Q1 2022 Kopin Corp Earnings Call
Thank you for holding ladies and gentlemen in your mind for a company's first quarter 2022 earnings call. At this time, we are still gathering additional participants we will get started won't materially.
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[music].
Ladies and gentlemen, please standby were about to begin.
Good day and welcome tick up in first quarter 2022 earnings call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Richard Sneider, Chief Financial Officer. Please go ahead Sir.
Thank you operator welcome.
Welcome everyone and thank you for joining us this morning.
John will begin today's call with a discussion of our progress in executing our strategy and then I will go through the first quarter of 2022 results at a high level.
John will conclude our prepared remarks, and then we'll be happy to take your questions.
I'd like to remind everyone that during today's call taking place on Tuesday may three 2022, we will be making forward looking statements as defined in the private Securities Litigation Reform Act of 1095.
These statements are based on the company's current expectations projections beliefs and estimates and.
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 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 the Securities and Exchange Commission.
The company undertakes no obligation to update the forward looking statements made during today's call.
And with that I'll turn the call over to John .
Thank you Richard.
Good morning.
And thank you all for joining us to discuss our first quarter results of 2022.
Hi, I'm speaking for Hong Kong This evening.
Which is at 12 hours ahead of Boston.
Yes, hopefully.
My phone connection is good.
I must say.
I'm very happy to be able to travel again.
I did meet with customers.
Which is so important.
In developing our business.
On my way home.
I will be swing by the 2000 and trade to society of information displays sit.
Trey showed.
We stick in place in early May.
In San Jose.
Turning to the asphalt business.
We are pleased with the results of the first quarter of 2022.
Yeah.
Overall year over year revenue was flat.
As I promised sales were lowered.
But were offset by strong fund our research and development revenues.
Private revenues were affected by the global supply chain issues.
Particularly during the last couple of weeks of the quarter.
As a result.
12 of 14% lower than Q1 of last year.
In the past few quarters, earning cost.
We have mentioned.
Our call center of the global supply chain production issues.
Well I have 14% year over year decline in product revenues.
It's not something that we're pleased with.
Given the circumstances the way out now.
We're also not discouraged by it.
Demand for our products remains strong.
Let me explain why these issues challenging.
The deal with.
Because we would make very complex components in there.
So simply assistance.
Assemblies.
Which go into extremely sophisticated.
Inkjet dependent defense and industrial systems.
We cannot simply.
Switch at component.
Does it in short supply.
With another pump on it.
When we identify issue.
See a need to switch to a different component.
We must notify our customers.
Displaying our planned.
In most cases.
<unk> came down formal approval.
They were must perform.
Tenths of testing.
A revised product.
Sure it's compliances.
And as <unk> specifications.
And provide the testing results our customers for their revealed.
The cost of the <unk>.
May be required to perform extensive system testing.
Yeah, our team their own customer approval.
This process is time consuming.
It means staying addition to our normal development activities we have.
Must be allocated resources to identify replacement components.
And perform additional testing.
In spite of all of this.
We were able to achieve relatively high level of manufacturing.
While allocating resources.
Dress this historic issues.
And also make progress.
Our development activities.
Which are really crucial to our long term growth.
That's why overall, we are satisfied with the first quarter results.
We continually.
To actively manage.
The cities are supply chain issues.
So why are we assess.
Intermittent supply chain disruptions.
<unk> materials.
We will have sufficient components.
To continue our 2022 growth.
<unk> 2021.
As we previously discussed in the fourth quarter and to $1 21.
We announced new orders.
Of our current production program F 35.
Our major weapon sight program.
And decrease does give us a strong foundation for.
For 2022 product revenues.
Looking now into the future of our current programs.
We have received feedback.
That's a very unfortunate situation.
Great.
May eventually result.
Two ball product demand.
Turning to our organic light emitting diode all at private alike.
Our recent press release.
Indicated we are making good progress in building this business.
As discussed in the press release.
We'll release that we'd receive procession of orders.
Our 2000.
For Archrock to 720 P <unk>.
Lightning OLED micro displays.
And then in other cases, a foundry customer.
Buying a two K.
<unk> wafers.
The fundamental building block to make all the display.
We believe these two new orders.
Tessa Berlin too.
The competitive advantage of our highly events.
Silicon back claim design.
And it does speak to farmers.
It also validates.
The power of our Fabless business model.
Under our model, we either sell finished OLED displays.
Customers.
Working with our foundry partners.
All we sell are highly advanced high too bad plane wafers.
Ill, let OEM partners.
