Q4 2021 Kopin Corp Earnings Call
[music].
Please standby we are about to begin.
Yeah.
Good day and welcome to the club in fourth quarter and full year 2021 earnings Conference call Today's conference is being recorded.
This time I'd like to hand, the call over to Mr. Richard Sneider. Please go ahead.
Thank you operator.
Welcome everyone.
Thank you for joining us this morning.
John will begin today's call with a discussion of the market environment that we see in our progress in executing our strategy.
Leading our sales activity and technology development.
However, the fourth quarter and 2021 results at a high level.
John will conclude our prepared remarks, we'll be happy to take your questions.
I'd like to remind everyone that during today's call taking place on Tuesday March eight 2022.
We will be making forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
These statements are based on the company's current expectations projections beliefs and estimates.
And are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward looking statements.
Potential risks include but are not limited to demand for our products.
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 the Securities Exchange Commission the company undertakes no obligation.
Forward looking statements made during today's call.
With that I'll turn the call over to John .
Thank you Richard.
Good morning.
And thank you all joining us to discuss our fourth quarter and full year fiscal 2021 .
Financial results.
2021.
It's an exciting and productive year for Kobe.
[laughter] bite the challenges of the pandemic.
Part shortages.
And FWS I production retooling in the media.
We still had a 14% revenue growth in 2021.
Yeah.
This growth.
Represent.
Fourth consecutive year of growth.
And we expect this growth track.
To continue this year.
The demand for our product.
This accident.
And 2022 bookings are very strong.
I have that.
Our optimism must be balanced with the issues around the global supply chain.
Could you better interest rates that continue continuously facing.
During fiscal 2021.
Through hard work and you sell by industry contacts.
We have managed.
To largely maintain supply of unnecessary components.
However.
Like many other companies.
We continue to face the challenges.
And the situation remains quite dynamic.
It's not as stressed.
We continue to see go into back cross all our key products.
Our industrial and enterprise products.
Drove growth in Chinese 91.
With a revenue of $9 7 million.
The increase of 41%.
The trend in China.
It may have thoughts spatial.
<unk> modulators.
Using a fair electric L costs.
What is particularly strong.
As contract manufacturers.
Continued the trend of converting production lines.
To use three D automatic optical inspection.
Referred to as <unk> machine.
So quality controls.
And a manufacturer of <unk> machines.
Choosing our solutions.
High end numbers ever before.
Our customer product revenues increase up from approximately $900000.
Fiscal year 2020.
The $1 9 million in 2021.
120% increase.
On the street sales.
Organic light emitting diode display audio products.
But the absolute dollar amount.
Our audit revenues is still modest.
The increase represents continued.
Market traction.
And progress in developing these new products.
Which we believe has strong competitive advantages.
A significant market complicated yes.
Our defense probably lag continued to have strong demand in 2021.
With revenue of 18.
$18 2 million.
We achieved the goal.
Which we have stated at the beginning of a trend in China one.
With four development programs.
Entry to low rate.
Show production phase.
Furthermore.
We continue to maintain a growing a robust pipeline.
Defense programs in development.
Which we believe will continue to drive.
<unk> revenue growth.
In the coming years.
Also I'm delighted that Julien trying try anyway.
We have achieved.
The processing hazardous till I have FWS I feel more weapons sight program.
Which should have positive long term effects.
Our revenue and margin.
It's processing enhanced.
Activities.
Now completed.
Our shipments in Q2 and Q3.
And are you in Q4.
Adversely affected.
However.
I'm pleased to say.
The FWS I production rate.
Yield now recovering well.
And Q4.
We achieved the highest shipping rate of.
Of this product in 2000 and try anyway.
Also during the fourth quarter.
We receive a follow up 19 8 million order for <unk>.
IP is a sub assembly.
A critical component.
In the U S Army's.
Our family of weapons weapons sight individual scalable XI system.
The majority of disorder.
