Q3 2020 Kopin Corp Earnings Call
Ladies and gentlemen, your card and host for today's conference call. At this time, we are something today's audience. Some plans underway. Shortly we appreciate your patience I'm Peter <unk> on the line.
[music].
Good day and welcome to the coal Corporation hurt <unk>, featuring <unk> earnings call.
As a reminder, today's conference is being recorded.
At this time I would like to try the cost base over to Richard Schneider Chief Financial Officer. Please go ahead.
Good luck.
Welcome everyone and thank you for joining us this morning.
John will begin today's call with a discussion about the market environment.
See progress executing our strategy sales activity.
I was looking at third quarter results at a high level jobs conclude our prepared remarks now we have to watch.
I like to remind everyone that during today's call taking place on Tuesday November for 2020.
Forward looking statements as defined in the current [laughter] Surety Litigation Reform Act Nike 95.
It's pretty much a basic its current expectations projections beliefs.
And I've spoken to a number of risks and uncertainties that could cause actual results.
Oh well.
[laughter] Cooper limit your demand of our products operating results of our subsidiaries.
Conditions and other factors discussed in our most recent annual report on form 10-K, and other documents filed with Securities Exchange Commission.
The company undertakes no obligation.
Okay, Great [laughter] I'm sure I'll turn it over to John.
Good morning.
[laughter], Johnny well [laughter] quarterly results.
I want to start.
Right.
Thank you and your family [noise] country.
Got you, Okay, well Hey, Gerry.
During peak pricing power.
[laughter], who came to us so far.
[laughter], we're very pleased with many aspects of obvious.
[laughter] course taught out quickly.
Oh, sorry, just because I don't know.
[laughter] they looking strong.
[laughter], we continue to make major Pullman profit.
<unk> costs and you [noise].
One day training [laughter], yeah, there sure.
Well, making great strides.
Our next generation to get back to think about.
[laughter] total revenue increased 55%.
Compared to the Florida.
Oh, God I mean 90.
Which represents.
[laughter].
Street corridor.
Oh, Yes, Oh, yes.
Got it well.
Excluding a one time [laughter] Oh well.
Yes, we'd forgotten I agree.
[laughter].
Yes, yes, yes.
[noise] and when I look forward to Katrina.
Strong woman.
So in the fourth quarter.
2021, [laughter] reading, our second quarter revenue for docs trained and get past quarter revenues.
Which cool hung up 40% year over year.
Oh, so probably production programs.
So the five fighter jet helmet.
Yeah definitely yeah.
Oh.
[laughter].
In September we had.
No one will want a 22.91 did you guys.
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For all the Hopper car calendar [laughter].
Ask that they have come.
Thermal weapon sight.
Deliveries.
So that's a part Oh 2021.
Im sorry, yes, so either way.
We have received total orders to date properly so he created.
Well at this point.
It's disgusting once we see no.
I think that probably traveling.
Okay discovery I stopped Proag is a clip.
From a website that provides children.
We've got three D., so I guess what targets do you know.
That's true [laughter].
Oh, yes, the sole source on that contract.
It's interesting [laughter].
With that both pro.
The country is for many years into the future.
Oh funded because I don't play.
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Oh yeah.
Year over year.
What's your sense create your taste, she will go straight into like future growth potential.
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On the box.
Including both specific data like.
That's right you got that right.
Great logic available.
Well Frank.
My children, you fund the RMT cool.
Yes, that's why I think its great good dog.
Yes.
Development programs.
Third gosh that's in the.
Coming here.
We currently have over Cantor Fitzgerald.
It varies state your health development.
Which is the strongest sorry.
Right.
Yes, that's true.
You know what the use of our product.
Let me go.
[laughter] well.
Oh, sorry winged aircraft helmets so.
So what can they scope it out.
So we all see it get fast development programs.
Hi, <unk>.
Stop production next year.
[noise] it into two court action program.
We also released I get to see growth coming from our enterprise.
Who had been called Craig I guess based on my jokes.
Yeah Yeah.
The false result, and socially distinct approach.
So what's your lives by Nike.
<unk> power wearable technology.
Well, yeah salaried adoption.
Wow, Okay opposite like this.
To get back to work.
Yes, [laughter] socket yeah.
We continued to gain traction.
Equals good infrastructure.
But.
Sorry for the enterprise market such as five G.
Hello Sally.
Market somewhat.
