Q4 2020 Kopin Corp Earnings Call
[music].
Please standby we're about to begin.
Good day to day open to the Kobe Corporation fourth quarter and full year 2020 earnings conference call.
At this time I'd like to share the conference over to Chief Financial Officer Rich Sneider. Please go ahead Sir.
Thank you operator.
Welcome everyone and thank you for joining us this morning.
John will begin today's call with a discussion of the market environment that we see.
Our progress on executing our strategy.
Sales activity and technology development.
I worked for the fourth quarter results at a high level, John will conclude our prepared remarks, and they'll be happy to take your questions.
I'd like to remind everyone that during today's call Craig can play back Tuesday March 2nd 2021.
We will make forward looking statements as defined in the private Securities Litigation Reform Act.
Fine.
These statements are based on the company's current expectations and projections.
Okay.
And I've spoken to a number of risks and uncertainties.
Because actual results.
Those forward looking statements.
Potential risks include but are not limited to demand from our products operating results of our subsidiaries.
Market conditions and other factors discussed in our most recent annual report on form 10-K, and other documents filed with Securities and Exchange Commission.
The company undertakes no obligation to update the forward looking statements made during today's call.
Now I'll turn the call over to John.
Goodbye.
Thank you, Mike John to discuss our fourth quarter and tried and tried to resolve.
I want to start by expressing our hope that's true.
And your families continue to stay well and safe during this pandemic time.
[laughter], where do you like do we have finished 2020 with very strong results.
Our book.
And Pablo.
Yes.
With full year revenue growth.
36% year over year.
Any increase in frequency.
Operations.
Okay.
Our fourth quarter 'twenty trying to revenue.
No.
What is particularly strong.
Going into 16%.
From a year ago.
I can tell why Amelia.
We're also making great progress.
Streamlining our cost structure.
Along with creating a profit you could.
Gotcha.
Okay.
Resulting in net income.
One 3 million.
For the fourth quarter of trying to price.
We have a policy that cheap.
Yeah.
Why does the company worked hard to achieve these wonderful results.
Our focus is on the longer term.
As demonstrated by topic increase.
Andy spending.
We believe what Chris fishing.
Company well for the coming every day.
Yeah.
It could be it why does he could get kept cooley.
And radical transformation.
From a handheld devices.
The hands free devices.
No.
That's back towards a more detailed discussion of a lot different.
Our business was strong across multiple segments.
I know again.
Hi, professed product revenues could.
Could you increase hunger and 12%.
The fourth quarter, our tried and tried it.
Compared with the fourth quarter I'm trying to what I tried to tried to 19.
This significant increase was driven by auto professional approach.
The display.
Yes.
Or ask every act several weapon sights.
And display for F 35 program.
Yeah.
It's now at September <unk>.
We were awarded a 22 point value.
Four of our contract for the F L X per.
Program.
We are shipping schedules. So that's a quite a few here.
We expect these two per cash flow program.
We're continuing to generate strong revenue.
In the coming years.
We're also on track this year.
Searching scream all products.
Out of a dozen programs currently in development.
Initial low rate production.
With revenues expected to begin ramping.
In the second half book is yet.
We believe these COVID-19 what provide accelerated growth momentum.
For 'twenty 'twenty, two and beyond.
Hi, John I'll give our programs.
Includes.
Yeah.
Despite products.
I will be your co targeting system.
Rotary wing aircraft.
Our commanding a similar commodity LIFO batesville.
Packaging system.
Other applications.
This progress I relate to AARP house.
And how old is it a fast backwards.
They are also increasingly.
Utilizing a sophisticated optical system.
Electronics.
And that free Saturday.
We believe by the sole source supplier.
Most of these programs.
In the fourth quarter, we saw solid growth.
Like industrial Wearables.
Sales to a real way.
Located in Washington State.
Along with sales to three D metrology applications.
The ability to collaborate.
Remote experts it's Bob.
And we're seeing increasing activity in December.
For example.
In Q4.
We now expect average thing.
As a European company testing.
Let's do that.
Macro display optical modules.
Are you smart glass products.
So a three day metrology applications.
Our unique value metric they'll call us back with these days.
Very suited for.
For industrial 30 day automatic optical inspection, which we call it which we call a lot of equipment.
Joe to the increasing quality requirements of the complex electronic circuit box.
Using the coming generation.
Our electric vehicles.
<unk> four.
Two day, a lot you'd expect from machine.