Is scheduled to ship in DCF.
And the progress in the fourth quarter, including an additional $2 8 million follow on order for our high brightness.
Super rugged.
Liquid crystal display.
Oh, yes.
35 <unk>.
Hi, John strike Fighter program.
The F 35 is the world's most advanced.
Yes, I can.
Aircrafts.
With much of the functionality.
Enable sui advanced AI augmented reality helmet.
Which provides a pilot where critical flight.
Technical and sensitive information.
For advanced <unk>.
Creation awareness.
And precision and safety.
This new order.
<unk> Ah Bella.
Scheduled deliveries.
Due to the third quarter of trying to do.
And is it true.
Yes ammonia.
The quality of our display technology.
As a reminder.
We also source.
So do you see incredible helmet.
Yes.
Finally.
We announced that we received $1 1 million order.
I pieces.
But John effect packaging system.
Yes.
<unk> deliveries through Dcs.
But the orders I just discussed.
Hi, a testimony to our advanced display technology.
One area of coping excellence.
There may well be.
Understood.
Is that up.
Is our optical capability.
We provide display optics.
In modules.
<unk> assemblies.
In many ways.
Upticks are just as critical.
As displayed in.
Achieving a great.
The high spirits.
To this end.
We announced in the fourth quarter.
Our patent pending all plastic pancake optics.
<unk> excellent performance.
It enables smaller.
Lighter weight.
And many of its assets.
We believe.
Our all plastic <unk> optics.
Hi, the first in the world.
Providing critical components for VR headsets.
I've seen lightweight comfortable and easy to use.
Speaking of critical objective of ours.
<unk> optics.
Excellent choices.
Got it.
However.
Previous.
Pangaea optics need to at least once circle glass lens.
To avoid image.
<unk>.
Caused by the buyer fringes of plastic materials.
Such surgical glass lands.
Weight cost.
Protection issues.
Reduced optical design capabilities.
Compared to a circle cluster.
I am glad to say.
We have soft the plastic.
Fringes issue.
Our new <unk> five <unk>.
A D all plastic <unk> optics.
Provide better image quality.
Smaller size lighter weight and lower cost.
Anything previously available.
And we believe.
Will it translate directly to a better better booth experience.
Use it.
P 95 provides.
Sure.
95 degrees.
And Pete a D provides a few old fields 80 degrees.
With a one three inch.
<unk> micro display.
I'll I'll pass the pink optics provide not only the key advantages.
Above.
But most importantly provide.
<unk> sharp image.
With very good eye relief and I box.
Especially with a novel <unk> optics.
We believe.
Our all plastic <unk> optics combined with our micro display.
Represent the perfect match.
Providing a modification.
So <unk> thousand to 50000 tons.
By remaining a very sharp maintaining a very sharp image.
Of course, it always remained the same.
Which is to lead in critical areas that.
That need it for a fee.
Optics.
Equity space.
Okay.
I also wanted to highlight a recent input.
Jason.
CES.
Is January .
We demonstrate our second generation two 6K.
Ah by $2 6K, I'll, let display.
Combined with our new on mute.
Caustic opex.
Ship fall.
The wholly owned subsidiary of Panasonic.
Demonstrated at CES.
Yes, <unk> glass.
Cooperating.
<unk> two <unk> 6K back to KLA display.
And Oh.
All plastic <unk> optics.
We also had a fast fireside chat SCS.
Lucas I'll have views and approaches.
Two guys siding as well.
The discussion was shaped by Chris <unk>.
President of <unk> media.
Kate Association.
The fireside chat was live streamed.
It cannot be seen Youtube.
In summary.
Customer demand is strong in all our core product lines.
And we are actively managing.
Our supply chain challenges.
Challenges.
We will continue our momentum innovating.
Advanced technology.
Emma applications.
We believe the interest in <unk>.
Straw.
And we believe and with field.
We are well positioned to capitalize on the opportunities present.
