Q4 2019 Earnings Call
[music].
Thank you for college.
Thank you.
Your company on hold for the Corporation fourth quarter and full year 2019 earnings conference call at this time, where so many additional participants and trying to be in were shortly.
But your patience and please standby.
[music].
Please standby.
Jay and welcome to the Koeppen Corporation fourth quarter and full year 2019 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Rich Snyder CFO. Please go ahead Sir.
Welcome everyone.
For joining us this morning.
John will begin today's call will discuss our strategy technology markets.
I will go through the fourth quarter 2019 result.
Sure I'll conclude our prepared remarks, and there will be happy to take your questions.
I would like to remind everyone that during today's call taking place on Tuesday March 10th Twentytwenty.
Forward looking statements are funded a private Securities Litigation Reform Act 1995.
These statements are based on the company's current expectations projections beliefs estimates.
I'm turnover rates I'm sorry.
That could cause actual results could differ materially look forward looking statement.
Potential risks include but are not limited to demand of our products.
The result for subsidiaries.
Market conditions.
[laughter] Airport on form 10-K, and other documents filed with Securities Exchange Commission.
The company undertakes no obligation to update forward looking statements made during today's call.
I'll turn it over to John.
Thank you Richard.
Thank you Johnny Osborne could discuss fourth quarter.
2019 itself.
We obviously were delayed that you had agreed.
Well I mean operations perspective.
We saw strong demand for products.
The military public safety segment.
It would contribute.
The improvement.
<unk> cost structure.
On technology perspective.
We had advanced successful constantly electronic show in January.
Yeah, which we highlighted.
Hi, Kerry double stack.
Okay, Nike reading dialogue.
Right.
Including a super Brite.
Myrtle called Greenpeace grade.
Got you mix over 20000 it.
Honestly you want to break.
Yes, it's a good luck.
Well the fourth quarter.
Military work the key revenue drivers.
With the F 35 jobs Stryker drone strikes Tiger.
And after every asset type programs.
I think that majority off goes revenue.
Consistent with high school and go yeah.
As we know that youre, earning call so quarter to dog and IP.
What do we see and music discovery I thought holder.
Hey, good feeling good fourth quarter.
In 2020.
We expect asked every outside cool stuff.
And I'm a vehicle developed programs.
The country.
John After F 30, fives and guest Okay Hi.
Product revenue generation.
He started probably we have had only one or two major moves your programs, including.
At any given time.
Good day.
We have been placed over 10 military programs.
I mean long production.
Thats development stage.
Works all of them may not be impact revenue generation upped your 2021.
Time 23 time frame.
Yeah, we cannot be sure.
I would reach production optimal moving through development.
The overall strain so I'm going to coal.
And I also said you win programs over competition.
The strongest in our history.
Turning to public safety.
We had advanced trial to fool.
What's your best of luck is great products.
Finally.
Okay sure.
We believe <unk> great application for technology.
And with new products to be developed.
Public safety applications in 2000 and training.
You really caught in the third quarter 2012 Nike.
We took significant steps to reduce our cost structure.
These reductions.
Every improve cash from operations.
Good using your from several clock in really all cashews operation in Q1 of 2019.
To 4.2 million of cash.
Operations.
Oh.
Let me conclude problem.
Yeah rationalizing the business.
[laughter].
For the problem.
We'll go through 2003.
As I mentioned wherever it was showing two years event.
We demonstrate to Kate.
Seven trendy Pete just great.
It would be like new couple of stack Ondeck Microdisplay technology.
Which has a much higher brightness longer lifetime.
Well also gave a preview.
Well I knew at the World [laughter].
1.3, diagonal 2.6 carried by 2.6 gig explain.
I mean.
2560 Picasso's.
2560 pickup because ocean.
The next generation, Yeah, the Arkansas application.
Oh that technology advances.
Include patent pending.
It comes back exciting technology.
Which enable.