And be stopped.
Okay.
Oh coconuts already everything.
Oh, the defense enterprise adoption.
Well and we are ideally fishing.
So we don't get that.
Pockets.
Without broad line up well my quick ancillary products.
Yes.
Including both housekeeping.
Okay great.
In fact.
It's important to emphasize here.
Big important football matches.
Well, Michael I guess, they could be using practice.
He must be offered industry.
Which called syphilis subsets good optics.
Hey, electronics within their field housing.
Corporate has deep experience in this area.
And here is why maybe got good luck.
Coping, but then like cooking solutions.
[noise]. We're also excited about the technical passive like Dude.
Okay. So I can give you guidance.
Right.
We had the opportunity to highlight.
I Ondeck kinda go faster.
Recent webinar.
Spotify Encyclopedia.
What we shared with I would go back I think that that's good.
She's industry, leading high brightness.
Right.
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Excuse me Hi, Brian would hope how assumption.
I'm in Kenya.
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To create a copy I have to check and we feel system.
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What gets quite caught up seven could you p. audio.
Michael.
Got you and 7000 <unk> right.
Pretty much all power.
North Korea need to actually get to that both right.
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Great.
Yeah, Hi, do 30 calendar.
So how long it back with the right kind of weird [noise].
It is important to know if you step back on it I could be scraped Dolly. They felt you talked about the fallen.
Go to kind of mixing the individual sub pixels.
Right.
Do stack structure.
Practical.
Right.
We took on the challenge.
It you just kinda back technology.
Which control the car.
Fixing America's Cup itself.
Hi, Joe stack Onyx.
True.
That's correct and lodging knocking able.
At much wider color.
Hello, gamut of optical hadn't got 15% yes.
Hi, Judy.
What gets recognized is that fair.
It's significant.
Great. So.
[noise] [laughter] would be high innovated [laughter] evolved manufacturable.
[noise], if there was a huge achievement.
Oh that hockey [laughter] the important stuff.
For the ops pockets like Baker Hughes <unk> eight.
We are [laughter], our view of the market is that there's a lot of weight adoption a copy our system.
I mean, the King's College.
[laughter] These systems are being adopted for it so.
For industrial.
Oh, so medications.
[noise], Oh, I guess pro I relate to the YOD applications.
It's the ideal culture to breaking attraction.
These are new remote whoa.
Well, if you will say well positioned to lead that just calling.
I've technologies.
[laughter] happy endings sluggish.
Okay.
Yes.
In short.
Right and making great progress I guess it could be a stretch.
And your children and young adults Thomas [noise].
The market conditions are favorable.
Yeah, well, that's just so well positioned.
Kept alive.
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[noise] latest future.
Future [noise].
[noise] salaries.
I would like.
Once again check out is coping employees.
Got you okay.
Good Oh President Todd.
Yeah the reason.
Oh coping going [laughter].
Now what's on this call to redress.
Thanks, John.
Turning to our financial results.
Product revenues for the third quarter ended September 26, 20, 26.5 million compared with 5 million in the third quarter September 28 2019.
31% increase year over year.
Funded research development and all those types of revenue were <unk> million for the third quarter September 26 go to 20.
Okay with 1.2 million in the third quarter ended September 28 2019.
An increase of over 100%.
Total revenues for Q3, 2020 were 9.5 million versus 6.1 versus the prior year.
[noise] cost a good fourth third quarter, 2020 was 4.8 million or 74% of product revenue compared with 4.7 million or 95% of the third quarter of last year.
A significant decrease in cost to park revenues as a percent of net product revenue.
Great.
Ended September 26 2020.
As compared to the three months ended September 28 2019.
It's primarily due to the lower material costs, along with improved manufacturing yields.
The efficiencies gained due to higher sales, which reduced fixed cost per unit.
<unk> plants.
In addition, we're crescent profit production of certain product ever experienced higher than normal scrap to the person three and nine months.
2019.
Compared to same period 20 twond.
Combined internal and externally funded R&D expenses in the third quarter of 2020 were 2.7 billion compared with 2.4 million for the third quarter of 2019.
The higher R&D costs are third quarter 2020, as compared to the prior year was a result of an increase in customer funded R&D expense of approximately 500000 in support of several development programs.
That's you know expenses were 3.1 million in the third quarter quite 20 compared to 5.1 million in the third quarter 2019.