We enter 2022.
With the vast strong local bonus.
And we believe this year will be another year of growth.
We are excited by the growth of coping.
And we see a wave of increasing interest.
Our <unk>.
Product.
Our technology advances have been excellent.
And the current market conditions are very favorable.
We believe we are very well positioned.
Now I will turn the call to rich discusses the financial details of the quarter and full year.
Thank you John .
Starting with the results for the fourth quarter of 2021.
Total revenues were $13 2 million compared to $13 9 million in the fourth quarter of 2020.
A 5% decrease year over year.
Comparing the fourth quarter of 2021 with the fourth quarter of 2020, our product and royalty revenues were down 648000 and 552000, respectively.
These were partially offset by an increase in funded R&D revenues of 476000.
Yes.
Let me take a second to reconcile our statements that we had the highest unit ship rate of SWR units.
In 2021 in the fourth quarter.
The slight decline in defense revenue.
As we've said under the revenue recognition standard ASC 606, we recorded most of our defense revenues based on percentage of completion.
Accordingly, our revenues are based on both the units we shipped in the quarter plus the amount of work in process and finished goods inventory we have at the end of the quarter.
As we discussed the units shipped in the fourth quarter of 2021 with the highest year. However, the impact of the ASC 606, Q4, 2021 adjustment was a negative 308000 as compared to a positive adjustment of $1 3 million in Q4 of 2012 <unk>.
Essentially this means our whip in finished goods inventory levels were lower at the end of the fourth quarter of 2021.
As compared to the third quarter of 2021.
Cost of product revenues as a percent of net product revenues for the fourth quarter of 2021, and 2000 2084, 9% and 65, 1% respectively.
Cost of product revenues increase as a percentage of net product revenues in the fourth quarter of 2021 as compared to the fourth quarter of 2020, primarily due to lower yields as process.
Changes, we implemented in the second and third quarters affected productivity and scrap amount in the fourth quarter of 2021.
R&D expense in the fourth quarter of 2021 was $5 2 million compared with $4 4 million in the fourth quarter of 2020, a 19% increase.
The increase in R&D expense for the fourth quarter of 2021 compared to the fourth quarter of 2020.
Primarily due to an increase in internal OLED development costs and to a lesser extent an increase in funded R&D expense for more customer activity.
SG&A expenses were $4 1 million in the fourth quarter of 2021.
$2 4 million in the fourth quarter of 2020, or 71% increase year over year.
SG&A for the fourth quarter of 2021 increased as compared to fourth quarter of 2020, primarily due to increase of approximately 400000 professional fees.
300000 in noncash stock based compensation, and 400000 and compensation and other benefits.
We had other income in the fourth quarter of 2020 in 2020.
Slide 21, and 2020 or 46280 6000, respectively.
Other income for the fourth quarter of fiscal 2021 included 38000 foreign currency gains.
Paired with 273000 of foreign currency gains in the fourth quarter of fiscal 2020.
Turning to the bottom line net loss attributable to controlling interest for the fourth quarter of 2021, with $3 6 million or <unk> <unk> per share compared with net income of $1 3 million or <unk> <unk> per share for the fourth quarter of 2020.
Yes.
Turning to the full year results.
Total revenues for 2021% to $45 7 million compared to $40 1 million for 2020, a 14% increase.
2021 revenue increased as compared to 2020 was driven by increases of industrial enterprise revenues up 41% and consumer revenue of 120%, which were partially offset by a decrease in defense product revenues up 10%.
Cost of product revenues as a percentage of net product revenues for 2021 and 2020.
83, 8% and 75% respectively.
Cost of product revenues increases as a percent of revenues in 2021 as compared to 2020, primarily due to lower production volumes in the second and third quarter of fiscal 'twenty one.
In the second and third quarters of fiscal 'twenty, one we reduced production of our products because you have to realize products as we made process changes to the product.