Who complete the microbial space for sales to their own customer base.
This business model provides us a lot of visibility.
To meet customer demands.
Without incurring the major fixed capital investment associated with that deposition process.
We continue to work on design wins with other new customers.
Regarding to our research and development programs.
We continue to make excellent progress.
Customer funded <unk>.
<unk> development programs.
Which include <unk>.
Im a vehicle tracking systems.
Rotary wing aircraft pilot helmets.
Additional weapon sight programs.
We expect the rotary wing program.
To go to production.
In the second half of this year.
And the AMA.
Good program.
Dakota possessions.
2000, and Chinese Street.
Perhaps it is important.
The breadth of the scope of that defense business.
As a reminder.
<unk> provides advanced back with this space.
Optics.
And rugged that's free assemblies.
Besides agents such as F 35.
Our rotary wing aircrafts.
We provide displays.
Yeah.
The gun sites.
We'll provide display optics and module assemblies.
Now for <unk>.
Vehicles.
We actually provide the whole foods system units.
They include displays optics electronics is that trial that trial.
[noise] currently.
Sure.
First business and enterprises.
Based on our advanced LCD silicon displays.
I have it.
We have been actively developing all the silicon displays.
For over five years.
And now one of the leading audio silicon.
OLED on a silicon space developers.
I must mention again.
We have a lot of it turned development projects.
And just focus on micro OLED.
L E democratie space as potential for Super high brightness.
In low power assumption Consumptions.
Which can make them ideal for many applications.
Including six route augmented reality mixed reality applications.
In summary.
Consumer demand is strong all core product groups.
We are actively managing our supply chain challenges.
We're continuing our momentum innovating.
<unk> got technology for <unk> applications.
We believe a strong interest in the <unk>.
It's just getting started.
And we feel we're very well positioned.
To capitalize on the opportunities it provides.
We entered 2022.
With very strong backlog of orders.
And we believe 2022 will be another year of good growth.
We are excited for the growth of coping.
So we see a wave of growing interest in <unk> product applications.
Our technology advances and current market conditions.
Favorable.
And we believe coping very well positioned to capitalize it.
Finally.
I would like to make a comment on the equity gain in Q1.
As some of you know.
Coping as very strong IP.
With over two data with over 200 patents and pad.
Africa applications.
Providing display optics and module assemblies.
One of our IP monetization strategy.
We used to license some of Ip's to startup companies.
And as a copy as a part of our conversation.
We often receive equities in the start ups.
We have completed.
A few of those transactions.
Our goal is to do more.
Some of the early transactions.
Go into a more mature stages.
We actually vast decided with this IP business model.
Now I will turn the call to rich to discuss the financial aspects of the quarter and the full year Rich go ahead.
Thanks, John .
Total revenues for the first quarter ended March 26, 2022 were $11 6 million compared with $11 7 million for the first quarter ended March 27, 2021, essentially flat year over year.
Cost of products sold for the first quarter ended March 26, 2022 were $7 8 million compared with $6 4 million for the first quarter ended March 27 2021.
The increase in cost of sales as a percent of product revenues for the first quarter of 2022 as compared to the first quarter of 2021.
Due to lower production efficiencies, resulting from lower volume of units produced.
Approximately 450000 warranty cost reserves and approximately 300000 of additional reserves for excess material.
The lower production volumes resulted in less absorption of overhead costs.
The additional warranty cost reserves relate to units shipped before the new production processes.
In 2021.
The additional reserves for excess material as a result of the company procuring materials for contingency purposes, as a result of the supply chain situation.
Research and development or R&D expenses for the first quarter of 2022 were $5 4 million compared to $3 6 million for the first quarter of 2021 or.
52% increase year over year.
R&D expenses for the three months ended March 26 increased as compared to three months ended March 27, 2021, primarily due to increased spending on U S funded development program.
And internal R&D expenses for organic light emitting diode or OLED development.
Selling general and administrative expenses were $4 4 million for the first quarter of 2022 compared to $5 9 million for the first quarter of 2021.
SG&A expenses.
Ended March 27, 2021 at approximately $2 4 million of stock based compensation costs as compared to 444000 for the same period in 2022.
Excluding the stock based compensation costs SG&A expenses were $4 million for the first quarter of 2022 compared to $3 5 million for the first quarter of 2021.
The increase of our attributes marketing expenses, which were curtailed during the COVID-19 and additional compensation costs.
Other income was approximately $4 7 million for the first quarter of 2022.
Primarily resulting from the mark to market of an equity investment.
