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Edited Transcript of MVIS earnings conference call or presentation 17-Apr-19 12:30pm GMT

Q1 2019 MicroVision Inc Earnings Call

REDMOND Apr 17, 2019 (Thomson StreetEvents) -- Edited Transcript of MicroVision Inc earnings conference call or presentation Wednesday, April 17, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lindsey L. Stibbard

MicroVision, Inc.

* Perry M. Mulligan

MicroVision, Inc. - CEO & Director

* Stephen P. Holt

MicroVision, Inc. - CFO

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Conference Call Participants

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* Aman Raj Gulani

B. Riley FBR, Inc., Research Division - Associate Analyst

* Glenn George Mattson

Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research

* Kevin Darryl Dede

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Michael Fawzy Malouf

Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team

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Presentation

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Operator [1]

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Good morning, and welcome to the MicroVision's First Quarter 2019 Financial and Operating Results Conference Call. (Operator Instructions) Please note, today's event is being recorded.

I would now like to turn the conference over to Lindsey Stibbard. Please go ahead, ma'am.

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Lindsey L. Stibbard, MicroVision, Inc. [2]

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Thank you. Good morning, and welcome, everyone, to MicroVision's First Quarter 2019 Financial and Operating Results Conference Call. Joining me on today's call are Perry Mulligan, Chief Executive Officer; and Steve Holt, Chief Financial Officer.

The information in today's conference call includes forward-looking statements, including statements regarding expected customer orders, progress under and benefits of existing contracts and license agreements and the negotiation of future agreements, customer product launches, advantages of our technology, litigation, progress with prospective customers, business execution, projections of future operations and financial results, product development, applications and benefits, availability and supply of products and key components, commercialization of our technology, market opportunities and growth in demand as well as statements containing words like opportunity, positioned, poised, confident, believe, goals, focus, paths, expects, plans, will, could, would, likely, resulting, track, optimistic and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements.

We encourage you to review our various SEC filings, including our annual report on Form 10-K filed on March 6, 2019, and other SEC filings made from time to time in which we discuss risk factors associated with investing in MicroVision. These risk factors could cause results to differ from those implied or expressed in our forward-looking statements. All forward statements -- looking statements are made as of the date of this call. And except as required by law, we undertake no obligation to update this information.

The financial numbers presented on the call today are included in our press release and in the 8-K filed today. Both are available from the Investor Relations section of our website. This conference call will also be available for audio replay in the Investor Relations section of MicroVision's website at www.microvision.com. We have also posted a slide deck that provides an overview of MicroVision on the Investor Relations section of our website.

MicroVision plans to participate in 3 investment conferences next month. The Oppenheimer Emerging Growth Conference in New York on May 14, the B. Riley FBR Annual Investor Conference on May 23 in Los Angeles and the Ladenburg Technology Expo 2019 on May 30 in New York. In addition, MicroVision's Annual Meeting of Shareholders will be held on May 22 in Bellevue, Washington. Information about these events will be posted on the Investor Relations section of our website.

And now I'd like to turn the call over to Perry Mulligan. Perry?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [3]

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Thank you, Lindsey. Good morning, everyone. It has been approximately 6 weeks since our fourth quarter earnings call. In that call, on March 5, and more recently at an investor conference on March 28, we articulated the reasons for our optimism as we looked at several near-term activities that we believe validate our product adoption in the market.

Specifically, we stated we expected to see the following. First, we noted that we expected to complete the development portion of the April 2017 contract with a Tier 1 technology leader in Q2 and that we expected to receive purchase orders in March or April for the production ramp to support our market launch in the second half of this year.

Second, we said we anticipated that our display-only license partner would receive the design win with the Tier 1 technology company in Q2 that would result in purchase orders for components in Q2 to support the ramp of this product in the second half of the year.

Third, we anticipated the initial product shipments of our interactive display module would occur later this year.

And finally, we plan to start shipping consumer LiDAR Explorer Kits to customers in March.

