Typically, I post these notes on Investor Village, The Motley Fool, and Silicon Investor; and post an additional commentary here. This year I am going to try something different. I’ll post the notes here, and add commentary in response to comments. Besides, after this particular meeting, I want to let thoughts and emotions settle before approaching the topic again.
MicroVision Annual Meeting of Stockholders June 1, 2016
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.)
This was the year when, between ASMs, there were anticipations of numerous product launches and significant revenue increases. As we walked in I could only recall two products that went on sale in the interval: Sony’s projector, and Sharp’s robot. As I mentioned earlier, my expectations were lowered. I’m glad I did that.
Without any surprising news, the demos and the other shareholders are always the best parts of the meeting, for me. There were basically two tables: one table for products or near products, Sony’s projector, Celluon’s projector, the ViewSmart projector, the Qualper smartphone, and a photo of RoBoHoN; the other table was effectively for research and development with a dual mode demonstration (which to me looked like auto-keystone control, but the presenter emphatically described it differently), yet another auto HUD (though this one had a 10 degree field of view – an improvement), and a 3-D scanning capability that is early enough in development that they didn’t have resolution specifications (which seemed to be lower resolution than existing systems I’ve encountered as a museum project manager.) My response to the demos were muted because previous prototypes showed greater innovations, like the Intel game controller. The best part was meeting other shareholders, hearing how many have flown in, how many have held the stock for over two decades, and generally sharing insights.
I unexpectedly identified two camps of shareholders: one camp was focused on the future and dismissed short term stock performance, the other camp was focused on the future but was disappointed that the short term stock performance has been going on for a long time even while executive compensation has increased. I know there was a third camp that wouldn’t attend because they’ve either sold the stock, or given up on the stock but are holding just in case, or don’t consider the meetings useful. I’m not surprised. MVIS has been in the “We’ve never been in a better position” position for several years.
About four dozen people attended in a room that could hold about twice that.
Everything passed. Usually, that’s about all there is to say about the official meeting; but, this time there were some interesting trends in the numbers. Usually (as I recall and I may check my notes to confirm) they announce the total number of shares represented in the room. This time they only announced that a quorum was present, and that only 33.3% was required for a quorum, according to the by-laws. (Has that always been the quorum requirement?) All of the directors were voted in, but this time they announced that all got more than 70% (rather than the typical 80% to 90%.) Were there that many dissenting votes? Were they evenly spread or were particular board members particularly lacking typical support? The incentive package was passed, but only by 55%, one of the smallest percentages I’ve seen for a motion that passed. For some reason, 45% didn’t want it to pass.
BUSINESS PRESENTATION – described as “near term results & aspirations”
The CEO spent more time than usual introducing the management team, including short work histories for each. He considers it the best team MicroVision has ever had.
Evidently, there are “More products in the pipeline to be introduced this year.” (A similar comment from previous years.) Also note: the products will be introduced, which in some cases has meant revealed but not yet for sale, but in other cases has meant for sale immediately.
As of 2015, MicroVision made the transition to a product revenue company rather than a development contract company.
A display of the rank on Amazon of various MicroVision enabled products showed high sales ranks. (Note: Amazon sales ranks are a measure of recent sales frequency, not a measure of total units sold.)
The “market is still evolving.”
For the first time I can recall, they provided revenue guidance at an ASM of 40% revenue growth with a target range of $12.9M to $15.6M. Gross margins are up to 30% and are expected to continue improving. (Another milestone was their discussion of the finances, something they haven’t included some years.)
MicroVision’s strategy is to sell OEMs on end products and then show how MicroVision can enable those products. Sony’s and Sharp’s arrangements demonstrate some of the differences MicroVision will encounter; Sony sells MEMS and send MicroVision royalties, Sharp wanted more involvement with the MEMS and the ASICs.
The intellectual property remains impressive, but is not considered bullet-proof.
The possible product panoply includes: AR/VR eyewear, PicoP, embedded phones and tablets, wearables, interactives, HUD, touchless, ADAS(?), robotics, and 3-D measurement.
The PicoP industry market grew 50% in 2015, with most of the growth in China.
The general populace remains unaware (97%) of the possibilities of pico projection.
RoBoHoN is now on sale for ~$2,000 in Japan.
QUESTIONS & ANSWERS (heavily paraphrased, including the quotes, because I spent more time listening than writing, as usual)
Q: What are the compensation metrics relative to ROI, especially considering that with a declining stock price the CEO received a raise some consider egregious? A: Management compensation is based on market conditions, the operational plan, and advice from an outside consultant.
Q: (A similar question asked from a different perspective.) A: The disappointing stock performance hit them, too; “No one every felt more pain than us.”
Q: Why are no OEMs beside Sony signing up for orders of millions and millions? A: Leaders aren’t taking chances. We don’t know who will be the one that breaks it free. We are hoping and betting that someone will pony up. For reference: in 2009, MicroVision had five OEMs ready and waiting for the green laser to come in under $100: Motorola, Nokia, Kodak, plus two others. By the time the price dropped from $300, those customers weren’t available. Advertising is key and only large firms can advertise sufficiently (~$50M marketing budget). Celluon was selling ~300units/month until Office Depot advertised them, and the rate went to 5,000 per week, and then dropped back down after the advertising campaign was over.