Decrease was primarily due to lower compensation expenses, including stock based compensation bad debt expenses professional fees information technology and travel expenses.
Other income expense was income of approximately 168000 for the third quarter of 2020 compared with a loss of 78000 for the third quarter 2019.
During the three months ended September 26, 2020, we recorded 184000, a foreign currency gain.
Compared to 88000 foreign currency losses, they're pretty much as of September 28, 2013.
Turning to the bottom line, our net loss attributable to controlling interest for the quarter was approximately 1 billion or one cents per share compared with a loss of 6.6 million or eight cents per share in the third quarter of 2019, 87% approach.
Holden's crashed remarkable series were approximately 15.6 million at September 26, 2020, as compared to 21.8 million at December 28 2019.
Net cash provided by operating activities for the third quarter ended September 26 towards what it was approximately.
500000.
The results of improving operations and managing working capital.
During the third quarter, we had four patents granted.
Third quarter amounts of depreciation and stock compensation.
Perhaps in the tables to the Q3 vessels.
The amounts discussed above are based on current estimates and listeners listeners.
Review, our form 10-Q for the third quarter twice like any possible changes additional disclosures operator, we'll now take questions.
[noise]. Thank you if you would like to ask the question, but he's taken out by pressing star one on your telephone keypad if.
Do you think a sneak a phone please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, that's yeah I wanted to ask a question.
We will now take our first question from Glenn Mattson from.
Next time.
Please go ahead. Your line is now open.
Hi, Thanks for taking the question and congrats on a great quarter.
So first on the military side I'm curious are you talked about John you mentioned that the potential for three products in production.
333 systems or production next year addition go in addition to the two you have going now so can you give us a sense of what do you think.
I recognize that these programs will build over time, but when do you think the revenue opportunity on the military side is a next year kind of on a quarterly basis or annual basis. When these things happen.
Are you going to kick in a little bit.
Well I'm not sure we want to give guidance today on on 2021 revenues, but I can't tell you over the next several years. We expect these to go to the 80 to 100 million dollar range annual revenues.
Yeah, sorry, correct pitch on France became Ah.
Those programs are all day, if I say sizable programs there do I know Wendy I ramping up the gaming is a go slow and Iran. Just like the other two programs we have now.
They all sizable programs.
Oh, great guidance.
Being that its election day, and obviously no one knows the outcome, but what's your confidence that under a either administration or.
That that these programs would continue to advance the way they've been doing.
Well I can tell you right now is for the next three four months everything we're doing is for the 2022 budget.
2021 for <unk> block has a purposes as law.
So not much is going to change.
And so.
Literally by January most of the 2022 budgets not a lot.
I I think it gives the Remainco question go ahead.
You know them.
But I guess actually I.
Decided a long time before.
Before they get to cash it. Okay. Secondly is I cant programs, our military defense systems, I guess from a long time ago, and we have sole source it.
And those systems I decided years ago.
So it's a great brand new programs, which may be the line if I can get right now.
Those are people that can't be affected by the weapons systems have decided many years ago and were sole source you already gone through a very elaborate some national profit casting process. So those are those that prolaris I usually not.
Great that's helpful and so move it on to the enterprise side. The industrial side, you know for lot of reasons is endemic or should.
Should accelerate demand there right because.
You know people can't travel as much so that was one of the key drivers for on the industrial side, it's kind of like that see what I see remote remote maintenance type thing.
And then on the consumer side, you know, obviously consumers to no longer go to live events any longer. So you know maybe there's a lot of brainstorming going on around around how to bring a better experience into the home and things like that and then obviously that would be our.
The air VR application would would do well for that so.
Maybe John can you just talk about the.
Yes, you've seen it seems like a big big period of innovation going on now that maybe well spur that segment or the next 12 to 18 months yeah.
It is a rare.
Sure gifts adama that going Wow artificially low learning as a low.
Hi, working from home.
She has a lot of traffic and in fact, I think a inquiries.
To us has never been higher I guess come from all sectors enterprise sectors as well as a consumer effective.
I must caution when dosing, it's got to be valuing the parlance give us kick I'd say, even somewhat products look a year from today the gold products.
So those are a little bit for the out, but we have never seen as higher traffic.
Fall. So these are the other eight encouragingly all good things happen to be fed.
In the defense well right. They will talk about at the fed the area with more than 10 programs going on and a lot of funded programs colleagues all effective enterprise that theres consulates. After the fact that there's.