And not being replaced by three day, especially machines.
Yeah.
This stock is still 30 stages of growth.
Our main competitor.
In this application just kept us instrument.
D M D digital by per Mil Goodbye.
With two market leaders.
Currently have similar market share.
Yes.
We expect both industrial wearable revenue.
Three D metrology.
We're continuing to book growth.
2021 and beyond.
Oh.
However.
Revenue from sales of products for public safety applications.
Down in the fourth quarter of 2020.
Which we believe was attributable to the negative impact of COVID-19.
They support.
Yeah.
We expect the center will recover.
Half of Tcf.
We also recently announced that.
H M D M D.
<unk> San Diego, California.
And coping.
Entered an agreement to develop a Bachelor Hi, Chris.
Precision surgery cash yet.
For a major medical technology company.
These value initial entry into the expanding use of the AI headsets.
For medical applications.
In the fourth Corp.
We see a progression of all the first production order.
It began shipments.
Several 'twenty Pete Petit.
I don't pending do step cut them back.
I'll, let Michael give space.
With high brightness.
Color fidelity combined with low power consumption.
Hi, Brian.
The galaxy.
Critical for high performance AI.
VR and mixed reality.
We also announced that in writing.
Two point 6K.
And $2 6K, micro OLED display on true.
What's incorporated in Panasonic VR glasses.
Which was shown at CES 2021.
The peso Dr class IV.
Sure.
Hi, I am day range capable.
Ultra high definition beyond Covid.
I gotcha.
Offering.
Lifelike.
True.
The glasses.
Small form factor.
So that's one part.
Great.
Our proprietary.
Lynn Pancake optics.
John Dibella by free Havent coping.
Looking at the much smaller and lighter.
A large bulky headsets.
Traditionally it currently field force yeah.
The classes also feature.
John to integrate ultra high fidelity audio.
Which combined with our Super high resolution Michael on that.
Right.
Create a truly amazing amazing standard.
Yes.
But using a veering book.
Content Okay.
We are excited about our progress.
It really is obviously in defense.
Industrial.
Medical.
<unk> yeah.
Our growth in two that I'm trying to watch and be off.
Yes.
Hoping that has always been a big innovation innovation company.
Cool.
We continue to be a leader in the next generation display technologies.
Example of this is our recent announcement of a multi year agreement with Gateway This spring.
Could develop super bright Leds.
<unk> micro displays.
Gay per display based.
Based in Shanghai, China.
He is a leader in micro OLED display.
Upon the collaboration.
J P. If they would provide.
Wafers.
Hybrid bonding system.
All coping designed.
Slide <unk>.
From a bad thing I see the wafers.
From a rig to paid by Tuesday.
One inch diagonal microbial strength.
This will be the most of the bass.
I called quality space from the West.
Yeah.
Michael L B day displays.
I can promise of Super high brightness microchip space.
Specially useful for any day.
Applications.
We have advanced color Matt.
Well it can have my colleagues Michael are you keep these days now being developed.
Would be the key enablers already.
The coming wave of the off.
Price.
In defense.
Enterprise and consumer applications.
<unk> offers the widest range of leading micro display technology as well.
Yeah.
Got it.
The assistant that people adopt it could be different.
Followed by industrial.
Enterprise.
Medical.
And Dan possible applications.
Almost all of that people have in Poland.
Yeah, Yeah, okay.
We're making quick progress executing our strategy to improve the performance.
All aspects of the company.
Rich will cover the financial details of the quarter and the full year 2000 right.
However.
I want to end by sharing how P value.
Matched our strong revenue growth.
With significant bottom line improvement.
I still significantly increasing our R&D activities.
In fact.
In the fourth quarter, which route profitability and generate cash.
Black growing revenue.
Hi.
Okay.
<unk> 50 per se.
I want to call me.
We will remain profitable.
So a lot of companies.
We will remain profitable throughout 2021.
We are ramping our separate and look defense production programs.
So we're kind of true aggressively.
You've got to investing micro OLED micro displays.
With strength.
As well as advanced optics.
Sure I think iconix.
It's very encouraging to see the progress with cheap plausible.
Yeah, it's analogy.
In our operations and our financial strength.
We look for this trend to continue.
Now ill turn the call to rich to review.
Good day.
Thanks, John.
Beginning with the results for the fourth quarter of 2014 total revenues were 54 9 million.
With $8 7 million from the fourth quarter of 2019, a 60% increase year over year.
