Q2 2020 Kopin Corp Earnings Call
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Please standby robust yeah.
Good day and welcome to D. Copeland Corporation second quarter 2020 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Rich Snyder Chief Financial Officer. Please go ahead Sir.
Operator.
Welcome everyone.
Joining us this morning.
Sure I'll begin today's call with a discussion of our strategy technology markets.
Oh go to the second quarter results in a high level and they'll be how to take your questions.
Well, let's remind everyone that during today's call.
Oh, the sport 20 [noise].
[laughter] Olympic steel because.
Securities Litigation Reform Act.
Yeah.
When it comes current expectations projections beliefs estimates.
Well remember this uncertainty.
Actual results.
[laughter].
Potential risks include limits to demand for our products operating results.
Mark Anderson.
[laughter] Airport.
Okay and other documents filed with Securities Exchange Commission.
The company undertakes no obligation to.
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Generally the continued oh present circumstances.
Currently facing.
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Second quarter also sold at full production shipment.
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Our children.
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Including six swing.
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He's botched portfolio approach.
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Fascism revenues.
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Pass it back here Scott.
Thank you.
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But the problem [laughter] correct significantly children's lives right.
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Coping has developed a unique technology.
We call it how it.
I loved the lightning 2.8 back to participate.
Great to achieve.
Typically colorful valley.
215% RGB right.
The only thing car.
The ratios.
Which is really the either [laughter] good day.
What's the oldest six.
Which is equally exciting.
What's the press release, we issued this morning.
It didn't Nick.
Discussion.
And how you're doing now no.
I was out can you.
That's the goal.
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I understand.
And confident is real.
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But the clock in July.
Hi, Richard <unk>, five rigs with applications fluffy idea.
We want to share with you today.
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Its corporate Nike has a salary interest around the.
It's important technology breakthrough.
Hi, good morning.
Well, it's too early but just kinda hollister.
And I look forward to she had a whole multiple in the coming along.
Finally.
I have to think.
The coke employees.
Our country had to work throughout this challenging.
Yeah, I think I can't where possible.
And we appreciate all the assets, so safe to say safe and healthy.
Well I wouldn't turned the corner rich.
Thanks, John.
Turning to our financial results.
Product revenue for the second quarter ended June 27, 2020 were 6.7 million.
4.4 million, but a second quarter ended June 29.
2019.
So I think rates year over year.
Budget research development and other revenues were 2.1 billion for the second quarter ended June 27, 2020, compared with 4.7 million second quarter ended June 29 2019.
Included in the 4.7 million it revenues for the second quarter 2019.
It was a one time license fee payment of $3.5 million.
Total revenues for Q2, 2020 were 8.8 million versus 9.1 million five year.
2019, reflecting the 3.5 billion onetime payments.
Cost of goods sold for the second quarter, 2020 was 4.8 million or 72% applauded revenue.
Compared with 5.3 billion or 18%.
For the second quarter last year.
The significant decrease in cost of product revenues as a percent of net product revenues. This year for three months ended June 27, 2020 as compared to three looked at June 29 in 2018.
It was primarily due to lower material costs, along with improving manufacturing yield efficiencies.
Higher sales volumes.
Reducing fixed cost per unit a U.S. plant.
As a reminder, you're connected car production of certain products and weak spot experienced higher than normal scrap for the first three at six months of 2019.
That was compared to say peers and twice.
R&D expenses in the second quarter of 2020 were 2.2 million compared with 3.3 million to the second quarter 2019.
Lower Archie cost.
One quarter 2020 as compared to prior year was the result of IP commercialization strategies in place in 2019.
Specifically, the like think Goldeneye city and told smart glasses.
That's you know expenses were 2.9 billion in the second quarter 2020, compared to 5.4 million in the second quarter 2019.
The decrease was primarily due to lower compensation expenses, including stock based compensation bad debt expense professional fees information technology expenses.
Well I mean accretion of the interest contingent consideration.
Other income expense was expense of approximately $6000 than the second quarter 2020.
Paired with six I play so 7000 up income for the second quarter 2019.
During the three months ended June 27, 2020, we recorded $10000 of foreign currency gains as compared to 184000 foreign currency losses.
As of June 20, right 2019.
The three months ended June 20, like 2019 also included a mark to market gain on investment 768000.
But to the bottom line cards that want to controlling interest for the quarter was approximately 1 billion or one cents per share compared with a net loss of 4.3 billion well five cents per share in the second quarter 2019.