Well she has all the traffic and were here because we provide displays.
The optics.
Hi, Steve Electronics.
Right Assembly will provide a whole solutions.
And people want it right away because of the poor you you have no time to shop around they went to the top guy, which well what's your thoughts.
And on the industrial side in particular, the you know.
2019 seem to be like a big year, where a lot of people adopted some application some products and tried to maybe work them into their work flow and things, but 2020, maybe there's been a little quieter. So that period of digestion kind of played itself out and do you expect that to pick back up a little bit and then in the medium term.
Yeah I see what's happened is that you still have to go buy every day is a yet to provide valuable benefits to users. So there's a lot of software being field.
[laughter] customized hot testing field, and I think I mean, rich carty measure that last time.
Many many of our customers.
I feel like I'm, making testimonial, how well get coming out so that we can rely so much bigger than we expected. So I think those coal using it happening actually our news release also mentioned, where we're seeing actually is significantly increasing orders.
Customizing the enterprise swell so certain.
This is ours that into the whole idea do you think that the dining people like you were going yet and people find the benefits I really couldn't pick.
Oh, great. Thanks for that color the last thing for me.
On the gross margin that's two quarters in a row, where it's been better than expected. So that you know.
But perhaps as a function of the products you need a little more mature in <unk> and abroad seem to get a little more bad so is that something we should expect saudis bye.
By 40 years, or so and they total gross margin line.
Well you know that you know.
35% to 40% that's our goal and so we used obviously as we go through the experience curve, we're getting smarter and then now that you've got one solid unit being built without being able to multiple vendors and qualify more vendors, which allows for more pricing power. So all those things are happening which are driving gross margin.
The improvements we expect that to continue on these programs.
All through next year.
Yes, good [laughter] glad you did say that it's actually important thing I tried.
We tried to say in the in attacks today by size CLIA.
I would like to say one more thing is.
As we go into production and your lots or the projections, we filed that it especially in a case like gun sites.
That doesn't necessarily have to be bleeding that's great.
And though because you got to get a display and power.
Dan optics, so all of those I know, how so would learn now once we know how to do it we can say high yield and you see how they're wrapping pools like New York and a leader in cost of goods.
They've got about first module.
So the ortho is a lot that was done what's the convey you'll social enterprise and consumer want total.
Great. Okay. Thanks, I'll pass it along thank you very much.
Thank you well now take our next question from Kevin Day from H.C. Wainwright. Please go ahead. Your line is now office, Thanks, Hi, John Rich Thanks for taking my questions.
Hi, Kevin the body.
So [laughter].
I know that Glenn touched on a lot of these things would that I guess, maybe I'd look for a little more color.
The research and development.
And obviously, both well richest specifically talked about in his prepared remarks, but it was up pretty strongly sequentially.
And you talked about the B Tran.
Programs that you're working on next year are there any specifically that are key drivers of that.
And how much of that can you say was.
On the commercial side versus defense.
So I I assume you're talking about the.
Funded R&D revenue not expensed right. So.
Any given quarter, Oh, who drives no.
It changes by program. So some programs to do a lot of development, then we'll turn it off to the customer and what kind of dormant for a while is they want to do it fast and of course, then we allocate resources to another program. So there's no. One particular program that's a significantly bigger driver per se that all the rest right now.
It just changes month to month really based upon where they are in the program where various resources are coming through.
So no there's no one particular, one big Guy driver, Yeah, I think I I.
I think Kevin I'd like to make a comment is that this fund to fund the R&D activities, leading increase now one year two years old and get the sand in fact, it's continuing increasing right now and a lot of dumb unlocking increased contrast activities from a very soft for the fastest.
Fads and not that good.
So do you.
No Val Maki pace I display technologies.
Well just funny omni.
So those activities, which he.
[noise] nearly as well they were slow for public auction so.
So these I read into it leaves our reinvention attacks.
Okay fair enough.
I think they do say, we have lots of fun activities and those are usually try without having to do.
<unk>, which is already designing Egypt production beta production getting deals in a heartbeat.
Yeah.
[noise] okay.
Yes, you know the enterprise industrial revenue was still about a third of the defense revenue John.
Like your your commentary speaks to grow sincere.
And I think it was up I don't know a couple hundred thousand dollars sequentially kit.
Okay can we just hear a little bit more about the the specific products and their use.