These expectations were based on the work we had done over the past 2 years to create a new MicroVision. We changed our corporate culture, sharpened our product road map, developed 4 new ASICs, a new MEMS, added machine learning intelligence in our modules and engaged with multiple North American Tier 1 AI platform owners. As a result, we said we would expect to see significant opportunities for revenue across our portfolio of solutions for 2019.

Let's see how we did.

First, the April 2017 contract:

We effectively completed the development portion of this agreement and, earlier this month, invoiced $2.2 million of the $2.5 million final milestone. We still have some parts to deliver and documentation work to complete but expect that will be done before the end of this quarter, allowing us to invoice the final $300,000.

We also received a purchase order for production material covering the requirements for the near term. While there are a few terms on the purchase order to be finalized, we expect to start shipping these products as early as June.

Second, our display-only license partner:

The activity with our licensee's customers continues, and we remain confident that the design win for this product will be awarded in Q2 to support a launch in the second half of this year.

Third, on our interactive display module:

Our internal qualification of this module is on track and expected to be completed this quarter, in time to support production in the second half of this year. We have received interest in this product from several Tier 1 OEMs, and we continue to work to secure potential 2019 revenue opportunities.

And lastly, our consumer LiDAR Explorer edition kit:

We began consumer LiDAR Explorer edition kits to Tier 1 OEMs in March as expected and look forward to working with these customers on their plans to integrate this solution into a 2020 product launch.

Let me wrap up my introductory comments by noting that we set out 2 years ago to turn MicroVision into a solution provider. We developed, communicated and are executing against the business plan to accomplish that goal. The feedback we have received from our customers has convinced us that we are on the correct path. It is this feedback that provides us with confidence that our solutions are entering the market at the right time with the right features.

We remain excited by the level of engagement we are seeing across the product portfolio and remain optimistic that we will have 3 of our products in the market in the second half of this year.

I'll now turn the call over to Steve, our CFO, who will discuss our financial performance in the first quarter.

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Stephen P. Holt, MicroVision, Inc. - CFO [4]

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Thank you, Perry. Good morning, everyone.

First quarter revenue was $1.9 million, $1.7 million from contract revenue mostly related to the April 2017 contract and $199,000 from the sale of projection engines. These were engines we had made for Ragentek but were able to sell to another customer. Revenue in the prior quarter was $1.8 million, virtually all of which came from the April 2017 contract.

Let me update where we are on the April 2017 contract. The total amount of the development portion of that contract is $15.1 million. Through March 31, we recognized $13.8 million, leaving $1.3 million to be recognized in Q2, which is when we expect to complete the contract. On this contract, revenue recognition is not the same as invoicing. So through March 31, we had invoiced $12.6 million, all of which has been collected, and we have invoiced $2.2 million so far in April and expect to invoice the remaining $300,000 later in the second quarter.

Gross profit for the first quarter was $608,000. There was positive gross profit of $697,000 on contract revenue and negative $89,000 on product revenue compared with negative $2.6 million in gross profit in the prior quarter and a positive $315,000 in the same quarter a year ago. The negative gross profit in Q4 was mostly due to the write down of inventory we had built for Ragentek.

Speaking of Ragentek, as I've reported last month, because Ragentek failed to take delivery of the units that they ordered, we started legal proceedings against them in Hong Kong. Things are proceeding as they should, but there's really nothing new to report at this time.

First quarter operating expenses were $8.7 million compared to the prior quarter's $9.3 million. In comparison, operating expenses were $7.4 million in the same quarter a year ago. The decrease in operating expenses from last quarter is mostly due to decreased spending on ASICs and prototypes. We do expect our operating expenses to decrease over the next few quarters as the expenses related to ASICs, prototypes and other costs related to getting our products ready for market in 2019 as those costs wind down.

Additionally, we'd like to give you some information on headcount, which of course affects OpEx. At the end of Q1, our headcount was 105. At the end of Q4, we were at 109. And a year-ago in Q1 of 2018, we were also at 109.