Product sales from defense customers increased from the fourth quarter of 2020 compared to 2019.
The increase in shipments of products, it's a family of weapon sight individual FWS I program.
<unk> revenues increased to 2020.
Over 2019 by 177%.
Cost of sales for the fourth quarter was 65 per cent of product revenues compared with 81% from the fourth quarter of last year.
Cost of product revenue decrease as a percentage of revenue.
Compared to 2019 due to higher volume and improved mix.
Yes.
R&D expense for fourth quarter of 2020 was $4 4 million compared with $2 7 million in the fourth quarter of 2000 1960.
<unk> 65 per cent increase.
Funded R&D expense from the fourth quarter of 2020 increased 87% as compared to the fourth quarter of 2019, primarily due to increase in a number of defense related contracts we've been awarded.
SG&A expenses were $2 4 million in the fourth quarter of 2020, compared with $4 5 million in the fourth quarter of 2019, a reduction of 47%.
SG&A for the fourth quarter of 2020 decreased as compared to 2019, primarily true.
Decrease of $1 2 million of professional fees and a half million dollars in bad debt expense.
Other income was approximately 200000 in the fourth quarter of 2020 as compared to an expense of.
$3 7 million from the fourth quarter from 2019.
2020, we recorded approximately 300000 of foreign currency gains compared to 200000 of foreign currency gains in 2019.
In the fourth quarter of last fiscal year 2019, we recorded a non cash $600000 gain on equity investments.
It was offset by an impairment charge of $5 two range on an equity investment.
Turning to the bottom line, our net income material to controlling interest for the quarter was approximately $1 3 million or $2 30 per share compared with a loss of <unk>.
743 billion or nine cents per share for the fourth quarter 2019.
Here the results for the full year.
Total revenue recording 20 were $40 1 million compared with $29 5 million for 2019, a 36% increase.
Product sales to defense customers increase in 2020 compared to 2019 due to an increase in shipments of products or the <unk> program and the joint strike Fighter program.
<unk> five joint strike fighter revenues increase in 2020 over 2019 by 167 per cent and 139% respectively.
Cost of goods sold for 2020 with 75 per cent of product revenue compared with 103 per cent of product revenues from 2019.
Cost of product revenue decreased as a percentage of revenues in 2020 as compared to 2019, primarily due an improved yields from our manufacturing process.
In 2019 was our initial production.
U S high program that were experienced initial yield low yield from the program.
R&D expense in 2020 was $11 7 million or <unk>.
13% decrease as compared with $13 3 million in 2019.
Funded R&D expense for 2020 increased as compared to 29 2019.
Primarily due to an increase the number of central read a contract award.
Internal R&D expense for 2020 decreased as compared to prior year, primarily due to the licensing of certain products that low development programs being curtailed.
SG&A expenses were $11 eight range for 2020 or 45 per cent decrease compared with $21 3 million from 2019.
SG&A for 'twenty 'twenty decreased as compared to 2019, primarily due a decrease of $1 2 million.
And non cash stock based compensation $2 9 million in professional fees $1 3 million of bad debt expense.
$1 6 million of product promotion and marketing expense and 700000 and travel related expenses.
Other income and expense was income of 351000 for 2020 as compared with expense of $2 9.002 million 19.
2020, we recorded 300000 of foreign currency gains compared with 200000 of foreign currency gains.
In 2019.
In 2019, we recorded a non cash $1 4 million gain on equity investments.
And an impairment charge of $5 2 million on an equity investing.
Turning to our bottom line, our net loss attributable to controlling interest for 2020 was approximately $4 4 million or <unk> <unk> per share compared with a net loss of $29 5 million or <unk> 37 per share for 2019.
10% customers for 2020 were Drs network imaging systems, LLC, a 35% powered.
Collins aerospace at 25%.
Fourth quarter and year end amounts of depreciation and stock compensation are attached in the table.
As of year end press release.
In the fourth quarter of 2020, we issued one 9 million shares of our common stock under our at the market or ATM equity program.
For $4 million in gross proceeds for $2.05 per share before deducting brokerage expenses of approximately $100000.
The net proceeds from sales of common shares are used for general corporate purposes, including working capital.
In January of 2021, we sold two 4 million shares of common stock for gross proceeds of $16 million or $6 66 per share for discussing broker expenses paid by us of half a million dollars.
This completes our ATM program.
The amounts discussed above are based on our current estimates and listeners should review our form 10-K for the year ended December 26, 2020 for any possible changes and of course, the additional disclosures.
