Q3 2022 Kopin Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the third quarter are coping as third quarter 2022 earnings call. Today's conference is being recorded.
At this time I'd like to turn the conference over to Richard Sneider. Please go ahead.
Thank you operator.
Welcome everyone and thank you for joining us this morning.
John will begin today's call with a brief discussion of his new role with coping and then it will introduce Michael Murray, our new CEO , who will discuss our strategy for coping and our progress in the third quarter.
I'll review the third quarter of 2022 results at a high level and after concluding remarks, and Michael will be it will.
We'd be happy to take your questions.
I'd like to remind everyone that during today's call taking place on Tuesday November one 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 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 was curious base 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 .
Yeah.
Good morning.
And thank you all.
Joining us to discuss our third quarter fiscal.
Trying to you're trying to do.
Operating results.
I'm, calling in from Asia.
It's a meeting with all our partners.
Hopefully this call it is clear to you.
I'm delighted and excited.
So your juice Michael Murray.
It's cold piece, New C E O.
I believe Michael.
That's the spirit.
The successful would eat meat.
Co pay to use that stage of growth.
I would remain chairman of Kobe.
It will work closely with Michael how do you see importing transitioned.
Well I continue to focus on what the strategy is scientific matters.
Especially related to a R M B a.
And we're not trying to call over to Michael.
Thanks, John Good morning, everyone. I also hope you can hear me clearly as I'm, calling in from Europe .
We're meeting with current and potential customers as well as some partners.
First I'd like to take a moment to thank John the coping board and the talented and hard working folks are coping for their warm welcome to the company.
Shawn has led our company through many business cycles and growth over the past 35 plus years.
<unk> fortunate to have him remain as chairman of the board and a critical visionary thought leader and partner and our technical strategy as I lead the company into the next stage of growth.
I decided to join coping due to the company's unique culture of innovation technical curiosity, and a rich blend of consumer industrial and military opportunities, which closely aligns with my background and interests.
I also believe that I bring a more systematic approach to business development product commercialization and program management, while still facilitating the culture of technical curiosity and freedom of experimentation, which is corridor the coup and culture.
That said I will turn to the third quarter results.
We had a good quarter the total revenues up 23% over the third quarter of last year, our third consecutive quarter of sequential growth.
Top line was driven by 50% year over year growth in product revenue.
Interestingly, our defense and consumer revenues were very strong in third quarter of 2022 with 115%.
And 76% year over year growth respectively.
The growth in these segments was partially offset however by a 37% year over year decline in our industrial revenues.
Yeah.
Now while the supply chain issues appear to be lessening, we continued to experience challenges one of which resulted unfortunately in a warranty issue within the quarter, which we have since addressed and we're hopeful that the $1 million charge will be the last related to the specific situation.
Currently the supply chain cadence appears to be improving though we do continue to experience intermittent challenges from time to time.
Importantly, we are on track for growth in the second half of the year to exceed the first half as promised and as a result, the fifth consecutive year coping will achieve year over year growth and I think this is a good segue to discuss our outlook.
Beginning in Q4 and throughout 2023, my focus will be driving on yield improvements and achieving on time in full deliveries, while identifying opportunities to reduce costs.
We expect these steps to result in improved margins and cash flow.
I also see significant revenue opportunities in 2023, as an example, or a RMB our market is an exciting market, which Copa is well positioned for growth.
We're working hard to develop and further develop the technology required to mature. This market. For example, we are the world's largest provider of this technology in the world's largest customers demand displays with higher brightness lower power and dinner sizes again as a reminder, coping as the world leader in supplying this.
G.
Other emerging markets for AR and VR, such as health care is still nascent however, we do see adoption rates increasing in these markets.
Which will also drive higher growth in 2023.
Lastly, our military and defense business has significant order cover heading into 2023.
Furthermore, on recent customer visits.
I clearly saw and heard how much they value coping as vas display capabilities, our swap C value.