For the quarter, our net loss was $8.1 million or $0.08 per share. This compares to a loss of $11.9 million or $0.13 per share last quarter, $7.1 million or $0.09 per share in Q1 2018. We ended the quarter with total cash and equivalents of $7 million compared to $13.8 million at the end of the prior quarter and [$7.2 million] (corrected by company after the call) at the end of the same quarter a year ago.

Given our historical cash usage and our current cash balance, it's logical to assume that the company will be seeking financing this quarter. While we can't comment on what form that financing might be, we're confident that funds will be available.

Finally, I would like to mention that this quarter, we implemented ASC 842, the standard for lease accounting. Under this new standard, leases that were previously disclosed only in the notes of the financial statements are now included in the balance sheet. For MicroVision, the biggest impact of this standard relates to our office space rent lease in Redmond, Washington. So our March 31 balance sheet now has a right to use asset of $1.6 million related to the space and, also on the balance sheet, our operating lease liabilities in the current and long-term liability sections of the balance sheet related to those future office lease payments.

I'll now turn the call back over to Perry for some comments before we open the call to questions.

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [5]

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Thank you, Steve.

During the past 2 years, MicroVision has undergone an important transition from developing technology to providing solutions for our customers. In that journey, we have changed our corporate culture, sharpened our product road map and go-to-market strategy to focus on Tier 1 technology leaders capable of bringing disruptive solutions to market, develop new MEMS, ASICs and added machine intelligence on our modules and now are engaged with multiple North American Tier 1 AI platform owners. We are poised to reap the benefits of this work as we look to launch products in the second half of 2019.

Finally, I'd like to comment on the sales cycle and the timing of information we can share with you. While many people might view the purchase order as the start of the activity to enable product launch, as our April 2017 contract clearly demonstrates, when working with Tier 1 customers like this, this is not always the case. A lot of important activity to support a market launch goes on behind the scenes before there is a purchase order. For example, customer and product roadmaps, marketing plans and forecasts need to be developed and production plans set.

Based on the work we have done on our display-only and the interactive display products, we expect purchase orders to be placed for deliveries in the second half of 2019, representing a major milestone in a very lengthy process. These orders would be in addition to the purchase order from the April 2017 contract that we are expecting to start shipping in June. We are committed to keeping you informed of our progress as we go forward and remain excited by the revenue ramp in the second half of this year.

With that, we will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And today's first question comes from Mike Malouf of Craig Hallum.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [2]

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Congrats on the purchase order. I guess that's my first question. Can you just give us a little bit -- you commented that it's a small initial purchase order? I'm just wondering if you could just give us a little bit of color. Are we expecting a series of purchase orders over the next month or 2? Or is there just a small initial start of the product? Can you just give us some color on that?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [3]

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Again, Mike, I think we've been consistent through our calls on this that customer clearly indicates the ramping of product to ship in the second half of 2019. All indications are that's still the plan of record. We absolutely expect that this first order, as you described it, the small initial order, will be followed by subsequent orders, and we'll provide those details as they become available.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [4]

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Okay. Great. And then with regards to the consumer LiDAR, I'm wondering if you could give us just a little bit of insight into some of the use cases that you're seeing out there. You're selling these kits out there. Who are, just in general terms, who are they to? And what kind of interesting uses are they going to use the product in?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [5]

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So great question, Mike. Thank you.

There's a couple of things that we've articulated while we've been out in our presentations to investors and as illustrated on our presentation on the website. The disruptive capabilities of our consumer LiDAR is very interesting.

We've targeted AI platform owners as we believe that the advantage that it provides for an AI-connected home control center or home hub is very pronounced to have the awareness or the presence of what's going on in the space around it. And the applications that it could then control through a central connected device are a plethora of applications.

As we've said, we've targeted our OEMs, our Tier 1 OEMs, with our kits. And we're excited with the initial feedback we're getting as to how the kits are performing and look to them to tell us how they want to try to deploy it in solutions going forward. So we'll have more information on this as we get additional feedbacks over the year.