The creation of a double stack on the structures will likely be spread.
Does that bother.
Yes to honor structures.
Welcome to be Giada at.
The kinetic series.
So did a charge carrier pass through the double stamp on that.
Eric <unk> twice.
Just a one yeah conventional single step on the structure.
Yes, without even much hiring Cincinnati.
Hi, Brian there [noise].
Lower power consumption and longer life.
Well I guess your approach happy you would just bought for large pedals displays.
Maintaining good color fidelity.
Everything has been a bit series B area. So small pixel my quick explain.
We have succeeded.
So I think.
With a unique Matt do you see the couldn't backplane designing process.
In addition.
How does it back trying to die socket tetra.
Enables superior I never range.
Well I'll talk display to be used to be afraid Bryce something like.
Pitch.
Stock.
Your next spring.
Meet that demand call somebody enterprise applications being developed for the fraud.
Oh, I'm, sorry, it's below $1.
It was received a notice from NASDAQ as a company, it's not in compliance Mastec minimum bid price list.
Oops.
On March 2nd to dropping training.
We held especially with shareholder meeting.
The shareholders also like the company.
That I referred to reverse.
Reverse stock split.
The board would decide to timing as side.
The reverse split.
Once we have clarity.
Nimble any opportunities.
In a moment in time with respect to request.
Stingy on Friday aspect.
Thing able options.
To summarize.
We had a strong fourth quarter 2019.
With a sign of coping with long term opportunities.
So we see increase revenues and the benefits on continuous cost reduction efforts.
It's sort of increase.
It's interesting.
Yeah, we created a new position while CPLP operations.
Hi, Eric women.
Eric brings extensive experience gain for the operational, especially with several aerospace defense technology companies.
You focused on improving manufacturing facility.
Now, we're trying to call over to rich.
Hi, good shouldn't be Joe's.
Especially around the cost structure.
Beginning with the results for the quarter total revenues for the fourth quarter 2019 was 8.7 million compared with 7.7 million fourth quarter of 2018.
13% increase year over year.
The increase in sales in 2019 compared to 2018 was primary due to increased sales of parts for public safety applications and funded military programs.
Cost of sales for the fourth quarter was 81.1% product revenues compared with 76.2% for the fourth quarter of last year.
Cost of product revenues increase as a percentage of revenues in 2019 as compared to 2018 because of a load at historical yields more manufacturing process.
R&D expense for the fourth quarter 2019, it was 2.7 million compared with 3.9 million into the fourth quarter 2018.
31% reduction.
Sure arch expense for Q4, 2019 group decreased 1.7 million as compared to prior year, primarily due to the licensing a certain products and other development programs being curtailed.
This decrease was partially offset by increases funded R&D expense of 500000 for Q4 2019 compared to prior year due to an increase in funded R&D revenue from military programs.
<unk> expenses were 4.5 billion in the fourth quarter 2019, compared with 6.2 million in the fourth quarter 2018 reduction of 27%.
DNA for Q4, 2019 decreased as compared to prior year, primarily due to decrease.
The noncash stock based compensation of approximately 500000.
Compensation expenses et cetera itself marketing expenses of 400000.
He consulting spending approximately 400.
Were partially offset by across an increase of 500000 professional fees at 800000, a bad debt expense.
Including Q4 2018 operating expenses are 2.5 million from the write off of six assets and 1.4 million some impairment of goodwill charge.
Other income expense was expense of approximately 3.7 crater fourth quarter 2019.
That's compared to 1.1 million income in the fourth quarter 2018.
Included in the fourth quarter of 2019 was a net write down of equity investment a 4.6 million.
Fourth quarter 2019 includes approximately 230000 foreign currency gains as compared to approximately 1.4 million of foreign currency gains in 2018.
Turning to the bottom line, our net loss shoveled controlling interest for the quarter was approximately 7.3 million or nine cents per share compared with a loss was 10 million or 14 cents per share for the fourth quarter 2018.