<unk> ability to offer complex integrated optical display assemblies, the growing global concerns surrounding the war in Ukraine has generated further opportunities for Copa to expand our customer base and support our current customers with new international variance of our products.
Specifically, the recently announced $3 million initial production award is a great example of this we see this order is in similar potential deals like this as exciting new opportunities to expand our defense business My trip to Europe . This week directly supports that global defense business and opportunity level.
Before I turn the call over to rich however.
To review, our Q3 financials in more detail I did want to make one comment on our financial position the $900000 raised from the ATM.
Last quarter was related to the sale of announced especially in Q2 before I joined Cooper.
Which was completed in Q3, I am confident that the steps I've outlined.
We have the financial resources to fund our growth through.
Consistent and continuous improvement in our operations improve programmatic management and contracting strategies.
These things will help us drop increased profits to the bottom line so rich over to you.
Thank you Michael turning to our financial results.
Revenues for the third quarter ended September 24, 2022 were $9 9 million compared with $6 6 million for the third quarter ended September 22021.
A 50% increase year over year.
The increase in product revenues were driven by a 115% increase in defense revenues and a 76% increase in consumer revenue.
These were partially offset by a 37% decline in industrial revenues.
Funded research and development revenues were $3 4 million for the third quarter of 22, compared with $4 1 million for the third quarter of 2021.
An 18% decline.
The decline in funded research developed programs is to do two transitioning programs into production and billings from sub contractors.
Total revenues from Q3, 2022 were $13 4 million versus $10 9 million for the prior year and overall, 23% increase year over year.
Cost of goods sold for the third quarter of 2022 was 8 million or 81% of product revenues compared with $5, one or <unk> 78 per cent.
Third quarter of last year.
The increase in cost of product revenues as a percent of net product revenues.
For the three months ended September 25, 2022, as compared to the prior year was primarily due to a 1 million warranty charge, partially partially related to the quality issues from a vendor that Michael discussed.
R&D expenses in the third quarter of 2022 were $3 4 million compared with $3 8 million for the third quarter of 2021.
The decrease in 2022 third quarter R&D expense as compared to prior year was equally split between internal R&D and customer funded R&D activities.
SG&A expenses were $4 3 million in the third quarter of 2022 compared to $4 million in the third quarter of 2021.
SG&A increases for the three months ended September 24, 2022, as compared three months ended.
September 'twenty 2021 were primarily due to an increase in compensation and professional fees, which were partially offset by lower stock based compensation.
Other income and expense was an expense of approximately $2 1 million for the third quarter of 2022 compared with expense of 51000 for the third quarter of 'twenty one.
In the third quarter of 2022, we recorded a 2 million noncash impairment charge related to an investment in Asia.
During the three months ended September 24, 2022 recorded a 112000 of foreign currency losses, as compared to 29000 of foreign currency losses.
For the three months ended September 25 2021.
Turning to the bottom line the net loss of two of the Coca for the third quarter was approximately $4 5 million or <unk> <unk> per share compared with $2 1 million.
<unk> per share for the third.
Quarter of 'twenty one.
Net cash used in operating activities for the nine months ended September 24, 2022 was approximately $15 6 million.
<unk> cash and marketable securities were approximately $15 million at September 24th as compared to 29.
At December 25th 2021, we have no long term debt.
Third quarter amounts for depreciation and stock comp expense are.
<unk> attached in the table to the Q3 2022 press release.
The amounts discussed above are Kurt are based on current estimates and listeners should review our Form 10-K for the third quarter 2022.
For any possible changes and of course additional disclosures.
What are in Europe .
And with that I'll turn the call back over to Michael for closing remarks, and then we'll take your questions.
Thanks, very much rich ultimately this quarter was a reflection.
Selection of <unk> resilience hard work and dedication to manage through global supply chain issues.
The remnants hopefully of Covid and deliver a solid results.
We remain cautiously optimistic that we've identified and have mitigation plans for our supply chain challenges.