With that operator, we'll take questions.
Thank you if you'd like to ask a question you did press star one on your telephone keypad again, if you'd like to ask a question Thats Star one.
And are just from your first question from Glenn Mattson from Atlanta.
Hi, good morning, and thanks for taking the question and congrats on the results.
Thank you so.
Curious for some of the defense business.
For the FWS I, you mentioned that $23 million award that is going to ship through Q3, but it was.
Was there a bit of a budget flush related to that deal can you give us a sense of how much is left.
As we go into 'twenty 'twenty, one from that contract.
No I I don't think we will disclose the actual balance do but we have shipments scheduled through October on it under the current deal.
Okay, Great and then as far as the you highlighted three programs. When do you think are likely to to begin.
Ramping in the second half and beyond.
Can you give us some scope ive said it before but maybe just refresh us on how big collectively they are and it seems like maybe the day scope would be the biggest can you give us is the reminder of just what the size and.
With the general size of that program could be.
Well as it affects our 2021 results they'll come in in the second half of the year and it's gonna be low rate initial production. So I understand you asked about the total program, but just to give you the 2021 results.
So we're not expecting significant revenue from those programs with.
Except for one one possibly could be meaningful this year, but they'll all be low rate initial production to start off and then as John said in the press release and prepared remarks. They are really designed to propel our 2022 growth.
Now turning to the specific programs.
John.
You know if you use F WSI is kind of a benchmark.
The day scope could be significantly bigger.
And then the other programs are probably slightly less.
John I would like to make a comment on day. If there are programs that are really debating several areas.
For the avionics I F 35.
Rotary aircraft those pilots are held and it's very simple.
They're expensive.
Volume is quite low.
For the day skull efficacy as a handful of soldiers so that sotheby's in many ways is similar to the quantities for the enterprise applications.
Yeah talking about Tanzania tens of thousands a year. So it does have this significant quantities the past comments that was a bit lower certainly lower.
What I would say a large so we actually are preparing yourself to mcveigh of high quality samples for avionics.
So a high volume of samples for soldiers and that has allowed us to learn both sides of that equation.
Great. Thanks for that John and then.
Shifting over to the.
So the industrial consumer side so.
You highlighted.
Industrial Wearables and three D metrology.
And obviously those are.
And the thought process would be those would come before consumer right.
But it does seem like perhaps we're at a moment.
You know, where there's a consumer I guess when.
When I look at the arguments device I know you're not in that but it does feel like that.
We are hedged that has made significant inroads with the consumer.
It has impressed me the most of it is just how many.
How many games how many programs have been written from the device and just general the quality seem to have taken a step up for bid. So I guess my question is John.
John do you see this as maybe like a significant shift in the market and a significant moment where maybe.
Kind of like an iPhone moment, where over the next few years will be a lot of devices coming out.
And then the VR market could really.
Take off from here.
Yeah, Greg very good question.
I think it is a time to allow Australia was why you need the market right now.
The first one is the U S defense, it's all related.
David.
They are out there do I get a pay a higher price, but you want a high performance.
We see an enterprise value, where a whole bunch of smart glasses Cuco block included.
And then we have seen medical we have seen between specialty medical Oh.
And people were like the purely because not only do we have good display trunk and optics, the wassa with no okay dynamics.
But now we're seeing beginning to see because we placed the mirror replacement and I will stay high and type of glass.
He is a good example.
Glass price to the fact that you guys actually amazed how good yeah.
And I guess selling quite a lot of I think the so about moving units.
Last quarter fourth quarter.
But do you have problems to be get too heavy too big.
Had good image shooting people want better image.
It's pretty fast, but she has latency.
Okay. So there are things out there and obviously, if you're putting improve but I think panasonic and several other companies now I tried to contact jumbo.
And Denmark.
Acquiring jumped the market would not be a one day a quarter it could be who knows the number will be that bank and that's what we're targeting.
The only thing is that far away.
My prediction is maybe a maybe next year. He was he said end of this year beginning next year.
Definitely panic like that.
The game changing income.
That's great color, John Thanks, I'll step back in the queue.
And we will take our next question from Kevin from Keith from Sidoti.
Good morning, James.
Thanks for taking my questions.
I think the big elephant in the room John is yeah.
I understood you correctly.
Regarding what you think that you think open will be positive for the balance of this year did I hear that correctly could you add some more color to that and maybe give us some.