Turning to the results for the full year.
Total revenues for 2019 were 29.5 million compared with 24.4 million for 2018.
21% increase.
The increase in 2019 revenues as compared to 2018 was primarily due to an increase of sales for industrial applications in front of development programs, partially offset by decline in sales of our products for consumer applications.
Box of goods sold for 2019 was 103% compared with 82% apartments in 2018.
Well at the park revenues increase as a percentage of revenues in 2019 as compared to 2018.
To load at historical yields from American manufacturing process as a result of the initial volume production of our SWS program and a charge for inventory obsolescence.
It's charge was due to the just continue with of certain products and the right up materials as we found substitute materials that will provide for better long term manufacturing yields.
Yes of U.S. program went into volume production in 2019, and our yields were lower than historical levels.
As our supply chain works to consistently me quality standards.
R&D expense in 2019 was 13.3 million, a 23% decrease compared with 17.4 million in 2018.
Funded R&D expense for 2019 decreased 700000 as compared to our 2018.
Primarily due to completion of performance obligations on fronted U.S. military programs.
Internal R&D expense for 2019 decreased 3.4 billion as compared to the prior year, primarily due to likely to a certain products and other development programs being curtailed as part of our strategic realignment.
That's DNA expenses were 21.3 million for 2009 a.
22% decrease compared with 27.2 million for 2018.
Estimate for 2019 decreased as compared to the prior year, primarily due to decrease of 2 million noncash stock based compensation 1 million in product promotion marketing expenses 900000 900000.
Are you spending.
900000 amortization of intangibles.
Hundred thousand of accrued contingent consideration, which were partially offset by an increase of 1 million in professional fees.
Included in 2019 in 2018 operating expenses was approximately 300001 0.4, respectively from the impairment of goodwill and in 2018 2.5 million from the write down in fixed assets.
Other income expense was expense of 2.9 billion for 2019 as compared with income of 5.5 million for 2018.
In 2019, we recorded net write down of equity investments of 3.9 billion.
2018, we recorded a non cash 2.8 million gain on equity investments.
We did we received 1 million of insurance proceeds.
2019 include approximately 200000 foreign currency gains as compared to 2018, which had approximately 1.2 million foreign currency gain.
Turning to the bottom line, our net loss of shield. The controlling interest for 2019 was approximately 29.5 million or 37 cents per share compared with a net loss of 34.5 million 47 cents per share for 2018.
Fourth quarter and here at amounts of depreciation stock compensation are attached to the table to the year end press release.
We concluded the year with approximately 21.8 million a cash and marketable securities.
No long term debt.
Regarding the quick Corona virus.
As a second delivery of a couple of products parts that we poker from China.
Although it has not yet had a significant.
Correct.
Currently working with our suppliers to establish alternative sources for these component of the contingency plans.
We are currently forecasting an increase in military revenues in 2020 as compared to 2019, but this was partially offset by lower forecast demand from our industrial customers.
All amounts discussed our estimates and listeners should refer to our form 10-K for the year ended December 28, 2019 for final disposition as well as important risk factors.
With that operator, we'll take questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using to speakerphone. Please make sure. Your mute function is turned off sugarsync ought to reach Arclight, Matt again had a star one to ask a question and we'll pause for just a moment to elaborate when an opportunity to signal.
[noise]. Our first question comes from Glenn Mattson with London, Bert Solomon.
Hi, Thanks for taking the question.
So just the rich and remain on the guidance talked about.
Increase in military partially offset by some other factors. So that's partially offset I assume you're talking about revenue growth for the year.
Yeah aggregate, but then.
Just as far as the industrial side you.
In the press release, you talk about issues, perhaps around getting supply that you need, but then you say a lower.
Demand from industrial customers of supply the issuer demand the issue and maybe you could give us some more color as to how the quarter.
Performed in somebody other sectors, industrial, notably things like real where.