Q: Qualper A: They think Qualper is a high-quality smartphone, and hope it is an example that will convince other OEMs to sign up, but keep in mind that Qualper is a small company and may not be able to advertise it properly.
Q: MicroVision’s relationship with the University of Washington (which originated the particular MEMS technology) A: MicroVision continues to test in UW labs. (Nothing was mentioned about the previous equity relationship. Didn’t they have one originally?)
Q: Patent expirations A: They are confident in their patent portfolio and their legal team, and repeated the fact that nothing is bulletproof. (The answer didn’t address expirations.)
Q: Is there a poison pill? A: No.
Q: Ramping up production. A: Technically, ramping up production is possible. Financially, they are cash limited.
Q: Wall Street sentiment A: The ATM is the cheapest way to make cash because the IPO market, especially for tech, is doing poorly. Currently, MVIS shareholders are 80% retail.
Q: Is there a way to limit balance sheet risk by collaborating? A: “We just have to be there.” (which I took as meaning being in the right place at the right time when the market for pico projectors improves.)
S: A statement – one attendee thanked them for the most open and honest meeting he’s attended.
S: A request was made for more communication clarity about progress.
Q: How many different STKs exist? A: Testing kits are provided as OEMs approach the company, many times with no specific product in mind.
Q: Can we expect a re-order from Sony? A: “Sony will introduce a much brighter engine shortly.”
Q: Engine ecosystem A: The package has shrunk and will continue to shrink.
The COB closed the meeting with an intent to “shepherd our trust”.
MY SUMMARY & CONCLUSIONS (opinion, not fact)
These are the best of times and the worst of times.
Finally, revenue and growth. Unfortunately, not enough to appease the general investment community as evidenced by the stock price. ($1.89)
Products are available, but fewer than expected. Sony hasn’t announced any new products as was expected. Celluon’s ad versus no ad performance suggests that small company wins are nice, but may not be significant. They suggested Qualper may be similar.
“More products in the pipeline to be introduced this year.” A common refrain, which some day will come true. That suggests good news within the next seven months, though the ambiguity about introduced vs launched vs for sale could mean news without sales.
While they have everything technical they need for ramping up production, they are possibly limited by available cash, thereby limiting growth.
One continual surprise is the lack of personal use of the products. The only projector in a manager’s hand was during a demo. If they are going to convince others that the products are useful, use them. I made a light-hearted comment to one board member about looking forward to all of them being given cellphones with MicroVision projectors embedded. The response was, “We don’t make those.” and then walked away. I know that. But, if we’re supposed to look forward to using the products, shouldn’t the management team be enthused, too?
The presentations followed a too familiar theme. They’ve convinced me that the market is there, and enormous. They’ve convinced me that MicroVision has some of the best technology available. They haven’t convinced me that the current management team is the best for the job. Their strategy too frequently referred to “hope”, “waiting”, “we don’t know who will show up”, “we just have to be there.” If no actions are required other than patience, then shouldn’t compensation reflect that?
It felt as if “the management team, doth protest too much” – or was overly repetitious in their defense of themselves and the compensation. One direct question in the Q&A inspired a long defense that did more to undermine my confidence. The votes for the compensation package suggest I am not alone. The COB talked about shepherding trust, but at least for me they accomplished the opposite. The CEO startled me with the insensitive comment that “No one every felt more pain than us.” The man making over $900,000 per year may have lost more in total value, but he has a significant income and raises while at least one person in the audience (me) almost lost a house, hasn’t visited a doctor in years, all while being patient and investing in the long term. His comment made me shake and I had to drop into breathing exercises to calm back down. I know investing is risky (read my book, Dream. Invest. Live.) but to suggest that executives feel more pain than shareholders demonstrates an lack of awareness of what life is like outside the corporate suite. Do they have a similar misunderstanding about what people can and will buy?
Having said all of that, in investing, money rules. MicroVision can be, and probably will be, a 23 year old overnight success. The potential increases every day. The market is growing. The potential pipeline is expanding. If the management team remains in place when such success arrives, they will probably end up on the covers of Fortune, Forbes, the WSJ, and a variety of media outlets. They will be heroes. I suspect the company will succeed; otherwise, I wouldn’t care as much about the meetings, the people, and the issues. I am now aware, however, that my MVIS holding is hope based on hope. It was bad enough when MVIS went from investment to speculation, but now management has compounded that feeling by emphasizing that they are relying on hope as well. We may have just crossed the border into gambling. Well, I buy lottery tickets. Let’s see what happens.
Hey, at least I got a hat! This year’s MVIS dividend (that cost me ~$40 in commuting costs to acquire.)
DISCLOSURE: LTBH since 2000, rarely mentioning the company to friends and shareholders because friends have already heard enough and many shareholders consider MVIS a touchy topic.