As John discussed part of corporate strategy monetize our deep intellectual property portfolio and as part of that we receive an equity interest in certain licensee companies, where we license when we license the IP to them.
During the three months ended March 26, 2021, we recorded 35000 of foreign currency gains.
As compared to 28000 of foreign currency gains for the three months ended March 27th.
'twenty one.
Turning to the bottom line, our net loss in Sugar Cocoa Corporation for the first quarter of 2022 was approximately $1 4 million or <unk> <unk> per share.
<unk> to net loss attributed Couldnt Corporation of $4 1 million.
<unk> per share for the first quarter of 2021.
<unk> cash and equivalents in marketable securities were approximately $26 3 million at March 26, 2022, as compared to $29 2 million at December 25th.
'twenty one.
First quarter amounts for depreciation and stock comp expense are attached in the table to the Q1 press release.
The amounts discussed above are based on current estimates and listeners should review our.
<unk> 10-Q for the first quarter 2022 for any possible changes and additional disclosures.
Operator, we will now take questions.
Thank you ladies and gentlemen, if you have a question or comment it is star one on your Touchtone telephone again that is star one for any questions or comments at this time.
We'll take a question from Glenn Mattson with Ladenburg Thalmann. Your line is open. Please go ahead.
Yeah, Hi, thanks for taking the question.
So just in terms of the.
Top line can you just talk about that.
The lower component revenue.
It's pretty evenly.
Even though the split I guess between military industrial it is it is there.
Was that all related to supply chain issues and there was nothing around demand around that and then also can you just touch on the status of the.
Customer where mid last year, you had to kind of retool the facility and that kind of ramp back up and got into.
Back to normal production or is that still the case with that.
With that customer as well.
So in both cases, yes, it was supply chain issues.
In both the defense and the industrial.
And it really was the last couple of weeks of the quarter when it kind of hit us.
And so as John indicated in our prepared remarks, we think we're in good shape going forward, we do expect.
Intermediate supply chain issues now and again, we're not out of the woods. There are some indications that the situation is getting better.
Want to be cautious to the investors.
And.
At this point, yes.
The process changes have been made that we discussed in 2021.
The 450000 of additional warranty cost was kind of the last piece of it it was kind of a negotiated settlement.
Of units shipped before the process changes. So we think for the most part it's behind US now and now it's just fulfilling demand, which as John indicated we started the year off with a very strong backlog.
I guess would there be any.
You know catch up in revenue and over the next couple of quarters based on the fact that the demand was there and now the supply chain issues, perhaps are.
And a better situation is that something to think about.
That's definitely the goal.
Yes, that's why we say it's.
It's a bit growth.
Yeah right.
So a question also for job can you talk about the.
The new Oculus, that's coming out I believe it that they're talking about an OLED display. There can you just give me your thoughts on.
What you think about the new product and what that means for the stuff that you're doing whether it be with.
You know it doesn't seem like it's with them, perhaps but maybe with.
The industry is shifting in that direction that would be a benefit to you guys.
Yeah of course this is still.
That's kind of not totally official but we can guess what it is right.
So it is all that I guess is are the on glass.
All our silicon.
But I'll add that that's.
Happy news.
It may be the one car one is LCD glass.
So you can see the shift from LCD to outlet, which will always anticipate.
So the next move of Clos, we believe you'll be at both the silicon that's one but this is a very good news.
I think that's another very good news is we now believe it is a pancake optics that we know we have a globally trademark pancakes.
In the event of an <unk> company.
But it is not all plastic pancake.
<unk> has said laughing at.
So that current versions usually indicate where the market is moving the technology isn't moving optics is going to pancake.
Displays going into all of that but it's not fully display has got all of them.
<unk> got a lot of silicon.
And and pancake is.
With glancing at our plastic.
So I hope I answer your question is a good trend.
Right No. That's very helpful. That's it for me thanks, I'll get back in the queue.
Once again it was star one if you had a question we will go next to Kevin Dede with H C. Wainwright. Your line is open. Please go ahead.
Hi, gents.
Thanks for having me.
Could you comment on maybe the number of <unk>.
Devices that you had to reengineer the supply chain on I guess.
<unk> of components that had to go through additional testing.
Hi, Lee.
We view this the way they pick carefully rich there's so much evolved with defense.
Yeah Yeah.
Yes, honestly, Kevin we did get a notification from the U S government that theres a lot of supply chain issues out there and they are somewhat concerned about companies divulging information around it.
And as Jay referenced us through the <unk>, which prohibit really discussions about systems and how they operate.