That drove that increase.
Yeah as you well.
No Kevin I would be waiting for these.
Wearable hands free.
I chalk formation for years.
And <unk> no decision to actually.
Like like we thought they would never see the wafers that way that the first wave you sachi into defense well [noise].
When your stock is probably one notch schools. We're also some samples.
Oh.
So when we begin to understand when the Tommy Chuck could you be changed.
<unk>.
In the interim ice well, we've seen some yeah, we see especially as one of the two companies actually Dave well I can't give banner and then if it is good to be fully recognized.
Alexia could I think you're going to be just tight defense was the hockey stick.
Hi, good how sort of well I'm still I.
You're looking at it I.
I can take that came from.
In cost a little well.
So we think that people are still looking for the whole way the Ben Hogan provided to us so.
Okay. So I.
I guess, so not a hockey stick, yes, but.
A mix.
Clearly well go with that.
Not right now maybe couple of years.
Okay. Okay.
But I guess, it's a mix of Wearables really I guess, what's your.
What's your 22.
In terms of what you're seeing driving revenues now.
Well I.
I think that it's a very interesting is not like guy that different people that are delevering quilting to Fas will be a very interesting. Indeed, it is their surprising to us.
Okay, John you referenced color backs and ER in your press release and I was wondering if that references the dual stacked or the fact that you're just.
Just a little bit.
I guess keep colors from mixing and good.
Decreasing that fidelity, what specifically does that refer to when in your old design.
Yes, she at into all that situation.
Eat, especially yeah applications people, who would like to have a the all agencies much brighter than what they have today.
So got to wait to solve it a wake up call itself the weapons I would describe it.
Well I mean, if he didn't divest happening quicker.
Which if that's your fault small display based small pits. So it's a day about how I difficult to manufacture.
So while we did they say okay is by the way we can double stack. So you said why channel show projections on that now.
Now we will not the choice White tribe, Peter try to appeal fails, because having a small micro display the pyxis es. So small dip it came to talk to you Chad Cross car and the colors fade away.
So what we did is we kill you know high waves site that's right.
Structure to India to control the spreading costs.
They certainly stadia occurring between just so we get a lot of color cold stacking very good but not allow people say that those stats just love it definitely staff they can get much brighter.
In fact, it's not just the effect that's true I, you say oh, okay that makes sense no accelerated over five times brighter than single site.
When he came a little better than that so it doesn't lead out inside of a shocking thing and I'd say that we're supposed to eat that really shocked the world is Josh and they actually had a letter that explain why it is so I think it was absolutely.
Display how he works how can you get that with sadness that getting a double we've got lot of five times better.
So he is a is a very significant coke life and is truly bad debts I will explain to people is not true.
Okay, Great and people say I understand it now that.
Yeah, we can go even higher we go go to 30000 beds.
So the whole world Michael holidays different [noise].
[noise]. So your John does your 30000 mid brightness targets for year end next year, where do you think it might take longer.
Well, that's a good balance.
As we we just say it took us feel yet [laughter] no. We absolutely it's got somebody that alipay achieving that three months ago, Nobody was even say that they say to people to think you're you're crazy.
So when I say someday if possible that when they do it took us a year.
Okay.
The I know you spoke a little bit of both gentlemen to the 22.9.
Sam we weapon sight individual follow on order.
How how how much of that do you think you recognize the balance of this year and next.
[noise] Oh I don't think we're going to go into details on a particular program.
Our production rates are increasing but.
I know this year, we should probably reach steady state should be ratable for the remainder of the period, So will increase a little bit in Q4, and the buyer. This year, we'll probably get to steady state run rate.
It'll be ratable over the previous three quarters over the next week or so.
[noise], that's the Contrave, Okay, I'll talk to transmit the contracts I was traveling.
Okay.
[noise] or do you think there's more beyond that or do you think the.
The army switches or something else.
Oh no.
T. W. S program, but this is replacing what 10 years.
And so we think this has a long life to it.
[noise], if I understand correctly.
Yeah, I'm sorry, John go ahead.
Oh go ahead finish your question, Phil I make a comment yeah go ahead quickly. Okay. Okay. Yeah. So 10 10 year life program. If you were to comp that against what it's replacing and if I remember correctly went into production about this time last year is that true.
Yeah.
Yeah, I think the weight.
So we are well although of course, we can learn from what happened last time last time teed up really at the program.