Revenue boundaries on.
How do you expect that to happen given that most of the new stuff that you're speaking to the three new programs are coming on to bolster second half 'twenty one revenue.
Yeah, Let me a few comment that's either leave it to rich to talk about it I think we had three new programs coming in from the experience we have on the FWS I was going to.
But really that's a conversion that's 2019 day.
And go to a full flow full protection to the untrained gadolinium code to be paid.
So we are not putting in newsprint and with positive.
Positive feedback.
Yes.
In fact to the crushing plant.
Good day.
Adoption cycle, especially if a consumer has.
We brought in.
We are really talking about he's brought in at least two or three years because this pandemic.
So accordingly, we actually increased the I D.
It just hasn't told us for people.
And I think Oh, excuse me Keith to D C.
I'm not entirely sure, but we're feeling much better continue to go get that again nausea.
And I think rich you could comment on that range, yeah, just to clarify so John John indicated that he was not expecting profitability per the year.
That's not true.
Our forecast right now.
Just shine a little light on Q4, where the revenue came out very very strong.
So I understand that if you look at the P&L R&D revenue was very strong.
And as we've announced we have a number of collaborations going on to develop technologies from new products and what are the issues with that is just to the extent that these are customer funded development programs and most of them are.
It's two weeks at a sub contractor.
Invoices.
Oh, we essentially catastrophe invoice true.
As to the customer and it shows up as our revenue.
And so if it was year end, we had a number of vendors who are trading at a significant number of invoices.
So frankly, the revenue was a couple of million dollars higher than we probably would have expected, but that was really just pass through of revenue from.
Contractors now we do get a margin on that number so it should help the profitability equation.
So that was one of the factors that drove our profitability.
Rest margin improvement.
Was the result of our efficiency efforts and again to John's point, the learning curve on FW advise trial just to be cautious with the learning curve on these new programs because we are still in a she can't delek situation and.
It still has to continue to work with our supply chain.
What I have seen this HIV sales saw a year ago, but from time to time, we do get a notice that.
From supply is slowing down.
And so which actually to us makes our results even more impressive in the pandemic, we were able to produce the result of the war.
But so we're being cautious and as John indicated we are still investing significantly in micro OLED micro I always bidding because that's where the big money is going to be in the future.
Yeah, I think it is important to mention from Michael <unk>.
If you wanted to harvesting right now people are fulfilling.
These to be involved with controls is from Heidi.
Efficiency can you also have landed a contract from developing these sales are difficult.
Okay John.
And thanks Rich I appreciate the color I apologize for misunderstanding in prepared remarks.
Could you could you dive in a little bit on the yield improvement obviously, it's tied into your commentary regarding FWS side, but I'd like to understand a little bit more about that and I'd like to understand how you expect.
That improvement to translate to some of the other programs you are working on primarily on the enterprise side, because I think I've lost track of which which technology you're using there.
Yeah I think.
Very good question.
But he has to I.
Really different.
For the F 35 program.
Ancillary type programs.
Most of our products.
This deliver COVID-19.
Great.
The average separately.
It's true high peak.
We have display optics names alphabetically steel assemblies, so we have to.
Also a whole different higher profit already control.
Unions, it's also very different and so be it.
<unk> 5000.
The housing loans.
Now with tens of thousands of yeah definitely.
John.
So you can't different kind of cost of goods.
And that was a mutually program coming in are very are mostly like absolutely at the heart.
Have learned their lesson, but they ask us from college and none of that.
So is it different products I would think it would be easy.
We said, we're going to be some learning curve with a.
But we have mastered the profit side.
Yeah.
I guess I just wanted to put the fan satisfied there John.
Okay.
Is that WSI based on all cost technology, I guess, maybe that's the best way to try to get to where I was going.
Yeah.
Si Keith using our proprietary dependent that LCD process.
Okay.
Can you talk a little bit about more.
Sorry, John a little bit more about Jay bird understand micro OLED, but.
What makes you feel or what.
What makes you feel so strongly about that technology emerging.
As as.
You know maybe the foremost in the industry.
How do you see it supplanting no micro OLED.
It is also very insightful question.
Kevin.
It looks like the situation right now again this is and I put it from the zero now.
Feeling in that same day I V.
First thing to come the consumer would be fee.
The Oculus quest to indicate GAAP.
In the case of Lee.
That does display day need I can describe what people want.
The next generation of Fiat Isa Michael.
Michael all of that.