Yeah, I think I think Kevin as you well know the supply chain issues, not you would need to coping.
As a semiconductor chip I've missed.
And some of the chips are really not that bad, but they are missing and is that fast everybody where it is.
The industry industrial industries.
In many ways I am pleased with how people actually manage it reasonably well.
Okay rich.
Rich you mentioned and you didn't think you were out of the woods yet.
Oh.
What.
What do you think we should look out for.
So we have commitments from vendors, which would indicate that we're in good shape for the rest of the year, but.
We're just putting a caveat there that I think given the situation.
I think it's unrealistic to think that.
We're out of the woods.
Do see.
We talked to people in the industry. They do see light at the end of the tunnel.
And.
But we just wanted to make sure that we get a couple more quarters under our belt before anyone starts declaring that we're out of the woods.
Okay.
Okay fair enough.
Referenced backlog a number of times.
Guess, you don't want to quantify which is fair, but can you give us a relative move versus the end of the year.
Okay.
So we did indicate that we had a $19 $8 million quarter.
Oh in December .
In November we had a two three and then there was another million something for another program. So those were all in November December . So you can assume that's all shipping this year.
And possibly into the beginning of next year, but the bulk of it will be this year.
Okay.
Uh huh.
John you touched on.
The.
Micro OLED and.
I remember correctly youre developing both in Japan, and China can you give us a status on that.
Yes.
Great great.
[laughter] yeah.
So what kind of what do you want me to tell you.
Well first of all I don't know.
Yeah.
Yeah.
I'm, just kind of curious about lake Charles and the time to market that kind of stuff.
Yeah.
Micro OLED.
As you know in some people always consider as an outcome of display which is true.
It can be developed and producing a cost effective way.
Harvest solved everything that we wanted to do <unk>.
We work with a Chinese company.
Maus.
<unk>.
A memorial crowned.
Class B.
And we work with a Japanese company to do full color micro Leds and.
And both of the <unk> Super via high advanced microwave east.
And lodge them.
Customer funded.
Funded activities and.
The progress is good.
I mean, China was.
Because of the Lockdown in China.
I've had a few weeks otherwise you might already have something assigning to announce this quarter.
So in general things are going well and.
Some lac dye has slowed down some of the things.
We're still making good progress.
So how would you recommend we look at time to market.
Sure.
Thank you, Mike and Michael.
Nobody can give you nobody is going to get until the real market, Michael We did DCF zero.
Not all of it right.
Okay.
But we are making good progress I think we should be one one of the leading team coming up that's not DCF.
Our product for development for show and tell for demo yeah, you'll get it this year.
Okay.
<unk>.
That means you could.
Product next year, maybe 20.
'twenty three.
God willing.
[laughter].
That's helped technology our goal is to demonstrate.
The potential of this display and show display DCF.
Can do that it could be a major achievement and not just look hoping for the industry.
Okay.
I know you reference the conflict in Europe .
Was wondering if you see any.
I guess change in thinking because of that from your.
France related.
Customers.
Well I mean with with nobody why now.
Celebrate for such a disaster.
But we are in defense industries, and we do make systems.
<unk>.
The components are just systems, which are used.
<unk>.
Similarly in the wall.
Yeah.
Right. So I guess, what I'm wondering is.
Is there a greater interest part of your customers and some of the product that you were making involved.
Well, it's just simply the argument is that it is.
Sample.
Does that now so we can say that.
Germany analysis that they wanted to buy more F 35.
Okay, Okay, and we're so also F 35.
So you can right I think we can connect the dots.
Right.
Thank you I appreciate you, helping me with that John .
Am I also correct in assuming that that supply chain is predominantly in the U S.
Are you still sourcing.
Product from <unk>.
Asia.
Those into defense related.
<unk>.
Yeah, I think as you well know a lot of supply chain problems agonizing, because the automotive industry is affected by that too.
What are you missing is like a micro controller, which is a very low tech product.
By everybody in the whole World, Taiwan, Korea, and China, Japan.
But they're short and once Youre short you kind of make a call to everybody that set the bio micro controller not advanced IC isn't really kind of maintain Ics.
So for US, it's just that I automobile.
And then the IC Pune, India, you have to customize a proven and day of compliance.
So you slow down things.
There is no fundamental.
It is not out yet.
IC you cannot get anywhere is at that time of IC.
I see so.
No patient cannot get upside for instance, <unk>.
Is that is coming on China now that those the IC complier everywhere in the world. It's just a short everybody double triple buying it.