Also affected our production yields during 'twenty, one as implementing the process changes effective productivity and snap amounts.
R&D expense in 2021 was $16 3 million or 39% increase compared with $11 7 million in 2020.
Funded R&D expenses were $10 million for 2021 as compared to $7 7 million for 2020, a 29% increase.
Funded R&D expense for 'twenty, one increase as compared to 2020, primarily due to an increase in number of defense related contracts, we've been awarded and therefore, it was driven by increased revenue associated with those contracts.
Internal R&D expense was $6 3 million for 2021 as compared to $3 9 million.
For 2020 or 61% increase.
Until R&D expect for 'twenty, one increased as compared to prior year, primarily due to the increase in OLED development costs.
SG&A expenses were $18 1 million for 2021, 53% increase compared with $11 8 million for 2020.
SG&A for 'twenty, one increase as compared to 2020, primarily due to an increase of approximately $3 1 million in noncash stock based compensation.
$1 4 million in compensation and benefits.
1000, and insurance and <unk>.
$900000 in bad debt expense, partially offset by 600000 of lower professional fees.
Other income for fiscal 2021, and 2020 were income of 100 and.
And 400000, respectively.
Other income for fiscal 'twenty. One included a 100000 of foreign currency gains compared to 300000 of foreign currency gains recorded in fiscal 2020.
Turning to our bottom line net loss for controlling interest for fiscal yearend December 'twenty five 'twenty, one was $13 7 million or <unk> 15 per share versus a net loss of $4 4 million or 5% per share for 2020.
10% customers for 2021, with Drs network imaging at 31% and Collins Aerospace.
29%.
Quarter and year end amounts of depreciation and stock compensation are attached in the table to the press release.
<unk> cash equivalents in marketable securities were approximately $29 3 million at December 'twenty, five 2021 compared to $20 7 million at December 26, 2020.
And we continue to have no long term debt.
The amounts discussed above our current estimates and listeners should review our Form 10-K for the year end December 25th any possible changes and of course any additional filings.
With that operator, we'll be happy to take questions.
Of course, thank you.
And if you would like to ask a good question.
Oh My birthday Star one on your telephone keypad.
You are using speaker phone please pick your brain cancer and make sure your mute function is turned off.
Signal reaches our equipment.
Again, it is star one if you would like to ask a question, we'll pause just for a moment to allow everyone an opportunity to signal for questions.
We'll go ahead and take our first question from Glenn Mattson with Lindbergh Goldman. Please go ahead.
Hi, yes, thanks for taking the questions.
So curious first on the optical inspection market is that.
Solid growth in that space. This year really helped in the industrial enterprise space So as that.
I think there's a long tailwind of that growth, but can you give us more color as to how you expect that to play out in 2022.
So yes, I mean this is a momentum that's been building for a period of time.
We will see what happens in 2022.
Yes.
<unk>.
Essentially situation.
Is that the supply chain shortages affecting everybody and so forecast that we're getting for customers are.
Not as firm as we've gotten in the past.
And frankly, if there continues to be a.
A shortage of chips.
That's going to cause a.
A headwind in the demand for <unk>, the automation equipment, because what's the purpose of doing quality control on chips you don't have.
So we've really got to see how this whole supply chain works its way out yes. This is John fan Hi, Glenn This is a very good question.
Short term low cost supply chain questions is effecting.
Uh huh.
Ed.
Our customers too so I have the long term trend to move to data <unk> continued as you know be that Chicago advocating getting very complicated so that PCB bullets are very complicated so to try and go to <unk>.
It's not going to be stopped if any is going to continue increasing so the short term that you fat of short pass shortage. This Goldman VHS short term even that we're overcoming it most of the time.
Alright, great. Thanks for that color and then just quickly moving on to defense.
Congrats on the Big order.
$19 $8 million order that you received I think it was in December .
You add that plus the.
You say the majority of that should ship this year plus the joint strike fighter.