77% improvement.
What was cash equivalent marketable securities was approximately 15.3 million at June 27, 20 twice as compared to 21.87 to 28 in 2019.
Second quarter mountain, depreciation and stock compensation or actually able to keep absolutely.
If I will now discuss the race on sort of.
Yeah. It listeners should review our portal final form 10-Q.
Quarter 2020, very possible changes that additional disclosures.
With that operator, we'll take questions.
Thank you he would like to ask a question. Please press star followed by the digit one if you are using the speakerphone. Please make sure your mute function. It's turned off to allow your signal to retail equipment. Once he gets star one and well take our first question Glenn Mattson with Ladenburg.
Hi, Thanks for taking my question and congrats on the results.
So a couple.
Burts or I guess, it's a rich first just you just mentioned some of the operating highlights the a decrease in cost of goods sold usually it sounds like a lot of that was due to Ah.
Efficiencies related to volume I guess, a you know the gross margin was depressed level, we'd expected so.
Does that kind of the run rate, which is expected.
You know what ballpark going forward for Wild mirror, just some color there.
Yes.
The current girls part for centers is a good barometer, but a couple quarters.
Great and and itself.
<unk> expenses are also that.
Some of that is.
Like you said.
Reduced travel and things, but it does that also you know maybe needed to the lower sales expense related to selling the military perhaps being that that's a bigger portion of the pot of right now or.
You know.
It also sustainable.
Yeah, we would expect a actually they pop up a little bit over the next couple of quarters or we do have some litigation, which frankly has done the backburner as the quarter didn't close.
Assuming they come back you know this this is probably going to do additional legal expenses.
A couple hundred thousand two 300000 core otherwise should be relatively consistent.
Okay, and Oh do you have the operating cash burn a capex record or operating cash flow.
Yes, so the burden for the quarter cash used in operations was 2.9 million.
Capex was de Minimis.
That's the hardware.
And lastly, I'm a topline was there anything in terms of the order flow that would have.
Instead this quarter any pull in on that military side or is this.
Just a function of.
The <unk> programs kick in.
Well, Yeah, I mean, you do see that'd be the the contract assets on the balance sheet is off and that's a function.
Six so six revenue recognition standard. So you know two years ago units that we would have made that.
They would have been sitting in finished goods.
Today, those are sitting in contract assets and as revenue recognized on them.
And that's really thought for the only difference the other piece courses that we have a sneak a number of R&D programs going on and not revenue was also recognized 5% completion basis.
So.
Until we hit a billing milestones.
The core <unk> Unbilled receivable collection that contract asset account.
But.
That's fairly consistent with what we've been doing a lot of 20 years.
Right and on the military aside I misspoke quote was it a three programs search production by the end of 2020 or 2021, new.
New programs.
So so this 120 20 with the two programs in production and we expect 2021 and with five programs in production.
Right.
And can you give us any are digging that's really caused some sort of an order of magnitude about how decides what do you know either.
What that incrementally adds or come or what the total five it looked like that this platform arms around it.
No.
No we're not going to give any revenue guidance for 2021 today I mean these are all very large programs I can say that but you have to go through qualification so when and if that during the course of next year. They get go into production will be dependent upon the RV qualifying themselves.
You can only be we do feel confident that will exit.
Production, but you got the when the Army Perkins production is up to them.
Okay, great. Thanks on the.
Industrial side whoever wants to answer that'd be great is just the.
Two things one of.
The way I think about it correct me if I'm wrong is that the.
2019 was a year when a lot of these Ah head mounted display.
Headsets were put into.
Various corporations Ah Honeywell people like that and.
Perhaps yeah. They went into the field kinda quickly and then 2020, maybe there is a bit of a digestion period, where these companies are kind of the deciding.
Just a where they want to put the products how to most efficiently use it how to maybe work around some.
You know safety and security issues, there are things like that and then maybe you know 2020 becomes a digested near 2021, maybe there's a bit of a bounce back is there any.
This is at the right way to think about it so the a head mounted display market. Yeah, I think I think that's exactly right.
In other revenues for the quarters three to 400000 of royalties.
And that's consistent with prior years. So it tells us that they're selling units our customers are selling units.
But they may be working off of inventory because as you said if products were introduced last year and so you really doing a lot of guests workers to inventory levels.
But it looks like they are selling through at the end point, because they are paying us royalties.
Okay, Great and then I guess lastly, I don't know John I know, a new product announcement today, but.