I see okay I got it got it thank you.
Just maybe your take on the progress of real weird solos, they're making.
Sort of just a finished.
Yes.
I'm glad you mentioned that those are the companies that we license and they in fact are pay equity is in.
I don't want it goes a lot to buy into it obviously some are already making progress is of where the right equity gain.
And I think that that will continue.
The one day will form 345 years ago. It just like a BDC situation some of them become mature stage now and you're going to have a series of.
Hopefully.
Monetizing event.
We see things come back and with some significant equity gain.
But remember our goal is millennials the equity gain with BP and sweet ways.
We have loyalty.
And we also sell them components plus equity grant game. So this way the Apis as part is very good.
I think this is the one area that is not well known by the shareholders.
We have several ways to make money for the shareholders. Once we do sell products.
Yeah, we do sell a lot of private or defense.
Product not only just selling displaying now we're getting more and more into assemblies.
In the army vehicles.
The full system.
And you can count how many on the political debate.
And now with IP model.
Thanks, guys.
Yes.
Alright, well. Thank you thanks for taking my questions gentlemen, I appreciate it thanks.
Thank you.
I wish that you would also in Asia was traveling [laughter] easy traveling Asia Lockdown got quarantine for seven days.
Got out [laughter].
We'll move next to Patrick Metcalf with <unk>. Your line is open Patrick. Please go ahead.
Hey, good morning, guys good evening John .
Right.
Hey, Craig I don't wanted to libbey.
[laughter].
Rich I wanted to give you credit for being.
I want to give rich credit for being conservative in the past few quarters on the supply chain issues and it sounds like that's now behind us.
But paul but.
I want to thank you as a shareholder.
And then secondly, John I wanted to talk to you about a couple of events that happened in the marketplace.
And what you can or cannot speak too.
Google Act.
Acquisition for $1 billion for micro led engineering company and.
Then snapped required an optics company for $500 million called wave optics.
Supposedly Samsung made an investment into <unk> and other Opex company.
With coping sitting at a $150 million, having a portfolio of micro displays and supposedly having.
<unk> on pump plastic pancake optics.
Wanted to see if you can talk to that I would speak to it.
Well I guess the market temporarily it's not very efficient I guess.
Okay, Alright, I'll take that as a positive.
Okay, and then I wanted to ask you as far as plastic pancake optics is concerned how do you plan to go to market with that because.
If we go back to the HPT days, if I understand it correctly you had the greatest technology.
But.
The competition came in and stepped on it.
Are you going to go to market in a different approach and different strategy to try and.
Get that 100% market share if you will.
Yeah.
We've gone through the HPT I think some of the shale is benign.
No.
To assist with the inventor and then for cell phones is a power transistor and the skywalk and Qualcomm and use it for five years with exclusive to it.
And the end of cause somebody which had to do it.
Stupid knee and then somebody Asia as you can stop making that.
Then we've got 10, so we sold the business.
But you've said probably wished to cap it because we're still at that particular business that was sold to the company still owns about 50, 60% of the market share in the world.
It's quite profitable.
So I'm.
I'm doing my lesson.
Yeah. It all.
You went to people come in and you adjust.
The leader you don't get displays that quickly.
Okay. So so in a way the hottest deal.
Okay. Okay, and then lastly on the research and development side of the equation and the revenue side of the equation how many.
Dr <unk>.
Customers do you have can you answer to that or is that secret.
Well I mean, how many units how many component revenue.
Just listened.
The F 35 is the most advance.
Assets held in the entire well they don't do too many of them.
But they pay well they total pay where it would make a profit on it.
So theres not how many units.
Is how many of the customers willing to pay you for the value right.
So to this point no question about that Arcalis sell a lot of revenues.
A pilot paid component guy, but I think the component guys pie and not making money, maybe not losing money.
But I'll close as I don't want to speak for Facebook I don't think they've made money selling every unit yourself.
Okay.
Again, we sell to avionics and we made money.
Yeah.
Okay. Thank you Jim.
Yeah.
With no other questions holding Dr. Fan I will turn the conference back to you for any additional or closing comments.
Well I. Thank you very much for joining us this evening or this morning, I would like to remind everybody.
We are having our annual meeting on May.
<unk> Chinese six 2022.
I'll be back in Boston.
So you will be receiving a proxy vote process soon.
So do please vote.
You've got able to come do it cannot annual meeting.
This year with most Ids is can be in person.
So thank you very much.
Joining me this evening.
And ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time.
Yeah.
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Yeah.
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