MVIS - MicroVision: Rising Revenue But Intensified R&D

2023-12-14 23:01:27 ET

Summary

• MicroVision's revenue is increasing due to software sales and the sale of lidar hardware, particularly for automotive applications.
• The company's operating loss and negative free cash flow are expanding rapidly, primarily due to increased research and development expenses.
• MVIS' acquisition of Ibeo Automotive Systems enhances its technology offering, diversifies into new markets, expands its product line, and strengthens manufacturing partnerships.

Thesis

MicroVision ( MVIS ) has an interesting future ahead due to a strategic acquisition, new products, and revenue that increases at a reasonable rate. However, the operating expenses are rising through the roof. I prefer to wait to see the revenue grow for a longer time while the R&D expense growth gets less intense.

Introduction

MicroVision is a company that specializes in developing laser scanning technology for projecting and capturing images. In simpler terms, they make small devices that can project images onto surfaces like a wall or screen, and also create equipment that can read or scan images and information from the world around us. This technology is used in various products like projectors, head-up displays in cars, and even in augmented reality systems, where digital information is overlaid in the real world.

Financial Performance

Source: Seeking Alpha

There are severable noticeable trends in the financial table above.

First of all, there is the increased revenue. MicroVision's revenue for Q3 2023 was $1.05 million, up from $0 in the same quarter the previous year. According to the press release related to the Q3 results , this increase was predominantly due to software sales and the sale of lidar hardware to various customers??. Their software, part of the MOSAIK suite, has been reported to deliver great margins. As for the lidar hardware, it is used in automotive applications, and the company has been focusing on securing design wins, particularly for high-volume passenger and commercial vehicles. This strategic direction towards solid-state automotive lidar and ADAS solutions has been central to their business development efforts

Furthermore, the Operating Loss and negative Free Cash Flow are expanding at a pretty intense rate. Despite the increase in revenue, the company's operating loss widened from $13.1 million in Q3 2022 to $23.9 million in Q3 2023. This increase in loss can be attributed to a significant rise in research and development expenses, from $7.54 million to $15.58 million, reflecting the company's investment in product development and efforts toward achieving automotive design wins?.

According to earnings reviews in 2023, MicroVision has ramped up its R&D spending in 2023, diving deep into developing automotive lidar technology for cars and trucks, which needs hefty investment but is key to staying competitive. They've been busy with deals and discussions to supply their tech to carmakers in North America and Europe, which explains why they're pouring more money into R&D. Plus, they've made an acquisition, which usually means spending more to blend the new tech with their current products. In short, they're investing a lot now, hoping it'll pay off with advanced tech for tomorrow's vehicles.

Source: Seeking Alpha

As MicroVision has a large negative free cash flow and negative income, I've zoomed in on their financial health with data from the table above. Cash and Cash Equivalents have barely changed year-over-year. Furthermore, the overall total current assets have actually increased.

However, looking further at the balance sheet, I noticed a large increase in total current liabilities, which is mainly caused by an increase in other current liabilities. I have tried to find out what this is about, but it wasn't specified in the quarterly statement. Nevertheless, it's a sharp increase while the current assets have only increased a tiny bit.

Furthermore, the debt ratio (total liabilities / total assets) in Q3 is 27.7%. This ratio doesn't look good for a company with such a negative cash flow and low revenue. Especially considering the high increase in current liabilities. The company still has quite a buffer through the 82 million cash and cash equivalents. But I'd rather see this cash being used for investments to buff their revenue.

The future

What does the future hold?

As mentioned, an acquisition took place. MicroVision's acquisition of Ibeo Automotive Systems is a strategic move to boost its capabilities in the automotive industry and expand into new markets. Here's why this is a smart business move:

• Enhanced Technology Offering. By combining MicroVision's MAVIN™ hardware with Ibeo's advanced perception software, MicroVision can offer a more comprehensive lidar and perception software solution. This integration is expected to provide a cost-effective, integrated solution for automotive OEMs, which is essential for roofline-integrated products in cars.

