investor Relations are the bastions of truth. So, feel free to correct me, ask them, or better yet, do all of that and then ask the other attendees what they think. Multiple points of view, a diversity of opinion. Good stuff. (Yada. Yada. I've done this often enough that the CAVEAT has become mostly a copy & paste, partly because I am lazy, mostly because I hope it's good enough.)

SYNOPSIS (The ultra-short edition)
Things look great in about six to nine months.
(Newbies may take that as a great encouragement. Long term shareholders can hear an echo that has rebounded for over eighteen years.)

INTRODUCTION
The meeting was held in the same Courtyard Marriott as the last few years. (I’m looking forward to a return to one that is closer to a transit center. I spent the equivalent of about 1% of my MVIS holdings just to get to the meeting and back.) As usual, one room was devoted to demos, which for some people is the main attraction: 80 lumen display, consumer and auto LiDAR, interactive display, and a short throw display. There weren’t any smartphones, embedded devices, existing products, or eyewear prototypes being exhibited. I doubt that anyone attends for the goodies, which were mostly upscale coffee and pastries. The management and board members were mingling, as usual. A news item for long term shareholders is that AT wasn’t there, though his name was invoked often and without much contention that I could hear. My main interest was the other shareholders. They tend to have more information that can be more readily provided that the officials who are constrained by SEC rules and corporate discretion. A quick headcount showed a reduction from last year’s ~55 people to this year’s ~45 people. Considering that many of the company officials are required to attend, the reduction was probably in shareholders. I know of several who either couldn’t get there, or have given up on the stock, if not the company.

Two downsides: I didn’t get my favorite seat. Bryan!!! And, there were no goodies like hats, pens, or notebooks. But, I wore my MicroVision hat!

OFFICIAL MEETING
The official part of the meeting was broken into two parts. I’ll combine them here for conciseness.
All of the directors received at least 68% of the vote.(Alternatively, evidently at least one director had 32% that didn’t vote for them.)
The incentive plan passed with 79% of the vote. (Effectively 21% opposing?)
The change to the incorporation passed with 79% of the vote. (Same?)
Moss Adams was confirmed as the auditor with 96% of the vote. (The auditors were more popular than anything else.)
The compensation recommendation passed with over 80% of the vote.

BUSINESS PRESENTATION
Perry Mulligan was introduced as the new CEO.

The main message: “AI is the product.” MicroVision enables Artificial Intelligence’s Input/Output (AI’s I/O) through five vertical markets:
Internet of Things
Consumer LiDAR
Auto LiDAR
Artificial Reality/Mixed Reality
Display

Internet of Things (IoT) is a vast field and opportunity. MicroVision is aiming at the improving AI’s I/O. Currently, devices like Amazon’s Alexa interact via voice. While that has enabled a new market and technology, voice is inherently limiting. Being able to interact with displays is seen as a product changer. Instead of Alexa telling you about a recipe, a MicroVision-enabled device could display the recipe, connect the cook to an online grocery, and play a video of how to put it all together. The current products were produced in the tens of millions, which is encouraging; especially, if MicroVision is eventually included and if MicroVIsion helps the market expand.

Consumer LiDAR is easiest described in terms of home security, but instead of noting break-ins, LiDAR can also identify members of the family, including pets. Knowing where everyone is enables the smarthouse controller to customize whatever it can control to the individual’s preferences. The component is enabled by adding an IR sensor to a MicroVision module.

Auto LiDAR is basically radar for cars, particularly autonomous autos that need to know what’s around them in detail and quickly. MicroVision’s solution evidently produces high-resolution data quickly for crash avoidance as well as mapping. The target date is 2020-2021.

Artificial Reality/Mixed Reality (AR/MR) is another product for 2020-2021. AR/MR takes Virtual Reality out of the darkroom and imposes functionality on transparent displays, ala Google Glass, but hopefully better.

Display, simple displays continue to be a market. Displays are also the only market that was described in verifiable financial data. The company signed a 5 year exclusive contract worth $10M in 2018 ($5M now, and $5M in October), with non recurring income of $3M-$4M, plus a purchase requirement that was unspecified. One of the features OEMs want to emphasize is getting rid of the big black screen that devices turn into when they are turned off.

Before the Q&A period, the COB interjected and emphasized that they see the company passing from possibility to probability, hopefully with profitability in 2019. (That’s a lot of p-bility next year.) In various ways, 80% of the work is done, though control resides in their customers, including a “large technology company” (another familiar ambiguity.)