Our total shipment to the customer is around 200000 units.
Okay. So good order of course, we would love to see how many units or is.
Is it still a basketball kind of that 200000 units that were shipped to Pirquitas I guess.
Oh, okay.
[noise] okay.
Am I right in assuming that a s. so be you.
As I started about a year ago I mean, it at production.
Yeah right now.
Okay.
I know Glen asked about gross margin already rich, but I I'm just.
I guess, what I'm wondering is where you think you can go with product revenues.
Nudge, a little bit higher which is sort of where my estimates have xone and given your commentary.
Or you do start getting pushed back from your customers I'm wondering if if they pretty much are stuck with their you know you see the yield improvement.
And you will be able to recognize that as production levels increase but.
Do you start getting some pushback from some of your customers at all.
Well you know as John said, what's sole source of news programs. These are competitively bid programs and so you know we did it and just needed. The dumb luck in most cases near the governor or the customer has a right to ask us about our cost or anything like that so assuming that it's competitively bid and the governor.
Greetings to the price you know what we can make on it we can make on it.
Yeah. It goes pohlad, a cabin literally at the federal land and maybe in some cases the enterprise so it's fun way.
The customer knows it you're not making any money. When you first started because the yields low you got that billion coaches opaque. So it's the investment.
So as the investment goals laid out like turning into <unk>.
So harvesting it actually Wanna get be able to some harvesting. So it can support the next total land. So deal everybody understood is that even though it's beginning to lose money.
Laid ongoing trials as they call that some of them.
So we're glad to do so.
The other thing quite period gifts program right now.
Okay.
I guess, it's a good way to look at it. Thank you for that color John I really appreciate it.
Rich last question for me you mentioned currency gains up I'm, just kind of wondering.
I know its inconsequential, but.
I, just sort of wondering how that happened.
Oh for us and there are other things that a lot of that.
Yeah, it's it's it's a euro.
US dollar against the British pound they are toward de subsidiary.
Oh, okay.
Oh, all right I listen you didn't speak too much about this and I guess it would be interesting just to get my arms around how you're handling.
Ah your employees have I mean, I know I know that you're really careful and manufacturing location in Massachusetts, I'm, just sort of wondering how your.
You know handling safety for some of your other manufacturing sites.
Yeah.
Yeah, I mean, it all our sites you know.
You know we implemented see she required procedures every box, we've met our own common sense and knock on wood.
Weve had no issues at all in F.D. in Scotland.
You know.
The government a little bit more heavy handed so they as we mentioned Q2 they were shut down for some time I believe it was in April.
And then they were allowed to come back on line.
But otherwise.
Really has not been an issue.
They are just common sense approach as we indicated.
Can be called puts a day, which we've done a lot as far as we've made the environment as best as possible non touch a you know please just walk in and log in and now everything is done on apps using their smartphone that's how they check into now would change the flows the building we socially distance laws the tables in the castle.
Curious hardware at six feet apart no more than one person at a table on or are all the things other folks is done.
You know certain elevators or other relative to the Ah Ah stairwells are up other stairwells are down so on and so forth and then of course to get to our clean room and we have the benefit of the fact that we have a class 100, a clean room that we weren't class 10, silvers fully downs gloves math.
And the air has its positive pressure laminates flow out of the total score through the ceiling and there's a fair so on so forth so I could.
<unk> is a big benefits excuse me most companies and our Scottish facility also has done in a clean room environment. So they'll all of that is related to the industry [noise] success.
Success, so far.
Knock on wood again.
Or are you or are you considering like teaching employees' temperatures kind of the way they do in restaurants here in San Francisco.
No we did look into it.
You know, obviously, we know we tell employees.
You don't feel well you know if there's any issue.
They'll come to work you know we had.
Some of US a couple of people that were nervous last week, we said look if that's what they were fine.
So no we haven't gone through the temperature taking step we've looked at it but oh and again, even in a clear when we separate workers similar what their doors the schools as far as I really told works and so somebody did get skills. They should be considered a confined to a certain number of people and so on.
Okay well.
Well. Thank you gentlemen, congratulations on the results and thanks again for taking my call.
Got it.
Thank you well now take our next question in the queue.
Comes from Jeff Bernstein from Cowen. Please go ahead. Your line is now open.
Hi, good morning, and congratulations first off on the other positive cash flow from operations.
