Q2 2022 Kopin Corp Earnings Call
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Thank you for standing by, and this is the conference operator. Welcome to the COPIN second quarter 2022 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero.
I would now like to turn the conference over to Rich Knighter, Chief Financial Officer. Please go ahead.
Thank you, operator.
Welcome everyone and thank you for joining us this morning.
John will begin today's call with a discussion of our progress and executing our strategy, and then I will go through the second quarter of 2022 results at a high level.
John will conclude up a pair of marks and it will be a picture questions
I would like to remind everyone that during today's call taking place on Tuesday, August 2, 2022, we'll be making full local statements as defined in the Pipe Security Situations for the format of 1995. The format 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 that are different, and those forward looking statements. It's different, surely, than those forward looking statements.
The potential risks include that are not limited to, demand for our products, operating results for our subsidiaries, market conditions, and other factors discussed in our most recent annual report on form 10K, and other documents filed with the Cured Exchange Commission.
The company undertakes no obligation to update the forward of the Statements major in today's the
And with that, I'll just call over to John .
Thank you Rich.
Good morning.
And thank you all for joining us.
to discuss our second quarter 2020 to operate results.
We have a place with the results of the second quarter of 2022.
Total revenues went up 20%.
Yeah, over here.
driven by about 30% growth of our product revenues.
In addition,
Our customer funded research and development revenues remain strong.
which we view as an indicator of our future growth opportunities.
as we expect most of these development programs which are efficient to production in time.
I revenue from pre-fans product.
We're particularly strong.
going 87% year-over-year in the second quarter.
During the second quarter of 2022,
We're now at additional orders.
So I get space for F-35 pilot helmets.
and emergency systems for our vehicles.
In July , we announced a production order for our brilliant, higher-brainers color displays for helicopter pilot helmets.
During the second quarter, we also announced the expansion of industrial customer base.
adding a new
Korean 3D automated optical inspection system customer.
They use a spatial-like modulator or SLM.
as a clinical component in that system.
Would this particularly win?
We're not supplying our high speed high performance.
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Very electric eller el ?p Look a crystal display.
To get all the three leading Korean 3D AI, you come and manufacture us.
In addition to other market leading benefactors in China, Japan, and Germany.
These announcements are being important in several ways.
You have to have already strong dialogue about it.
but equally important.
Those progress represent the variety of micro-display technology coping offers.
We believe we have the only company in the world.
They're also active metrics. Impress?
so electric nuque, as quick a appli
and organic light-limiting dial or other displays.
And we are working with partners.
to develop inorganic light emitting dial displays.
or commonly named micro LEDs.
All our microdisplays are displaced.
on silicon.
This is important as a breadth of display technologies.
to meet customer needs.
is a variety of advanced.
specialized optics.
which we offered.
Yeah, we're awesome.
which provides our customer with an integrated turnkey solution.
This allows our customer to offer high quality,
Visual solutions.
to meet the variety of needs in the market.
For example.
new padding padding or plastic pancake optics
and it was smaller, much lighter weight, V.R. hasets, and it also, Metaverse hasets. V.R. hasets, and it also, Metaverse hasets.
Compared to the optics used in the headset today.
We believe our all plastic pankey optics.
I just heard in the world.
Providing critical components for metaphors, the HFDF, the Adcina, lighter, comfortable, and easy to use has been one of my critical objectives. The HFDF has been one of my critical objectives.
or past the optics.
Thank you optics provide no need to clear advantages
Then you can be full.
The most importantly, to provide a very sharp image with good eye relief.
We believe combining our plastic pancake optics.
with our 2.6.
all at microdisplays representing a perfect match.
Providing Manification of 30,000 to 50,000 times.
by maintaining a very sharp image.
Ako has always remained the same.
which is to lead in this critical technology area.
They are essential for great VR, AR experiences.
This is a good place to put the importance on micro displays and pancakes.
in the proper context.
Oli Armour,
are analogous in importance.
Is the reducing faculty technologies
through our two electric vehicle industry.
Our second quarter growth.
occurred. I will still with global supply chain issues.
we are pleased with that growth.
It'd become air-coast.
as a pre-release indicates.
with incur more costs.
to keep our customers running and operations running.
then we will normally expect.
Typically, the first product design has a life cycle about five to seven years. It has a life cycle about five to seven years.
but given the supply chain issues.
An unlimited visibility as to when the supply chain issues will carry lost.
as a contingency.
We will design several products with alternate semiconductor components.