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Operator [6]

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And our next question comes from Glenn Mattson of Ladenburg Thalmann.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [7]

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I apologize for the background noise, I'm traveling right now. But -- so a couple of quick questions.

One on the purchase order that relates to the April 17 contract. Congratulations on that. It's nice to see, for sure. I guess curious, have they given you any color or feedback as to what kind of launch they're planning? Is it like a global launch or a regional launch? Maybe that will give us some insight into kind of what kind of scope that they're looking at in the initial period.

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [8]

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We have not had those conversations with our customer on how they perceive or how they plan to enter the market with their products, Glenn. Sorry, I can't provide any more color than that.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [9]

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Okay. And then curious on that projection as of the -- is it -- I think -- and I'm not sure if I heard correctly. But I think you said you expect a display-only as well as interactive. Is that what you said, Perry, for this year?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [10]

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Yes. So specifically, we've -- over the last couple of calls, we've commented on the fact that we expect a design win for our display-only licensee partner this quarter. We expected that product will then subsequently ship and ramp in the second half of 2019.

And for our interactive display products, with the interest that we see on that device, we still are optimistic that we will see product shipping in the later part of this year as well. So one that we're doing specifically on learnings of the design win imminently and one we said in general terms.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [11]

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Okay. But is it safe to assume that it wouldn't be the same customer doing some sort of set of products? Or is that been not the path to expect?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [12]

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Yes. At this point in time, we can't really comment because there are multiple opportunities being addressed. I'm not sure who will come up with what and when.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [13]

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Okay. All right. And really, Steve, quick on the OpEx stuff. What kind of magnitude of -- I think, you're trying to signal that there will be a little bit lower OpEx for the next quarter or couple of quarters? Can you give us directionally or a little bit of magnitude as to what do you expect there?

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Stephen P. Holt, MicroVision, Inc. - CFO [14]

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Yes. I think when you look at where we were a year ago at about $7.4 million, that was -- that's kind of the neighborhood of where we're trying to get to by the end of the year. So kind of ramping down through that period. And I'll just -- my caution is that we're in a pretty dynamic time where things are happening in a pretty fast pace, and it's very exciting. And we're all -- and you don't know exactly what may come up your way. But generally speaking, we see it coming down over the next couple of quarters that way.

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Operator [15]

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And our next question today comes from Aman Gulani of B. Riley.

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Aman Raj Gulani, B. Riley FBR, Inc., Research Division - Associate Analyst [16]

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Congratulations on the purchase order.

So my first question is across your different products, you've got your display-only, you've got your interactive display and you've got your consumer LiDAR. In terms of product road map time line, would it be safe to say the first rollout will be the display-only and then followed by the interactive, then the consumer LiDARs maybe more like a 2020 story? Is that the right way to think about it?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [17]

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Yes. I think you've characterized that correctly. We -- again, I just wanted to add 1 specific data point that said that the April 2017 contract, we've never identified what space that or product that represents. And we would refer again to the comments made in this call that said we expect to start shipping that as early as June this year in production. So you really have those 4 streams in flight, if you will.

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Aman Raj Gulani, B. Riley FBR, Inc., Research Division - Associate Analyst [18]

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Got it. Okay. And in regards to the Explorer Kit, are you sending that to any auto OEMs for LiDAR and use in ADAS? Is that something that you're looking at as well? Or is that -- is it too early for that?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [19]

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We've always differentiated the consumer LiDAR product vertical from the automotive LiDAR discussions. We are still, as we said in our last earnings call, having discussions with Tier 1 OEMs because we absolutely believe that our product is well suited for those solutions. But the consumer LiDAR product is really targeted for AI platforms, 10-meter applications, sort of 30-feet kind of awareness applications within a room, that kind of dynamic. So we see them as being tailored for different solutions.