And it seems like you're on a on a positive track here do we think that will be free cash flow positive for 2021.
But we.
We expect to be break exit 2021 breakeven cash flow positive.
I want to say for the whole year right now.
Okay, Great and I apologize I don't have the best connections I think I might have missed a couple of things I wanted to just make sure you said the FWS sites on older 22.9 million was was that on top of 43 million already awarded or did that totaled 30.
The movies or with what was already awarded.
There are three of the total includes 22.
Gotcha, Okay. So that's all.
All right and then.
I want to make sure you.
You were talking about the externally funded R&D and that it's not just military should you have some commercial customers who are actually paying some money can you do find it.
Yes.
Right.
And then I wanted you to touch on sports and launching them and what's going on with the leading machine vision.
Isn't I think.
And he's economy seems to be bottoming out the big end market. What are we looking forward you here in the next 12 months.
So with Fourk TV, they are closely aligned with the capital equipment market and.
And that has been down and so it's probably no. It's.
Looking at our portfolio of products, it's showing weakness.
We are particularly till the automobile industry rebounds.
The other issue is that ER.
Ah the customers are being very tight under forecast backlog, it's not as big as it normally is.
Because I think there there was concerns about a possible second despite being in cold. So sitting here today, our backlog is not as big as it was there was time last year and the forecast we're getting a more conservative.
So, it's really tied to capital quicker but market.
And it's following the same trends there the other place that or are there. Some coal the impact is on public safety.
Because ah municipal budgets, and and where those are but offsetting those increases in the wearables is offensive and some of the other programs.
Gotcha, Okay, and then so can you just remind us who are the current customers for a are you in the commercial space.
So yeah. So you know that we're working with the three big Chinese foundries.
And so I really can't talk about who their customers are.
Yeah, I think it's also clear for the enterprise well.
<unk>.
If there were no real where they're saying hey, we could announce one.
Well go go out of the house one so so again, it's the usual stuff that has been down obviously a lot of traffic right now so.
[noise] not crazy.
Sure. So you're saying you have some additional customers that are customers of the Chinese foundries.
Yeah, they're trying to get took a very interesting world.
Richard touched upon that a definite actually comment Rob ballgame here.
And get a lot of activities, but let's face it we cannot go Dan.
Therefore with the yeah.
Yeah, So a lot of things.
They were tied do would not say too much by that because I don't have to face to face.
People haven't hi, Dan Yeah.
Oh out and they seem to be Colorado, dantzler on quite a lot of activity.
I'll take on sell through and everything we have more cautious about it though.
Okay, and then polar Max is that no sound things now is that being produced on a on a scale basis or is it just a prototype or where are we on that the.
Well Jim.
Hello, Hello to Mac is manufactured a bogey of how we are manufacturing gum and p. by using that anticipate that coming off on them and we'll have to lazada simply paying out.
That's terrific. That's that's just great guys.
And then just could be up one more time on the gross margins. So the incremental gross margins have been praise either 90%. This quarter soap. So are you telling us that new military programs will come in with lower margins that kinda tamp that down or were there some reversals from.
Some some prior you know written off inventory or something that that's.
Helping out incremental gross margin right now.
Yeah. So I think it's a combination of everything it that you mentioned so.
The first couple of quarters or 2019 were artificially low because of that.
So I was just really getting going in and we had a lot of scrap associated with design changes and so on and so forth.
So now it's hitting its stride and we're continuing to make improvements both in how we manufactured saw yields are going up and up and being able to get the lower pricing for materials by having local vendors and so on so.
Knock on wood FWS lives at a nice blew right down and doing well.
F 35 is it a nice steady state and we continue to make improvements on the yield that's.
That's 35 is really just a display sales. So it's really just manufacturing efficiencies and then next year as John indicated you know some of these new profit come on and they will have lower.
Lower gross margins that are ultimate steady state, but the sheer volume of having these additional programs is going to suck up more fixed cost per unit over the over the whole broad base and so we think that'll oh.
Ultimately increase the margins on everything.
Help us continue to grow towards our goals of 35% to 40%.
That's great, Okay, and then which did you say oh.
Some of the new programs. It was a total of 80 million of potential revenues or something next year I I missed that.
I was talking to three four years out.
Oh, okay. Okay.
Right.
Thanks, so much guys.
[noise]. Thank you well now take our next question from Patrick Metcalf from bankers direct. Please go ahead. Your line is now open.