So we will have flexibility and a better plan.
This has increased our engineering and part costs.
And we also include those alternative semiconductor components as we also include those semiconductor components.
The positive positive news is based on discussion with our vendors now
He appears.
The supply chain issues are improving.
And with the leaves.
Operation the second half.
of 2022.
We run closer to normal.
Put them all.
We expect our second half revenue.
would be Hyatt.
in the first half of the video.
It's our defense business
It's best to be stronger.
Now let me provide an update on the progress in developing our micro audit product line.
We're currently designing multiple back planes for panusing customers.
And we are also in discussion with partners.
for more events on the designs.
for use in virtual reality and augmented reality systems.
The way is through all customers to us is I unique industry leading.
2.6K OLED display.
and deep knowledge of the display and objects with the system.
Customers, of course.
high resolution.
But the also value is 1.3 inch size.
because it enables better optics.
The 2.60s blade.
is really a display on a chip.
We name it D.O.C.
He has embedded mid-piece circuits.
and did she was crossing the circuit?
which made the interface withstand a video signal simpler.
and much less power of consuming. Consuming.
One additional tentacle advantage and the amount we have.
The steps folks were now beginning to understand, to understand.
The value of load is dry.
In all of this place,
is opposed to the current drive.
Coping design, our 2.6.
Unresolved, topic on display is intended to show under page 25.
Most others use current drives.
Vodush's current drives are now hotly debated in the industry.
And anal indicate the voge. drck results.
Significantly.
in lower power consumption.
especially as micro-display resolution increases.
Coping my call, all it, just based, it be sure to be significant using significantly lower power than all it's customers, all the suppliers. All the suppliers.
We are now in discussion with folks.
to port the advantage of our 2.63 design.
to higher resolutions.
such as 4K HDR displays.
as we have previously discussed.
Our on the product line is based on a shapeless business model.
Using our model, we either self-finished all that micro-displayed by customer. All that micro-displayed by customer.
but working with our audit 300 partners.
but we sell our highly advanced proprietary backplane waivers.
To all the OEM partners.
who complete the microdisplays for sale to their own customer base.
If this is not a providers...
more flexibility to beat the customers in that.
Turn into our research and developmental activities.
We continue to make excellent progress.
in developing a Michael LED display.
This is a customer funded project.
there's many ponders.
It's called Sajrrrim tablet.
working on different elements of displays.
is how we create our current LCD in the early 1990s.
with the 50 million dollar
funding from DARPA to us.
Do they clear it?
This is a long return development project.
for you successful, the display opens us to many opportunities.
In summary,
Customised command is trial.
in a cork product line.
especially in a defense set.
and we're aggressively managing a supply chain challenge.
We continue our momentum on innovating and advancing our technology for metaverse applications.
continue to see strong inches.
in developing products.
Target a full mentor.
very well positioned.
to capture and to capitalize the opportunities it presents.
Where's their cider for the growth of coping?
as we see a wave of radially coin interest.
microdisplays and optics.
across ARVIA in my products.
and applications.
First in the banks.
They enterprise.
Enough starting consumer sectors.
Our technology advances occur in market conditions throughout the liebe Hitler regime's inheritions to the???? themselves.
And we believe COVID is well positioned to capitalize.
Now we turn the call to which to discuss the financial aspect of this quarter in the four years. Thank you, John .
Tune into our financial results. Product revenues for the second quarter ended June 25, 2022 with $9 million. Okay, with $6.9 million for the second quarter ended June 26, 2021.
30% increase year over year. Funded research and development revenues were 2.8 million for the second quarter ended, June 25th, 2022, compared with 2.7 million for the second quarter ended, June 26th, 2021, essentially flat.
Total revenues for Q2 2022 were $11.9 million.
versus 9.9 million on the prior year.
and overall 20% increase.
year over here.
Part of the good soul for the second quarter of 2022 with $7.9 million or 88% of product revenues.
compared with 6 million or 87% for the second quarter of last year.
The flight increase in cost for the part revenues is a percent of.
of net product revenues. For the three months ended June 25th, 222, as compared to primary year, was primarily due to manufacturing efficiencies. was primarily due to manufacturing efficiencies.
caused by supply chain disruptions.
R&D expenses in the second quarter of 2022 were $5.1 million.
Compared with 3.7 million for the second quarter of 21.
The increase in the 22 second quarter R&D expense as compared to the prior year was equally split between internal R&D expense and customer funded R&D activities.