Right.
The price to be extremely fast.
Fast growth.
Yes.
And also please.
A big screen AMC.
I got that can weigh on the head.
Yeah, Michael on that because of it.
Perfect. So I would Michael activities. It was back in kind of a man it's good enough.
Okay.
Why does it go to E.
Thank you you want to call out.
So now I'd like to try to stay.
And the Oscars.
She is not a fish.
But people are looking at night.
Our highest price.
Okay.
Yeah.
Okay.
Besides the <unk> EBIT at the market.
It's true.
So it gives a lot of activities that they would know Facebook and Amazon.
Our space.
Okay.
Steve.
And the gateway to the meeting.
And I think that they are based in China, but he is very aggressive.
So.
But just from the technology.
Moving down.
It's Alan.
I see.
All of this is Valentine's day.
That's all cost from key just to caution from.
<unk> cash.
Excellent.
Wafer.
I think it was decent ski center all day out because they are real I think flow through.
Bps per year.
Oh sooner.
Sure.
Yeah.
And you need to keep playing.
Yeah.
Okay that helps John.
Yeah.
Yeah. So so John are you at all concerned about.
I mean.
Using your back plane Ics in that environment are you concerned about maintaining control over your.
Your intellectual property.
Well as you know Kevin once you've made that are designed to IC profit dicey during the day.
The design so people take the profit liaison that there's no way they can really easily.
Yeah.
That's why people like to do that.
That's why at a foundry system worthwhile.
Definitely the value Yeah, Qualcomm's H design, it and are they in decade day evening.
That can't be emptied the profit the wafer price as well.
Hi, good engineered I think he is our success.
Okay, and then can you talk a little bit about that.
It's a way for us to any countries, where it is Asia and China or it gets at the wafer is already made.
Right right.
That gives you a nice day, so we don't even see that Hussein.
Yeah.
Okay. Yeah, no. Thank you for reminding me.
I wasn't exactly sure.
You know you had intended to make the wafers there I get it so thank you for clarifying.
Give us.
Maybe an indication on how you see that development path growing.
How how long do you think gets before you'll have.
Maybe beta displays that you could ship to customers for test.
But how are you doing.
Yeah correct.
Everything is a very interesting okay. I mean, originally we thought we'd just get program. They take about five years. So how customers enough time to say no no no we want them earlier, but that's why we increase our activity in doing so we had to pass on the functions, which we were thinking about doing a herself to pilot we should not.
Critical when I gave that certain things would depart on time deposits.
So it gives me like speed it up at all with it and we're hopeful to get it done in the past two years or sales.
Wow Okay.
Well congratulations on that.
I think the.
Yeah.
The other thing is just sort of general demand and within the enterprise I mean, you talk to.
Safety being down on a town of municipal budgets.
Do you think that's sort of a post pandemic resurgence or would you think that doesn't come back until the second half next year or sorry second half of this year as well.
We think it feels like the major kind of we have which I can really cool people's like through yet.
It slowed down a good day.
Most of these domestic and then municipal budget, obviously has been hurt.
But they predict that it would come down a bit in the second half, but we see a day activities.
This area from either country John.
The company itself. So I think this gives us continued their growth, especially on 2022 and beyond.
So this is still is exiting 17 silver sales.
Focus on.
Okay I'll give you a break John last question from me can you can you talk about some of the end products the real wear.
Is designing and the success that they are having in the end market and how you see there.
Their projections.
That you'd really strict contact real wear.
Talk about their business.
Yeah, Yeah, we are actively in the website and you look at it is obviously very successful right now and Cleveland with like a sole supplier then were low down there than it does right now.
The change in Florida.
Okay Fair enough. Thank you very much gentlemen, I appreciate you entertaining my questions.
Yeah.
Thank you and you seem like a question Thats Star one again Thats Star one to ask a question we will take our next question from Dennis <unk> from Needham <unk> Company.
Oh good morning. Thank you for taking my question I wanted to ask a few on behalf of Rajiv Gill.
So regarding via the N V or initiatives in progress. How do you think you guys had mentioned that the first kind of group of adopters would be industrial enterprise with medical I mean, if you had to pick one out of the three which one do you think would be most likely to kind of be a first adopter and what kind of applications, but they use these products for.
Sorry can you repeat the question.
Just on the shop, that's exactly right.
Per so I think you'd mentioned in the press release that.
In terms of the kind of AR and VR first adopters of <unk>.