Revenue through the third quarter that would kind of the combination of those two factors were at least put.
Somewhat flat for defense in 2020 to flat to up grabs.
And then you have these other low rate initial production orders to provide some upside to that number is that basically the good way to think about it in <unk> and.
And maybe just some color around how that flows out through the year would be great.
Yes, no I think that is the correct way to think about it plus we have a very healthy backlog of R&D contracts.
That will be working on during the course of the year.
And the timing of those.
Those four programs that are in <unk> low rate initial production when they go into full production.
That determines on how well they all reps go.
But they should provide us.
Things go according to plan with additional revenues during the course of this year.
Probably more.
The year.
Okay.
Lastly for me can you just remind us and maybe just give everyone an update as to.
Assuming.
<unk> taken out the caveat that there could be supply chain disruption or something like that but.
Normal circumstances.
The defense orders come through.
Time, and you're able to ship against them and then.
You haven't standard breakdown of.
You know component revenue versus R&D revenue kind of like two thirds, one third or slightly better than that.
The target model for what kind of gross margins would be when you get to certain volumes and where breakeven is just some.
Color around that to remind us all would be great.
Sure so breakeven.
It's basically getting to the mix question that youre, asking about can be anywhere from $50 million to $60 million.
And.
So we are fast approaching that number.
And I think your ratios of product revenues to contract revenues is pretty close to what we've historically been running at.
And so in that in light of that I would.
Just.
Final follow on would be the.
Okay.
With the balance sheet that would be almost 30 million in cash and no debt.
You guys getting into the ballpark of breakeven this year.
Would I assume that there's not really much need for cash.
No.
Capital lease activity.
We have sufficient cash to execute our strategy, where we are right now.
Okay, Great Thats it from me thanks.
And as a reminder, it is star one if you would like to ask a question and we'll go ahead and move on to our next question from Kevin <unk> with each CW. Please go ahead.
Good morning, gentlemen, thanks for taking our call.
John could you just offer I mean, it sounds like Youre doing great with the pancake optics lightening wait I was hoping you could just sort of offer some color.
That advancement vis-a-vis.
So Lowe's real where Scott some of the <unk>.
Enterprise and consumer.
Applications that you're working on how how are your customers looking at that how do you see especially in light of the doubling in consumer revenue. This year. How are you seeing that grow this year.
Yes.
Thank you Kevin.
Very interesting question.
In the early days I think the last.
<unk> had mentioned that we.
We actually use pancake.
Vance products in several places in fact, FWS I biggest protection program.
Using.
<unk> optics.
Except that case, we use glass, whether the lands is that glass sands.
Now we always believed the pancake.
As a way to Gulf of VR headsets.
And.
However, in consumer well, we think the glass.
That must be called let's go away because of the weight and likely also.
Shape.
Ill pass kind of optics, we'll be working on for several years Chuck available special criteria.
A process that allowed us to do that now fast forward, we have key 95, MPD, we introduced at CES.
I must say.
The response from the field is very strong.
Not only that they would like to have a hot pink opex to couple with the heart.
On the display.
People, who have their own displayed opt.
The optics.
So we are now actively planning a hurdle.
Get the pancake optics, our plastic <unk> optics.
To satisfy our customers need so we have been optimistic about peg Opex is is really a separate product line for us.
Okay.
Can you talk a little bit about.
I guess, the cost that youre going to offer them at volume.
And I'm wondering if you could give us any any read at all.
In terms of their use this year.
Do you think youll delivering to the market this year.
And at a lower price point than the previous pancake I'm, just I guess, the big takeaway John for me is.
How do you see VR developing versus Oculus right, you've got you've got the oculus.
Quest to headset out there it's used in a <unk> cell phone display.
We're developing technology that's clearly.
Light year ahead, and I just was hoping you could give us a better read on its track to market.
Yes.
Ceiling is that <unk> two is actually a very interesting system.