The increase in internal R&D was primarily due to an increase in OLED development costs and the redesign of certain products to incorporate alternative semiconductor components as a result of the shortage of legacy semiconductor components.
The increase in funded R&D was in support of customer funded activities related to defense programs.
SGNA was 4.3 million in the 7 quarter of 2022 compared to 4 million in the 7 quarter of 2021.
SG&A increased with three months ended June 25, 2022, as compared to three months ended 26. When is this new year?
2021 primarily due to an increase in compensation, information technology, and travel costs, which were partially offset by lower bad debt expense and stock-based compensation expense.
Other income expense was expense of approximately 141,000 for the second quarter of 2022, compared with 104,000 of income for the second quarter of 2021. Smeorgan's Scol ?? scientists seminar running a secondary period for financial investment and had just been covered with women-water-??inated citizens on duty during work, so do more women. If not men-re ??... Well, I am just finished with a very big starting plan, but I will pass away so those measures will be taken up by the government to.* and then press for two years to hit the residents good morning spring twins massage out on a timely activity after X-ray ???? hours of early twHa three days before treatment and after six hours and several aches relief from experience what?
During the three-month ed, June 25, 2022, we recorded 150,000 of foreign currency losses.
as compared to 101,000 foreign currency gains.
So the three months ended June 26, 2021.
Turning to the bottom line, our net loss due to controlling interest for the quarter was approximately $0.056 million or $0.06 per share.
Compared with a net loss of 3.8 million or 4 cents per share in the center quarter of 2021.
Net cash use and operating activities for the six month ended June 25, 2022 was approximately 11.4 million.
As John and my discussions indicated, supply chain issues affected our manufacturing efficiencies, which increased costs and negatively affected working capital flow in the first half of the year.
In addition, as we discussed, we received a production order for a perillium displays for rotary wing aircraft, and we expect another program to transition into production in the second half of 2022.
and these may require additional work and capital.
Accordingly, management team disproved partially fund our working capital needs through the use of our at the market equity offering program or ATM. And so during the second quarter of 2022, we sold 1.7 million shares of common stock, close policies of 2.19 million.
before deducting broker expenses of less than a million. 100,000. Excuse me. 100,000.
We're soon to the company's ATM.
Going forward, we will review another funding alternative.
The Copeland's cash equivalents and marketable securities were approximately 18.6 million at June 25, 2022 as compared to 29.3 million at December 25, 2021.
We have no long-term death.
Second quarter amounts of the appreciation.com expense are attached in the table to the Q2 press release.
The amount discussed above our based on current estimates and listen should review our form 10Q for the 7 quarter 2022 any possible changes in additional disclosures.
And with that, I'll be able to be happy to take questions.
Thank you. We will now begin the question answer session.
To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request.
If you are using a speaker phone, please pick up your handset before pressing any keys.
To withdraw your question, please press star, then two.
We will pause for a moment as callers join the queue.
The first question comes from Glenn Matson with Leidenberg-Salman.
Please go ahead.
Hi, yeah, thanks for taking the question. First, Rich, you just touched on it. I was curious about a little bit about the
about kind of the cash burn and where you sit today. So I guess, you know, you expect a stronger second half some of these new orders coming through and continue strong defense to expect. But then you also commented kind of like also having to build working capital. So is your expectation that you'll be?
continuing to burn at a rate at this level or that it would be a burn but not as bad or that you know.
flip to positive in terms of the cash flip operation. This is just what your sense in the second half thinks.
Yeah, the first half we look at it as an anomaly. We had supply chain disruptions in the end of the first quarter that carried into the second quarter. And so what happened was the receivables got collected during the second quarter, but then had to get rebuilt at the end of the second quarter. So if you actually, when you see the cash flow statement coming out, you'll see the cash flow statement coming out.
what you'll see is that the change in the receivables is really what caused the issue.
So we expect that to moderate. And we've rebuilt the receivables. So our working capital looks more normalized to what it should be. So you're not going to have those working capital fluctuations. We don't expect in the second half. And so with improving operations and the fact that we're not going to have this anomaly of the receivables getting burned down, we expect the cash slowly better in the second half.
Okay, and curious about the decision to do stock sales at that level and what this kind of signal stands and you know I understand that the issue just to grow more comfortable around preparing for these bigger orders but also you know on top of that could you maybe elaborate have you done any more.
Jail since the quarter ended and you also kind of mentioned that there's
Other options for KEPO raised activity of need be. So can you just kind of elaborate on that? Thanks.