I guess one of the ER.
Exciting news about coconut that at some point down the line.
You know, what VR or some sort of mixed reality or are you know, maybe its right to sports or or general entertainment.
When it gets a hold on the consumer side you guys are started stand to benefit is this brought it doesn't say one step.
Well, it's sort of getting to that point and.
You know just can you give us an outlook or timeframe on when you think that kind of the.
Work it could come alive for you guys.
Yeah, Hi, anchor Hocking question, I think it's important to understand.
The world a agree on which you have caused it actually.
Getting very strong interest because golf, Eric the biggest problem facing every body east reduced brightness and particularly positive here right.
Yeah with the focus window for the last few years hard to get their high brightness bezel car.
And what happened through a day isn't exactly half a dozen.
Nine months it is a lot yet it seems to be broken we actually can add rapid improvement.
And then there'll be a lot more discussion about it because what happened today, we've got another explanation shaping.
Because it's not true give your hobbies put last couple nights I understand it.
I think you will be I will explain because they are sort of well what we didn't happen.
And I can't wait cooked attorney.
Okay, Great. That's it for me thanks, guys.
And next to move to Jeff Bernstein with Cowen.
Yeah, I scored buys.
So a couple of questions for you.
Thank you Dennis.
I was thinking about it start by the end of this year. It sounds like it's just outside into 2021 is that right.
I'm, sorry, you broke up a little bit could you repeat the question.
Yeah, that's W. As she told ground.
I guess, one that but what we're waiting for production to begin and a is that now early twenties wouldn't want.
Ah yes, it was like we're still COO.
Oh, we expect production in 2021 Yep.
Gotcha early or late 21.
You know that that ultimately depends upon the military but we would think it's in the first half.
Great.
And then on the that's W. bass, she as well I guess, you're still continuing to that but you want that yet or what's the progress report there.
Okay. So I misunderstood you I put your first question was yes.
Well.
Hi.
Oh, I'm sorry I'm.
I'm, sorry, I misunderstood you I thought the first question, let's see that's the first question was FWS I well we're in production in that.
Right I do that I thought that she was what you'll just see.
Who served as she has or something.
Oh, there's two pieces, it's the FWS I and the C S who served.
Gotcha Okay.
Production and 2021 that potentially be it yet.
And then Oh that helicopter helmet.
So that's still in development, they've actually been awarded the program.
Oh, we've been awarded the contract, but it's still in development and again, we expect that to go into production in 2021.
Okay.
And then.
Fourth dimension that looked like industrial took a little bit of step down.
Putting this data, but considering what's going out there, but can you just give a live up to its going on sounds good design wins.
Oh, I do I expect that to but that gives me the economy Jochen.
Yeah, you actually FTD was pretty consistent with prior to year, you know as Glen just mentioned it was really on the industrial it was really more of the wearable headsets.
FTD as a reminder, or does it different viber business for Threed metrology.
Now as well as I said it was pretty consistent they also do a military development for us.
Some of their displays go it for instance, the general dynamics armored vehicle at these displays go into that but it was really the wearable headset.
And I really believe it's as Glen alluded to that is more that's more of a function of the units just came out last year for the most part people kind of suggesting as inventory levels and adoptions, but so up sales of their displayed.
Trimmed up or down, but as I mentioned, the royalties were consistent with prior.
Period last year was told if they're selling and unit.
So it's just that they're getting their inventory managed.
So so who knows what the mentioned L. caused displays that go into machine vision, we've been waiting for last year.
The Chinese.
Buyers being probably the biggest market for this where are we on that.
I see the question.
Jaffe said, how the Chinese.
Kicking into that.
Petrology that to work hard and do well no I, China prospect dipping down like <unk>.
Okay. So downhole feel like my dad get to get getting back to work right now.
That's great.
Yes, I'll come to think about situation right now.
That's it.
It sounds like you're sitting now we'd said you use that technology, all hitting piping chipset. Other people have been able to get that that people, but this is what you have to get your dividends.
Sure.
Yeah, <unk> and R&D artsy spot. So I guess the final on that is to make these then spot.
Boston and gross margin is what mall.
Yeah I guess.
Kind of breaking out so.
Yes, I'm going to look at for your question.
Was that pricing is that.
We would be we'll call it do stack and how.
Even can be made manufacturers like how much additional costs were difficult problem.
I feel that I've got to phase two crashing back to your question separately.