The first group you would be basically looking at kind of industrial enterprise or medical customers right.
Could you if you had to pick one out of those three which one do you think would be the most likely big first adopter of the AR and VR technologies, and what kind of applications they use them for.
Okay. So how has the third okay.
I would say that.
Applications like real wherever the most aspect is definitely the first one is coming out and they're with salt lay of highway book provide to put activity for the workers, especially those with low <unk>.
Workers that Werent jeopardy coming in for the Google Glass is also focused on that.
No we had this low supply to Google glass right.
The second one.
I I actually doubt become more and more thinking about maybe from medical I gave a neat yeah I couldn't believe how surgeons really desperately want it. So that you don't get surprised no dates from FDA.
The requirements there. So we don't know how long this certification process go.
But the advantage is definitely day, okay. So I day, if that makes any now put a call suicide.
I honestly, Steve seeing that kill that yet for the Castilla and <unk>.
Two maybe late hopefully Apple would do something fun.
On the VR is very clear.
We always had been losing definitely training.
You wouldn't know military training pilot training demand youthful.
And also soldiers training and also that gout is training.
Workers and achievements for education, a lot of people are using for education.
From my really soft ball game game.
Again sports content watching.
Next theater.
<unk> a fantasy world.
I think that is a real big cultural applications after the.
Enterprise and the training and military.
So how do you think you did that is it is a game changer, yet we are not holding your computer in hand, as you know our first product with private life. Two years 20 years ago is that how assist this flow at Samsung.
The cell phone is a handheld computer.
Time for him free on the head wearable is here and that we were trying to help the second transformation right now and then.
Applications, you'll love it.
Great.
Could you provide a little bit more color on exactly what kind of applications are the surgeons would you use kind of the air products for.
Is there anything you can talk about more specifically.
Well, obviously I cannot talk about because obviously it just started out working for them they have made yet.
Medical company, who we identified a week to week.
I said last time.
So we have to do.
Mischelle.
And you pay a 10 day tied all surgeons.
Before we actually identified the previous caller. So you have gone through at least five period cash.
Do you think is it.
That kind of talk about obviously sympathize releases.
And as soon as we can tell you, though what we can tell you, though is the day and a lot of the medical applications.
Doctors looking literally up at a monitor.
And so the idea is to be worthy of his head mounted.
Where youre looking at the patient.
And then using the head mounted system to be able to obviously focus on very specific tasks.
Yeah.
The number of studies.
Believe it or not it actually is good that the doctor is looking at the patient they find that there's benefits to that [laughter] well I think that all kind of argue at this time.
I had just started with focus from some fruition denied.
Before you can have weighted.
Hi, everybody.
Medical, especially in the medical area, we'll figure out the best way to satisfy one step into medical could you surgery.
Understood. Thank you for that was helpful and then.
I guess the last question that I have is are you able to provide any kind of color on your gross margin profiles by category, So kind of like which of your categories is above kind of corporate average, which is below or any kind of details like that.
Military when the programs reached steady state historically are 40% or better.
Industrials in the mid thirties.
And then consumer really can go anywhere it can go into low twenty's and thirty's. It really depends on the size of the other market segment.
It tends to be low or an absolute dollar versus percentage type growth situations. So you can take a lower percentage.
The dollars are much greater.
Apple.
[laughter].
You actually change the equation so.
It is very interesting.
It is still a new area like a whole area of going in from hanging out to a hand free.
So at the beginning gets too low technology.
Value investment in and you try several mask some of them may not exactly with that.
And given COVID-19.
Covid again.
But the last five years, you can see that the image because of Covid and.
What we are trying to do we're not trying to make a final goodbye even in the medical surgery.
And a half day.
We designed it for them and they go to market it and they are so.
So how low can be back and we were with him wait a day.
M D H M day one.
He's a true designed in here they were licensed to them.
This successful.
I'll give you is that these babies are the optics.
The value of chronic is that I think is always good.
Filtration for everybody. So I want to make people know that we are not just the display company.
We anticipate a hole.
We'd not have optics electronics the dynamic.
Also we know because of the military meetings, we already know how to attack that should be done.
Keeping the wrong, how can be used in rugged.
Everybody many people come to us not a white finding we just do the whole thing with licenses.
And we sell it.
Great, but you have to use that is great.
That'll be all thank you for that and Richard just a follow up really quickly. So so.
So for the R&D or in the licensing world Covid. He could have almost all pure profit close to a 100 per cent of margin on those.