Sure, I mean nobody was really particularly happy exercising at that price, the ATM that we had in the quarter, but we did think it was prudent. You know, there's a lot of talk about recession. We really weren't sure what supply chain was gonna go. As John said in his prepare remarks, the good news is it looks like from what we're hearing that supply chain issues for us at least seem to have been for the most part sorted out for the rest of the year. So we took a lot of actions just in case. We redesigned.
some of the boards that we use in the products. So this was incremental development costs we had not anticipated. We bought alternative semiconductor materials, which now looks like we probably won't use.
at least in the short term. So there was just expensive associated to making sure that we could fulfill our contract for obligations. But we don't see any of that in the second half of the year. We have in the past, you know, when we had sufficient time to do other types of funding usually around getting prepayments on long-term contracts from customers. And so we'll continue to explore those opportunities.
And I think the other important factor is that, you know, sitting here today, we have two programs at 35 and FWSI, which are in solid production, and we have three emerging production programs. And we are so sourced to all those programs.
And so, maintaining a very strong balance, she is very important so that those programs continue.
And so for those reasons.
We fight with the rate move to right and exercise the ETA.
Yeah yeah. Pretty high. Thank you.
It could give me more things. I think we are looking at other ways, but our customers, because we are so small to them, they also are some of the myadji helping us to alleviate some of those part-book humans and all that stuff. So would they have much better would they have better performers next year's Contrary to what I'm saying, the???, nothing else.
Great, that's it for me. Thanks for the color guys. The defense business is going really well. So be excited to watch that continue. Thanks.
Yeah, well we are leaning on it. We have a lot more orders coming in and
This is certainly the most important thing, the technology and all that. We do have them, yeah.
And we're so sorry, so much honor.
The next question comes from Kevin Deedy with H.C. Wainwright.
Please go ahead.
One gentleman thanks. Thanks for having me on the call.
A couple of things. I guess one is tied to inventory. I…
Now, I understand the supply chain issue and sourcing inventory seems to be up right? Sequentially. Where they were probably depressed in the March quarter.
I know what you just said that you probably acquired material you won't sell.
What do you suspect happens with inventory and the tie to margin?
Just through the balance of the year.
We expect improving growth margin and the inventory level we would expect to maintain where it is.
We don't see a major fluctuations in inventory levels at this time.
Okay.
The defense product are projects that aside from the FWSI and F35. Can you talk to the three that you mentioned, Rich? And...
I guess where you see them in terms of their development cycle and perhaps going to.
full production.
Yeah, we would expect all of them to be in full production in the first half of next year. As we mentioned, one is the beryllium display for rotary aircraft. Another is an international weapon site, similar to, in some respects, the FWSI that we currently sell. As we said in the press release, the recent results...
The chaos in Europe right now is actually sparking demand for those types of products. And so we're getting positive feedback from customers about future orders on those. And the other one's kind of a unique. And the other one's kind of a unique.
targeting system that we sell. I really can't get into a lot of details about what it does.
Okay, fair enough.
Has the chaos in Europe spurred development? It's interesting when you look at the sequential change in research and development.
down a couple of million, I left the March Cautical thinking that, we're all thinking that, thinking that
military development might increase. I guess I just was hoping you could help me understand that.
Well again, it's the, you know, we recognize revenue based upon percent completion.
And as John mentioned, for instance, the microLED program is a consortium of companies that are developing that display. And so in some respects, our revenues are tied to how well they complete their tasks.
So to the extent that they get stuff done and we move further down the road, we recognize more revenue.
So it's really, that's why it's always difficult to project.
that funded R and D line because, as I said, particularly in the micro LED we're lying on a number of other subcontractors to perform.
So is that the line share then rich of that line?
Well, it's a good piece of it. And then part of it is the fact that the... And then part of it is the fact that the...
The Barillion display that coined this production was winding down.
Okay.
Alright, that helped.
All right, that helps.
John , can you talk a little bit about the micro LED development? Understand partners in Japan and China. Understand partners in Japan and China.
I'm wondering if you'll be able to transition that technology and its development into defense-related products given. I'm wondering if you'll be able to transition that technology and its development into defense-related products given. I'm wondering if you'll be able to transition that technology and its development. I'm wondering if you'll be able to transition that technology and its development. I'm wondering if you'll be able to transition
In a lot of the development, or at least it seems to me at this from outside a lot of that development is happening outside the US.