Are there my coding audit and I think anymore get larger activities also on the Michael D. There [laughter] the Lakers colleagues to I get companies in the World working on my Co Ltd.
Why they have looked like where the micro you'd be satellite audits.
The cost Michael that would be put gastric and give you the brightness versus current which if it remains quite helpful. AI beyond.
What we guarantee that won deals that you basically increase to prepare answer Brian Yes, I bought four or five times.
Got it will go into the range way I'd be happy news.
Now what happens additional costs and making sure that Michael that we'd be at that goes back.
That's very is actually hi, minuscule because it's all in defense system, adding just grow underground that you get double stack the difficulties line to grow from difficulty technology.
To give maximizing peak optimizing.
How do you understand.
Hi, because that's a lot going to listen to fix the we do understand there now.
God, They say, we stay cool combined danger to well what we did happen.
Okay, so, but you're saying that's on the cost standpoint.
Did you hear that these can be made good gross margin and a reasonable cost to use.
In fact, we say a year to no part of what do think effect anymore.
I'm, sorry elements still see the what nobody was good old still single stack because the additional cost that building capital stack or if its performance improvement.
Overwhelming.
Gotcha.
Thank you.
No no further questions at this time I would like to turn the call back over deducting fans and additional closing excuse me. There was one question that came in and she likes to proceed with it.
Yes.
We'll hear from Patrick net cap, but I think there's.
Hey, guys. Congratulations on the great quarter, just wanted to ask you guys. Most recently, we saw our Facebook is best in class C.
For their technologies, considering the breakthrough today.
Do you believe you can get a partner like a Facebook the common invest behind you.
The question, if a patch away that Ah.
Hi, good we're definitely activity, if our Facebook taxi, which he said Michael every day.
Hey that May shake it was I feel like.
People begin to recognize brightness hers occurring is the most important factor.
After regularly.
Every day and microwave de has great advantage.
Well what happened today.
Last month.
She has with nothing there 2.6 by two point 6K.
What you say half day index, Iraq, six over getting data over.
Good day right now 40, Okay got it open air.
We currently.
All these numbers.
Really.
Okay, and she's yet as far as well.
So he's going to be that's fantastic.
I think people with digested I I didn't show all the foot thick sadly people were certainly not believe it.
I can you see what we anticipated and Dan I think people react piece would not getting to a range that most applications. Okay. I can be so yeah definitely.
Dan ankle all that sort of example, grind it I think everybody's people be useful so my clarity D, albeit at a range.
So that when the new World Michael Argotec.
Hi.
Gotcha.
A range of application.
Good is it different world today.
Okay, Great and then my next question is.
I see or your investment in real were under licensee real were gaining real momentum with Microsoft teams and Cisco Webex now behind that.
[noise] I want to see.
Hey, you does real where habit exclusive.
On the device or on the Golden eye software.
And B what is the Golden eye software if they do not have an exclusive what does it need to coping too much to shareholders in the future. If they are actually takes hold and goes forward.
So they have exclusivity in a field.
Certain koeppen technology.
But you know.
We were I believe you really should talk to real there, but the they've developed quite a bit of software themselves.
On their own. So you know, it's we've kind of provided the hardware aspect to it I think they've kind of providing software.
The equation and they maybe I've got bring it up and more color to that.
There are real with going like activities at your very Echo system [noise].
Well, we gave that we we have several things we do we license the technology to that though what their licenses.
So it's a pit design for the system.
Well some of the software the software allows those he's a voice.
So it's a everybody to listen to it everybody rave about how good the voice command I'll stick to come there.
In addition to that you have with high and mitigate they do in fact by our module on display module, which is a bad specially designed FID for that purpose.
Okay exclusive had to buy out.
Hills.
They use our software for the audio.
So he did also devices.
The whole go to <unk> corporate alike.
Listen day, using so there are several ways to help them and get to create why site, we know either in the market right now.
Okay, and then lastly, well know though.
Lenovo has a golden I like suits or says with although different joint ventures.
Itself is a different type is a different kind of a license.
And.
Because there's a boatload also doing pretty well.
But they have focus ball.
Hmm and trying to market.
Okay, Alright, Thank you guys and I look forward to let you next quarter results.
Okay cool thanks.
No no further questions at this time I would like to turn the call back over to Dr. Fan for any additional I couldn't see me Mike.
Well, thank you I'll try not to get Molly.
And please everybody if they say thank you.
[noise] and that will conclude today's call. We thank you for your participation.
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