They do use LCD there had to use a large LCD <unk> LCD Andy is for now and Lance is that Plaza land specified now Lance.
I could give you the bulky in FIC.
Effect.
So ultimately I think the final list would go to.
Pancake and you'll go to power plastic bank I think <unk> is pretty much.
I must say in the feel is pretty much non knowledge <unk> pancake, so definitely important as you well know.
<unk> gets that.
As our trademark we trademarked the pancake many years ago, because we have been working on defense area. We believe this is the best way that gives us seamless lightest optics, Amanda <unk> yield.
On the display side I think that we're working on these two 6K, which we will hope to Gainesville production DCF.
And Dan the.
Out to make display for around $3 $5 before for K <unk>.
And we definitely are planning.
However, with our partners I think about that.
Due to go to this incredible.
No.
And then just as a reminder, <unk> 6K by $2 6K, our leg one three inch display we aimed generation too.
Nobody else in the World has that yet and we already in generation two of getting ready for protection.
So we are optimistic we see that.
Yes.
The future is very bright for VR.
Possibly not Dcs I think the product will be coming more at the end of the year, maybe next year and half revenue would ramp next year.
Okay. Thanks, John I appreciate that I appreciate yes, our defense is not a program, it's going well so we still anticipate growth.
Good growth year this year.
Can you, yes, that's where I was going next can we talk a little bit about the the programs.
That could go from <unk> to full production this year could you give us.
Just maybe a little more depth on the unit size.
No.
WSI is a huge number of units and I'm wondering if you can compare some of these other I'll rip programs sort.
Sort of a unit basis, just to maybe help us.
Understand how large they could be.
Yes.
Something like FWS WSI is a very rare program because it goes into most of the soldiers get it.
In one form or another.
The rest of the programs are tend to be more specialized with.
Much lower volumes, but commercially much higher prices.
And so the margins on those programs are very good.
And they range from additional scopes too.
Rotary aircraft.
Pilot helmets.
And.
Tripod.
Rocket launchers.
So.
How they rollout.
Particularly given what's happening around the world today, we'll see how that goes but they are as I said lower units, but higher prices.
I think just to give you some more.
Light to their situation.
When the programs is the exodus or international.
Gun sites.
So with the current situation going long, we don't know how.
Fast as well.
<unk> growth.
Alright, gentlemen, I can't think of anything at the moment, but I might hop back in.
Im sorry, Im sorry, yes, just on the enterprise side John .
Could you offer some insight on maybe from a Scott perspective, our reviews.
<unk> perspective on the adoption of pancake.
Understand consumer is a little way out, but I know that your enterprise business is growing is there a chance that pancake gets adopted there and it's a price point lower how does that translate.
Yeah, and the pancake why are the pink Panther as many amenity advantage, but it went well.
One area do you have a disadvantage to optical efficiency is quite low is around 10%.
So for some of the AI.
Enterprise applications.
Our door.
<unk> means that the 10% efficiency means you have that right.
Display so that part usually people don't lead to us pancake VR case people re decided pancakes. So so it is a very different case, how do you want to use it.
We have other optics, which has their high optical efficiency dialogue.
Using floating to enterprise, well and desert was being used right now.
So when we ship to our customers with dominant ship shipping display with optics packaging deal module. So.
So it depends week application remember, we have a whole range of that we have or the range of display LCD L cause I'll, let <unk> LCD and Opex, we have glass optics special optics, <unk> optics, our plans to optics.
We will also provide way of optics people would need to give your effort to application.
Thank you John I appreciate it thanks rich.
Thanks for taking our questions.
Alright.
And with that that does conclude our question and answer session I would like to hand, the call back over to our speakers for any additional or closing remarks.
Thank you very much joining us and I hope to see you at next meeting. Thank you Bye bye.
And with that.
Today's call. Thank you for your participation you may now disconnect.
Okay.
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Okay.
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