And we expect to have a good fourth quarter.
Now as we look forward, we are excited for the future and focused on pursuing an ambitious strategic growth plan, while not losing sight of the current macro uncertainties.
We remain optimistic and ever focused on the vision that has guided us from the beginning to be a company, where imagination and experimentation seeds innovation and invention and.
And that invention ignite innovation.
This innovation is why customers are partnered with us for the past 35 years in its court of all the things that we do and achieve.
Our goal now is to pair this innovation with a renewed focus of operational excellence.
Which will benefit our customers our partners employees and our shareholders.
For me to you and all of cope and thank you very much for your interest in coping and will now be happy to answer any questions that you may have operator. Thank.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to lay your signal to reach our equipment again. Please press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We will take our first question from Glenn Mattson with Ladenburg. Please go ahead.
Yeah, Hi, Thanks for taking the question Michael first one for you.
Interested given your background and and history and everything you talked a little bit about.
Hum.
Commercializing some of the great innovation that exists inside of cope and.
Could you just balanced like how you intend to do that kind of thing and in light of.
Actually like in spaces like commercial.
Oh, I'm, sorry, consumer where we're maybe like the AR and VR market is.
Still emerging or nation as you mentioned you have some color on that'd be great.
Sure Glenn was it I think I got there yet.
Yep Yep.
Question. So I think there's multiple strategies that play Glenn.
When you think about consumer and volume in display markets. Dr. Fans has been working very hard in China on that strategy with partnerships.
And the exciting opportunities that we have there.
When we look at.
Industrial and enterprise technologies, that's more of a licensing model that we already have in place and really taking Leighton IP and IP that we can take to the market and monetizing it and we'll do more of that in the future.
Because it's a great model for us and very profitable and then when we think about defense business I think there's opportunities there to use more of our technologies and.
In the defense market and one of the things that I've learned and we'll bring it to cope and is how to move up the value stack line. So what do you mean by that is our customers want us to provide them more capability.
Fence companies. These days don't want to necessarily do everything internally at our biggest customers want us to do more so that I think is the way I would answer. The question is for our mutual fund business, which is our defense business that pays the bills were going to do more for our customers and monetize more of their system move up the value stream stack with them.
Because they want us to and we'll monetize that with us on the industrial front, we'll continue to do our IP licensing and our expanded business and then Dr. <unk> is working on more of the strategy around how to move forward with higher volume our OLED business.
Our partners customers and strategies in China. So there was a three aspects of our strategy that where we're moving forward with will.
Find more in the next month or two as we have our strategic plan updates.
Great. Thanks for that color and the next one I don't know if it's better for for for you, Mike or for rich, but.
Just can you give us a sense of the on the defense side that the the.
New programs have kind of emerged more recently, what what stage you are in terms of low rate initial production versus full scale.
On some of the existing ones that have been around for a while can you give a sense of like the runway as we start to kind of think about.
Think about a little more about 2023 and in the outlets.
As we push out a little bit.
So go ahead Richard.
Okay Mike.
I was just going to answer with the I think folks are familiar with the FWS I program.
I think that's still got a lot of legs to it.
And we're in production with that will be for quite some time I believe.
There are other offshoot programs with that that I don't have permission to.
State, yet, but they're more on the international side of things, that's just coming into a rhythm now where low rate initial productions, we have three or four other defense programs that are just hitting early stage production that we're excited about so when you think about next year for us we have a good blend of existing.
Order book and I think this is to answer the question more succinctly, we have a great order book cover for next year for our defense business, which is.
What was it a 115% roughly speaking so so we have that rolling into next year and we also have some new programs with tier one customers that are just coming online. So so it's an exciting place to be.
Rich do you want to add any color to that.
No I think that is.
What I was going to say, we have a very solid base and you know as.
As we've talked about.
Yeah.
<unk> helmet program for helicopter pilot the international markets, a number of the other programs that have gone into low rate.