QUESTIONS & ANSWERS (heavily paraphrased partly because I couldn’t write as fast as some people talk)
The COB started by answering a question posed prior to the meeting. “Where do we really stand?” A previous large technology company (Sony?) stumbled trying to figure out how to incorporate MicroVision technology. There have been patent assaults, though they have fended them off, and see some customers contacting MicroVision because the customer can’t find a way around the patents. The first three companies may not have succeeded, but eventually persistence will pay off for MicroVision. (He didn’t specify the three, though I wonder if he didn’t know about the early companies like NCR, Honda, BMW, Ericcson, et al. Earlier he also mentioned the company’s 20 year history, though the company was incorporated in 25 years ago in 1993. Maybe he’s just measuring it from when I bought shares. Honored, I am.)
John asked about the display contract. As announced, it includes a $10M payment plus an expected (forward looking statement) $20M/year in component sales. Something about the question made someone in a suit harumph at it, possibly the part about what happens if the deal falls through.)
Mike asked about the display only components. They will not be headworn or interactive.
Toni asked about hiring requirements for turning research projects into products. The answer was a combination of emphasizing that MicroVision will not be a production company, and that they deal globally.
John asked about lumens and resolution. Near term units are still 720p, can be 80 lumens. HD and 1440p are technically possible and demonstrated, but not incorporated into a product, yet.
George asked about the cost of patent protection, which was acknowledged, but no expenses were quoted. As the company approaches “success” the costs will probably rise.
Nick asked about reverse splits. They’re not contemplating one.
STMicro continues to be a critical supplier, partner, and co-marketer.
Andrew asked about Gross Profit Margin, which they haven’t disclosed so they couldn’t relay. He was congratulated on having a good question, a good try, though.
Jim pointed out that confidence is not reflected in management ownership.
They won’t provide a revenue range to achieve 2019 profitability.
The R&D tax credit will be assessed after they’re making enough money to pay taxes.
The 50M share was the lowest number suggested by their consultants. The COB thinks they’re in a good cash position.
They have been approached for a takeover, but the offer was too small. There is no poison pill.
Not much is happening with the Sony (oops, large technology company).
Peter asked about the black box project. They said we’d probably find out after it is released and someone reports a tear down of the unit.
Mike asked the CEO and COB about their 2 favorite products. CEO - object recognition incorporated into a sensor. COB - the evolution of projection, generations based on things like Ragentek.
Bryan asked about the Sony license (which is based on a different design than the new exclusive agreement) and the Taiwan ODM (which is a competitor/customer trying to negotiate around or with MicroVision’s patent protections.)

COMPANY CLOSING
They see a bigger possibility than before. (Inside my head, I noted the bigger share count.)

SUMMARY
Taken as-is, the future looks bright. Profitability in 2019 is a goal, though not guaranteed.

MY CONCLUSIONS
I find myself in the silly situation of saying something I’ve said too many times before. By next year’s meeting, things should be much better with more to celebrate, more concrete things to talk about, and an expanding future. I’ve said something similar for most of the last several years; and yet, the stock languishes, share count increases, and the potential gains I can enjoy are diminished.

The good news about the new CEO is that he is also articulate, presents well, has a sense of humor, and appears to be well-informed. I wish the COB would not steal the spotlight as much, because part of the goal of attending this meeting was to meet the new boss.

Two key detractions were from things that were missing. There was no financial report from the COB, the CEO, the CFO, or anyone. Numbers were scattered through the meeting, but there was no formal report. I asked about that years ago, but was told that they felt everything had already been reported, so there was no reason to say it again. This is one of the few companies I’ve invested in that doesn’t treat finances as a necessary part of the meeting with the people who own the company. The other thing missing was any of the management showing off personal purchases of the products. I learned more from other shareholders, particularly Peter in past years, and the owner of the Moviphone this year. I plan to buy a Moviphone, because I see the benefit; but the management and officers (who own < 2% of the company) decided not to buy and demonstrate the “great new things.”

I am further convinced that the technology is positively disruptive in many ways. I am further convinced that it will generate significant, and possibly news-worthy, financial reports. I am also further convinced that a buyout will happen prior to me benefiting from owning the stock. I’ve invested about three years of living expenses into the stock over the last twenty years, but those shares are only worth about a month and a half of living expenses, now. Dilution may seem trivial and incremental, but the cumulative effect is to diminish my percentage ownership by at least a factor of forty. Those extra 50M shares aren’t going to help that. Considering the size of some of those increments, I wonder if the company ever considered finding the funds inside the executive compensation packages. The cumulative effect of lower management payouts over twenty years could be significant.

DISCLOSURE:
LTBH since 2000, hesitant to mention the company to friends, but too drawn to the potential and the drama to keep from telling the story - just like last year. And, as my finances recover, I may buy more. Sigh.

PS: I've included a bit more (somewhat non-MVIS) commentary on my blog.
Corporations Meet Owners MVIS 2018
https://trimbathcreative.wordpress.com/2018/06/05/corporatio...
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