I'm, sorry, you broke up a little bit could you repeat the question.
So just a follow up on the gross margins are so would R&D and other licensing royalty to then be almost all pure margin around low 90% plus.
Those are the royalties.
It is a pure profit.
There are margins on the Oh.
R&D contracts.
And.
The margin varies by contract we try to look for contracts.
Sit alone our AR technology roadmap and so sometimes it is.
As long as the contract just pays for itself that's good enough for us because it's providing valuable technology because in most cases, we retained the technology rights for what's developed so essentially we're getting it funded for free.
Yeah.
Yeah.
Perfect that's exactly what I was looking for thank you gentlemen.
Go ahead.
Yeah, I think we'd be able to put that business model would be king with more.
More people are asking us to help them to design the day.
For them. So we're usually.
Ladies are royalties and actually maybe constantly U S equities.
Together with our selling products to them once a day is.
Sticky.
But they cover them in the same way both on new per Windsor all have.
Hi pieces, so maybe even.
Goodbye.
Idaho has said and he has done so very sticky.
Therefore, we are almost also somehow.
John Thank you.
Those are all the questions that I had I will jump back into queue.
And again Thats star one to ask a question.
And we'll take our next question from Craig Rose from Axiom.
Hello, John Craig from Maxim.
How what can you tell us about so off the progress you've made there with product that you recently introduced and then how do you see the trajectory.
Of the advancements of that.
Product in the future.
Which party is my we added.
So the total smart glass so low.
Our glasses.
Is that actually.
<unk> My heart I have to say I'd be wearing solos.
Every day.
Okay hope.
And [noise]. These generations the first generation, so I used to listen to music, making.
Making phone calls.
Zoom calls.
Hi, David Grateful and some costs if they go for a phone call.
And I.
I know I know I hate to say I no longer use my Apple hip hop.
Every day.
I have actually have put I don't use it anymore.
So anyway.
That part of that is the first generation is the cat market.
They kept marketing E Asia.
For few months gross the pandemic has slowed down slow them down for a month, but it did come out last summer.
Asia.
And so 6000 units just cash.
Non of feedback.
And we can see the second one which I cant reveal yet.
The second one is a game changer nothing like the market is going to be imminent.
Probably two or three years ahead of everybody.
I'm excited by some of those I think sort of just like real where I cannot use but now I understanding of unit license, though of course solos.
Got it licensed through them we are moving.
Significant equity.
And we're cheering for them.
Italy.
Got it.
The second generation to come out I think ever reported.
Would we expect the next generation product to have screens or would it still go along the lines I mean I.
I know you've discussed the idea of baby steps, introducing such a new product.
So how do you think that moves forward.
Yeah.
I mean remember our first private work had a screen without display right.
Because with display with Google glass in every day.
And Ah and namely we learned from the Harvard business School. This is true too aggressive but the gating.
And we strip it out and once we do that with some things that we'd never occurred to us.
Thank you he.
Yeah.
Three times faster than.
You can read.
Pipe.
So boy if he said next screen.
So you won't get all the profit out there rather than go from one turbine now into AI and how we can do that the search every day, you'll get by 80%, while you need rate relief.
Boy anything visible.
So we'd say Wow sooner or later you were put screen on it right away from a couple of years and get to get to get the audio right.
So yeah, I think sooner or later, you may want to keeping our eye display display of ours too so.
I think the ROIC will go on for the next two years.
Okay and do you think of Gen two product would be.
Is it a 2021.
Or is it 2022 of them.
In the next couple of months, we'll catch them all day.
Okay and last question you have a lot of equity interest in companies like real where and you know the company has spun off.
Lenovo a bunch of others.
If those companies such as real were to go out and there's more of an accounting issue.
If they go out and have funding rounds or you was are you required to update the value of your shares or your equity interest in that company based on the newest.
The newest funding round.
Yeah.
Yeah.
Mark to market investments that I'm pretty excited to do an equity round at arm's length.
Real price then we would update our evaluation.
Okay, Yeah going back to you John trash.
Yeah, It's gonna Guy hidden treasure.
Okay.
Alright, thanks for answering my questions.
Thank you.
And it appears there are no further questions at this time.
Well, thank you very much for joining us today.
Looking forward for the next meeting with you. Thank you.
Okay.
Yes.
Thank you and that does conclude today's call you may now disconnect.
Yeah.
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Okay.
Yeah.
Yes.
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Okay.
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