This is a consortium. This is a technology and early demonstration of micro LEDs. This, of course, is run from here, but they are also run in the UK.
Confulsion is a lot of activities in the UK, which is our facility in the UK and then in Japan. Japan.
and partially also in China. But almost all the activities are really resides in the US and the UK right now.
Thank you, Pierre. Thank you, Pierre.
Okay. I know you said it's long term development.
And I, you know, over the past year, so you've added some interesting tidbits on it. Could you?
Maybe hone in on the timeline a little bit better.
Where do you think it might get to commercialization?
Yeah, it is a targeted tool at this point. It is actually the quality of mine targeted to defense and enterprise applications. X
the first and eventually it's called consumer. And it's a very aggressive target.
If we succeed, and I can't say that we definitely will succeed, you will be the most advanced.
Michael LVD in the world.
Okay, but no, it's too early to offer some type of time for that.
I mean, where they are, I don't think of course, but we have a bunch of very, very good people working on it. I think anybody can succeed with part of it has a good chance.
Okay.
Okay.
The
The balance of DOD stuff that you folks haven't spoken to. I understand the...
the issues in Europe , but...
Is there any way to sort of quantify?
how
Projects sort of in the wings and then develop might be moving forward more rapidly.
Yeah, well, Kevin, you're an artist of Kevin, right?
Yeah, you haven't.
I think we did not too long ago about...
some activities that our imaging systems are on the vehicles.
And...
And that's very critical. I really think political tensions happening is...
They did everybody need new imaging systems for using armor vehicles. They gave us so soft air. They gave us so soft air.
And the activities actually go through statement as well now.
and the work can get the office there to increase.
because through a lot of productions, you progress go to productions, a lot of activities in R&D, some of the bi-intolerant funded. But that's a normal one, things are away during the running cycle right now.
And yeah, we know we need to we ATM is just one of our options are raising more money. And I think we continue to do so.
Okay, see ya.
There was a $2 million development order for that in vehicle imaging. Is that the one you're referring to trying to pierce that? I wish that.
Let's check in. Yes, from development. Let's check in.
Yeah, that's exactly Kevin Hill, right? And that program, to me, I'm very excited about that program because I really believe there will be a major, major pipeline of revenue for us as we are, we are so soft and we're working with. We are so soft and we're working with.
Kevin you're right and that program, to me I'm very excited about that program because I really believe there will be a major, major pipeline of revenue for us as we are so soft and the working with a huge customer.
Right, so I just to kind of get back to timing, John . I mean, apologies for harping on this, but...
Would you suppose there's a chair to assume that this second order came in faster than it would have had there not been issues in Europe and if so how much more or how much faster do you think it came in?
I can't speak to that because there are a lot of activities going on. I cannot comment on them.
Okay.
Okay.
All right, can you talk a little bit about the metrology market, John ? I mean, I know you mentioned that there were, that you have three, all three customers, I guess, in South Korea. But I, I'd love to hear your perspective on that.
You know, fab development in the US. I know that's a highly controversial.
topic right now and it would be really interesting to hear your vision on how.
Foundries and semi manufacturing might expand in the US and how that could benefit Copen.
Yeah, this is a very interesting, safer question. I do not know every place. I do not know every place.
is every country in there is trying to build up a new path, and the semacognitive fact.
And as well- and you are rather even this weekend, I think that was our past weekend- is the article that have becomees? Does the chip lketing through dimensional? It's stacking a chip together on to with each other.
So we are seeing a situation where people no longer look at putting chips in 2D format, in a 3D format.
So, this is what we call 3D metrology.
Currently, it's still a vague emerging business.
The market now is divided into three parts.
Hoping to have our 40-year-old facility, FDD, we own about 40% of the world market.
PI using a DLP, the boom 40% of the world market.
And the rest of the might be amazing how the stuff is swollen.
So we have about 40% of market share of emerging business return everything from 2D to 3D. And as you can guess, everything is a golden code of 3D.
You're taking some time. People don't like to change their factories, but they will happen. And a new factory definitely needs it. Again.
Okay, thank you gentlemen for integrating my questions. I appreciate it. I appreciate it. I appreciate it. I appreciate it.
Ok waiting
That is all the time that we have for questions, and I would like to turn the conference call back over to Dr. Fan for any closing remarks.
Thank you for joining us today, and I hope you're here by the next week. Next time.
This concludes today's conference call. You may disconnect your lines.
Thank you for participating to have a pleasant day.
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