• Diversification into New Markets. The acquisition allows MicroVision to enter new segments like industrial, smart infrastructure, robotics, and commercial vehicles, thanks to Ibeo's flash-based sensor technology. This diversification can open up additional revenue streams and reduce dependency on a single market.

• Expanded Product Line and Revenue Potential. The combined product portfolio includes hardware like MAVIN and Ibeo's LUX sensor, as well as software solutions for auto-annotation, validation, and perception.

• Strengthened Manufacturing Partnerships. The acquisition strengthens MicroVision's partnership with ZF Friedrichshafen AG, a key player in manufacturing lidar systems. This partnership enhances production capabilities for both automotive and non-automotive customers.

In the first quarter of 2023, MicroVision reported a revenue of $0.8 million, which was ahead of their expectations. This increase was primarily driven by the acquisition of Ibeo Automotive Systems, according to the Q3 results. The same goes for the rest of 2023 and I could see it increase for the following years. However, the acquisition also increased expenses a lot, as explained above.

According to the latest earnings reviews, MicroVision is gearing up to offer new and enhanced services that could significantly boost its business prospects. Here's a closer look at what they're rolling out:

• MOVIA™ Lidar Sensor: This new sensor is a big deal for MicroVision. It's designed to be small and lightweight, making it perfect for a range of industrial uses like farming, logistics, mining, and even nautical applications. The MOVIA sensor, along with their high-speed dynamic-range MAVIN™ sensor, will give a comprehensive system for car manufacturers, enhancing safety and paving the way towards autonomous driving.

• Legacy Gen 1 Scala Sensor: They're not just about new stuff; MicroVision is also continuing to sell their established Gen 1 Scala sensor. This sensor has already made its mark, being the first automotive lidar sensor used in series production of passenger vehicles. A recent significant purchase commitment from a large repeat customer for this sensor and its software shows that it's still in demand.

• MOSAIK Suite: MicroVision has introduced the MOSAIK Suite, a system solution for testing and validating vehicle sensors in ADAS and autonomous vehicle applications. This is a strategic move, as validating sensors is a critical step in the development of safe and reliable ADAS and autonomous vehicles.

From a business perspective, these offerings are likely to boost MicroVision's revenue and profitability. The MOVIA and MAVIN sensors, with their broad application potential, could open new markets and expand the company's customer base. The continued sale of the Scala sensor and the MOSAIK Suite not only helps maintain a steady revenue stream but also positions MicroVision as a comprehensive solutions provider in the automotive sensor market. These developments could lead to near-term sales growth and set the stage for long-term success in series production and large-scale deployments

Challenges

According to the press release of Q3, MicroVision has revised its revenue expectations for 2023, lowering the forecast to a range of $6.5 to $8.0 million. This adjustment is attributed to delayed customer demand, which is a result of various challenges, including a tough macroeconomic environment and other unspecified headwinds. This indicates that external economic factors and potential internal issues are impacting the company's ability to meet its sales target.

Furthermore, as already stated, the costs are rising quickly. I don't like how the expenses are increasing at that rate compared to the (relatively) mellow growth of revenue. I get that investments have to be done and that revenue came from 0 not too long ago, but an investment in this business is too risky for my taste right now.

A third challenge is the current situation regarding their financial health, which I have touched upon in the Financial Performance section.

Conclusion

When it comes down to it, MicroVision is a bit of a mixed bag. On the one hand, you've got a company that's making some decent moves - their revenue is up thanks to their software and lidar hardware, and they've made a smart acquisition with Ibeo Automotive Systems.

But here's the rub: their spending is through the roof, especially on research and development. It's great to invest in the future, but when you're spending way faster than you're earning, that's a bit worrying. Their operating loss is getting bigger, and their cash flow situation isn't looking too hot either.

In my opinion, it's a bit of a gamble. MicroVision's got some exciting tech and potential, but their financial health is a bit shaky right now. If you're thinking about investing, it might be wise to wait and see how things pan out in the next few quarters. Keep an eye on whether they can turn their investments into real profits without burning through cash too fast.

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