Good morning, guys, congratulations not only on a great quarter cash flow positive, but the military contract you guys announced last quarter.
That went on recognize on a pretty secure.
Every thankful for that and.
I'm just very excited.
Secondly, I want to add up to about double stack John last quarter, you told the I believe Jefferies last quarter on the conference call that no one will be doing couple of stack in the year.
That being said I've always viewed you as a competitor to other OLED players, but to me today after the white paper and the Webinars and teaching.
Almost agnostic to me, where you can supply the wafers to as many fabs as you want your architecture similar in nature to Sony to be all week to LG. Samsung can you give me some color on how you see yourself being agnostic or someone as a competitor.
To these type of players in the marketplace I have a follow up question after that.
I I tied to understand.
Right <unk> I think it's a bad I mean, all these key.
Yeah, I live my time trying to understand that that that demeaning love your color on.
Good question.
Oh wait but we.
We we have two business models, one is providing.
Ah that that probably the wafer silicon wafer, which always have flocked designing fine.
Hi, Jos and then we'll now putting a kind of next structure onto away from.
And the way we do our wafer is such that we can provide to any foundry.
Hi, guys on acquisition, they can't get pocket on that.
And Ah with very little odd.
It's a coty, there should be able to benefit from the pilot back Ah.
Structure and get very quickly house on USAC.
I do need to have we obviously working with hi Andres.
And Ah you be phased Tony and I think people today, you without comex wafer they were benefit if they do do stack Linda nobody in the World right now really leidy come I would do stack yet.
Aseptic now how fondly.
Beginning to sample our sampling now.
But these I eat.
So he actually yeah. It is getting into early put 30, a sampling right now yeah would you at least comment Matt.
So I think people really want to find out isn't really as shocking resolved.
Okay, because the reason why I asked that is because coal that has come on expectedly, we've had a lot to be our tier one players in our hopper in our pipeline and I'm thinking you have now found double stack, where numerous parties have not reached double stack at the film and the family.
Maybe.
These these fabs will come to us quicker because the tier ones do cobot want to push these products out the door faster and coping now has a display double stacked five times brighter more power efficient I believe you should be able to win business that people don't even think that you could be it is that possible.
Yeah. The cost of always also why we wished for let's say, it's very interesting that we are case, you might not need such a high brightness.
That because he can do it certainly tend to pull it out and people at much lower power consumption and much longer lifetime, so either way that way.
Do you think that God displaying the fishing is always good. So yes people are beginning to recognize it and then you add in the wearable.
I, you don't want to carry too much battery or their bodies, so ago audience to our benefit how what's your feet, but remember things take time to go to full production people go and try it and by the time you see a pot of holiday you had laid out so we're not going to see a immediate notch revenue growth foundation activity for lease.
Sometimes out right not current growth, it's going to be far I'll add some not defense project, which had to go around we are working with them for years and I'll get go to production. So those are the revenue growth and then down to read from that that would come he had two years ago now.
Okay, Great and then lastly, John I'll just go to rich I guess you have you guys have for equity Stakes and Lenovo New vision real were.
So loss and H., Andy Andy the way I see it.
And they all contain licensing agreements.
I'd like to know are there any new developments or updates on these investments because the analysts initiated coverage on this but they never talk about our off balance sheet assets at these things and I think represent a lot more value in some of our competitors. So I'd like to know if you guys can just add a little bit more color on these equity Stakes.
How do you see on anything you can add that could bring some value out in our stock because the equity I think doesn't represent.
He's off balance sheet assets, if you will.
Oh, Yeah, just one correction H.M.D.M.D., we do not have an equity stake in it.
But we are working with them.
You know Lenovo continues to make progress you know, we get their financial statements and we mark to market the investments needed.
You know solos is a new companies launching new products, obviously, they're dealing with cold it over in in China.
And Ah I think if you you know you agree or talk to real where about how they're doing up but I think you know.
They put out a press indicate that they're having a they're being pretty bullish right now.
Okay. All right. Thank you guys good luck great quarter.
Good talking to you down the road.
Thank you Pat.
There are no more questions in the queue at this time I'd like to pass back to the room.
Thank you very much if I try to ask this morning, and we look forward to talk to you again next quarter.
Okay, Thanks and Gil.
[noise], ladies and gentlemen, this concludes today's call. Thank you for your patches. The patience you may now disconnect.
[noise].
HM.