And perhaps from orders like Google Glass and just how you think that those guys will perform in 20.
20.
Sure so as it relates to the Corona virus on the supply side, we have not yet had any specific issues. Our vendors are meeting their deliveries as required in the purchase what.
I will say, though there are a couple of parts literally two that we're living somewhat hand to mouth, they're leading deliveries, but we are concerned that there might be a hiccup.
And so we are working with our vendors for possibly sourcing these parks in United States.
So that's the otherwise no real issues on the supply side on the demand side, our customers are forecasting lower demand.
I think it's all part of just the industry trends associated with the Corona virus and whatever else. They may be factoring in and so we're using those forecasts from our customers to come up our guidance.
Okay, and then as it relates to.
The military business you mentioned.
Maybe John mentioned that the.
Do you expect to like maybe later in the year that be cruiser Dfas group grew.
Business because the ramp in the armored vehicle begins to ramp or begins to producing.
Somebody's revenue.
Later in the or is that.
Those programs kicking in how confident are you in that and is that the guidance relying on those kicking in.
Second half and then I guess, the last thing I'll ask users how.
Gross margins shake out if the if the business is more skewed towards military.
In 2020.
So as it relates to the programs the first half of the here is essentially a delivering prototypes.
And assuming that those prototypes go through the normal shaken bake at this point.
Based on our progress on those.
Programs, we do think that you flow be generating revenues in that they'll go into production. That's the schedule. We've been meeting the schedule for most part today and so we don't see anything changing on that.
As it relates to.
Gross margin.
Last year, we honestly took some significant hits on the yield on the EF W. S. I program and during the course of that development.
Lastly, we identified better raw materials at the year went along and sort of decision was made to scrap old material rather run it through the line low yield.
And so we took some significant inventory obsolescence.
And so what we're looking for is something in the neighborhood of a 5% improvement in cost to sales.
Gross margin up each quarter during the year.
Yes, it's hard to add cost was they have additional on management so ever witnessed was they experience.
Area.
John I'd add that the yet not yet.
Okay, great Thanks, and congrats.
Well take our next question from Jeffrey Bernstein with Cowen.
Hi, guys a couple of questions.
A number of months back you had a press release about a customer for forced did mention that was using the cost displays and optical compute platform and it was just wondering what the with the uptake there wasn't that ever become commercial.
Oh, that's still in development.
Gotcha, what's the expectation on when that might have a commercial product.
I really couldn't talk to what their plans are.
Okay.
And then I think you guys were working on.
Helmet that was more for for rotary drives aircraft HEALOS and stuff, what's the status on that program.
So that's the common area helmet program that working with funds withheld it.
It.
Continues to go through with it's taking our old and LCD and adding.
An IPO.
Layer to it I don't know what I feel really mean.
Explain that to you.
But its goals. These radically improve contrast, and so that program continues a long and Oh, we believe Elbit has already been awarded the program and so now we're in just.
We continued development phase.
We expect somewhere between the second and third quarter that development phase will be completed.
Yeah. This is the added that got program held the already got awarded.
We have made preproduction phase try to get into production. So did that my marketing program.
Gotcha. So that's one of that's one of the Ken a that you're talking about that yeah. Our in various stages and then it is there a theme among the others are there other ones that are additional sort of LCD replacement.
Type contracts or or whats is there anything to talk about on the others.
Yeah, I think didn't jump at speaking a high Def.
The situation, where the display Mac looking they use clause.
I'm in a wide scale CD, but he has a significant.
Uh-huh activities not only on trying to go through the next generations of likely displays.
It is the basket right now and I think.
With their weapons secured because the king of likely right.
Okay, and then just to clarify there there was the this confusion about the supply side versus demand side in China. So on the demand side, we're talking about the demand.
For the Threed machine vision, a full board inspection out of China that that's the demand side, where customers right now are forecasting some lower demand is that right.
Yes.