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Operator [20]

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And our next question comes from Kevin Dede of H.C. Wainwright.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [21]

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It's Kevin Dede. Perry, the press release makes it pretty clear that there are multiple Tier 1 OEMs interested in the interactive display. Could you characterize that any further?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [22]

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Well, Glenn, I'd love to but I don't -- Kevin, sorry, but I don't think we can add much color than we already have, right? We're targeting North American Tier 1 OEMs that have AI platforms, and we're saying there's several of them interested. So it's a small pool to begin with, and we'll leave it at that.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [23]

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Okay. Fair enough. Yes. So Perry, so given the great effort to include edge computing, I was wondering if you could, I guess, offer some examples across that -- those 4 tracks and product ramping up here, how that computing has been, I guess, leveraged by your customers?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [24]

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That's a great question. I really appreciate it, Kevin, because I think it helps illustrate specifically the advantage that our LiDAR capabilities have and that the inherent benefits that our customers would receive from. So the easiest example that I would bring to mind is the advantage evident in our interactive display module. By leveraging our machine learning algorithm, we can process the LiDAR image feedback we receive real-time on the device and subsequently interact with the OEM product, mimicking the same standard interface or 10-finger touch display products or display solutions would have. So in other words, we've reduced the effort and energy for our customer to use the module, making it much more plug-and-play using standard interface because our machine learning does the work of that computer analysis. The illustrative thing and the thing that I think causes customers to have a bit of a wow factor is how efficiently and effectively we can do it, how low-power we can do those computations. Because most people are a fair amount of computational cycle to get that done. And this is an example where our efficiencies and the inherent characteristics of our solution show the technical leadership and technical advantage.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [25]

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So it's clear, in the display-only environment, there is no need for that edge computing, right? Because it's pretty much just a dumb output. Correct?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [26]

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And again, I don't know if I'll use the word dumb output, but I agree that there is no need for an edge compute module there in the display-only segment.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [27]

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Okay. Then you've got your April 2017 contract where the product hasn't been characterized completely from your earlier comment. Is it -- can you offer whether or not that edge compute capability has been included there?

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [28]

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Yes. We can't provide any more color than what we've said previously in our calls and in our releases that it is a high-definition display solution.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [29]

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Okay. Fair enough. So then clearly, have you seen your customers integrate motion detection? I mean that was one of the pretty neat things that you guys displayed at CES. And I'm just wondering if people have sort of taken a leap on that capability.

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [30]

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Again, thanks for making people aware of that. As you point out, there's a little break up in the question. I'll just reiterate it. Because of our capabilities with our LiDAR, not only can we mimic touch, 10-finger touch, we also have the ability to recognize gestures. And as of this point in time, I can't comment on who is looking to adopt that feature set in their products. So -- but thank you for reminding folks that it's a capability we possess.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [31]

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Yes. My pleasure, Perry.

Steve, just on the balance sheet. Other current liabilities, they're over $10 million. I apologize for not remembering what's buried in that, but would you mind refreshing my memory?

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Stephen P. Holt, MicroVision, Inc. - CFO [32]

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Yes. The April 2017 contract, when we signed that contract, the customer made a payment of $10 million. And essentially, what the genesis of that was, we didn't want to do a program where we'd do development, we'd make a few million dollars of development after 2 years, and then we take the product to market, and it wasn't that beneficial to us. And so what they did was they said, "Okay, here's $10 million." We get -- put it in our balance sheet. They paid it. If in the event the program were to be canceled or whatever, we would get to keep it. As it turns out, we think we're going to production. And so then they will earn that back towards purchases. So that's the basis, that $10 million upfront.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [33]

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Okay. So as the purchase orders come in, that balance the clients and you recognize revenue?

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Stephen P. Holt, MicroVision, Inc. - CFO [34]

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Yes. They'll earn some portion of the sale back with that money. And effectively, when the contract is completed, I think, I envision that we will move that to a customer prepaid category.

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Operator [35]

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And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Perry Mulligan for any closing remarks.

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Perry M. Mulligan, MicroVision, Inc. - CEO & Director [36]

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Thank you, operator. In closing, I want to once again thank our employees, business partners and our investors for their support and look forward to reporting our progress over the next several quarters. Thank you.

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Operator [37]

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Thank you, sir. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.