But we also have customers who are doing some are the wearable technologies and there are you know there being cautious on their forecasts also at this point in time.
Gotcha.
I think I think we encourage you see some intact aren't that big Medicare area, but the longer term, we think the customers in Chinese customer what.
That's really what time to go to more automation.
Something is essentially fit neatly into listen we have to get that developing without.
Blake.
So for them, so you'll see a shot to it and they do and all that there are actually come on bad.
Okay, and then with regard to.
Panasonic.
Development Ah I guess it was showing some some prototype.
Yes, I think you're still working on getting the color fidelity.
Right on that that's it I guess, the first contract that would used to be a wee capacity that's coming up.
Just to give us an update on that and talk about what the the pipeline looks like for additional people looking to use that be OE capacity potentially.
Yeah that the question.
On this at CES Panasonic has said demonstrated.
Yeah, they called <unk>.
I've got so yeah.
Yeah, because it is really looks there that they are cool.
The what they demonstrate a oh pretty up close using two okay.
But the RBC doing to probably.
Once you feel will affect you the law so the demand for that.
After that demonstrate following the customer that customers.
This strong so so the making they have to move a movement towards that and they can level system.
I had you could take that that you.
The way could go on I gave a top MIT now at about three weeks ago. He's now are you keeping you want to see it is I'd say that that's what's going to happen.
Maybe I will come to us.
Yes.
So yacov out displays are good for especially if the what parts of the each side you know who.
Hey, I two point 6K displayed.
Moving double stack, which we right now or thoughts now.
What do the kerfuffle yeah.
So John but but the issue on on the color fidelity has that been worked out or or you're working on that now.
Got the data here with a huge problem felt double stack and I said, it feeding solving that problem.
She was going to take a scheme on the plane. So it is transparent to the on that Guy the honest got because they can't guide does not to do anything.
I think because we saw that I'll hop back claim.
Gotcha, Okay. So so you're saying this this panasonic two point 6K by two point 6K that that's what they're gonna go to market with and that that is already to proceed.
Vicki I don't know how would this be policy because that's our customers Vicki.
Thank you, but they have moving Bestriding fall yeah.
Gotcha, Okay, and then and then lastly, you see you talked about something about getting an expansion.
For the reverse split.
A number of opportunities that you're just flush out exactly what you mean, there are you, saying you expect that a lot of good news to comedies like the stock will be a lot higher and you don't need to do a reverse split or what's is all that.
Yeah, It's a combination of things one you know this uncertainty over the Corona virus.
It would be perfectly Frank we don't want to go through the whole process reverse split this corona thing blows up and the next thing you know the whole markets coming down and we're getting drag down with it. So we did want more visibility in the overall threat to grow we also do think that.
Organically the company is going to do better over the next few quarters and so we want and get that an opportunity to you know filter into the stock price.
Okay, All right and then rich I think you you've talked about a that you know culturally coping isn't it is an R&D house.
People want to spend money on R&D and you had to fight to bring that down do you need me to beat up John anymore about bladder you guys on track forgetting the cost saves you need.
We've got pricing gas Ivy this is everyday low price it like that but remember that last years. So where are you, saying that we have been doing a lot of investment.
We were three per wed seen technology on batsmen like the heart of that and with back Big investment would go dot and direct lead generation to stock and I came away.
Much online.
He was speaking ship you can find the party Laurie and now moved to a pro lead development and you'll be draglines generations, and we saw black with the honest problems. They will do well Cooper had never saw.
So we actually going from investment to rapidly generation was at all when it happens to be we actually did on schedule.
Okay. Good we're looking forward to it.
And it appears there no further questions at this time I'd like to turn the conference back to Dr fan for any additional or closing remarks.
Well I take your athletic Johnny OS and everybody's stays healthy advent guilt [noise].
And that does conclude today's conference. We thank you for your participation you may now disconnect.
[music].
[noise] Oh.
[music].