We have excellent growth potential on top of those.
Oh, great that's Oh I'll jump back in the queue. Thanks, guys.
As a reminder, star one for questions or comments please star one.
We'll take our next question from Kevin Dede with H C. Wainwright. Please go ahead.
Good morning, Mike and rich John Thanks.
Thanks for dialing in from so far away.
Mike.
Welcome to the new role.
It's great to hear from you and apologies for not having to be able to touch base earlier I'm curious, though you mentioned assist.
Systematic approach.
And I'm.
I'm wondering if you could characterize that for us what you do.
What did you see when you walked in the door and started <unk>.
Looking on things peeling, the onion back what do you think can change.
How detailed will your oversight beyond that type of thing and those types of things and then more specifically.
What do you think you can do.
To improve yields as you spoken to.
Sure Great question, Kevin So.
So what are the things that I've learned in my career is that process does not stifle innovation gets done properly innovation can exist and flourished through process.
And what have you. So so I think one other things from a systematic approaches putting in an approach for innovation that still allows for Freethinking preform experimentation and then monetizing that freeform experimentation into innovation. That's the process keeping the great things about <unk>, which is C. M. I C type.
A culture of innovation, well, making it monetize the bowl and profitable that's the systematic approach that I'm going to bring.
I learned that analog devices, a very innovative company still full of great ideas.
Wonderful engineering capabilities, but they are able to monetize it very very well that's the type of systematic approach that I'm speaking of Furthermore.
We're embarking upon a revisit of our strategic plan.
This month as well as a more robust budgeting process, which you know I think is important for the company and then from there we're going to look at the programmatic.
Our capabilities of the company in terms of running programs and making sure that we're delivering on time in full to our customer base. So that's how I look at more of a systematic approach.
And while we put that in place we don't want to.
Hinder any of our innovation or invention.
Along the way so so that's how I would answer that question.
Kevin.
Did I answer it fully for you.
Yes that helps it helps a lot I E.
Maybe you could get a little more granular.
As you discuss where you see yields and how you you'll work directly with those.
So from a yield perspective, we we have a lot of processes in the company that I think are good.
We will put in place more of an agile methodology when it comes to our program matic.
Reviews, as well as more statistical analysis or SBC.
Thought processes around our manufacturing. So so that's already underway that was already involved in in process within Cohen.
Previously however, the way that I look at statistical analysis of yield is.
It's a little bit different we will look at it the more broken down level. So that we know if were going wrong earlier in the process versus at the end of the process. So.
It's more of a statistical approach Kevin.
Okay.
You you seem to be more comfortable about supply chain issues can can you offer a little more insight on I mean, given the short tenure, where your comfort is coming from.
Sure.
Mainly I understand the FPGA market very well.
And I think you'll find other companies such as coping are struggling with FPGA deliveries can you mentioned five off the top of my head.
They are getting better because of their supply chain is getting better and we've had direct relationships and conversations with the specific FPGA supplier that.
We work with so theyre getting better clarity, therefore, we're getting better clarity and better confidence.
And that seems to be across the board in fact, I was listening to Intel and there.
Earnings call and it seems like they're getting a hold of their supply chain. So so it's a ripple effect, Kevin and you know we're at the end of that.
They were at the end of that.
But oh that supply chain.
And I think we're just getting better clarity and better confidence that our suppliers are getting their supply chain corrected.
Yeah.
Okay.
I mean everyone's spoken to the improvement in consumer.
Almost well actually more than doubled I think it and and business from the June quarter and I'm just.
I'm curious.
What you see driving that and how consistent that sales level might be albeit.
Minor compared to the defense business it still.
It's still a nice little pop and potentially indicative.
Indeed, Kevin that's exactly right, it's off a smaller base, but having said that it's about the funnel and we're still filling the funnel with new opportunities with tier one customers.
And they are starting to mature as time goes on here because the market the market is maturing.
And I think we're well positioned for growth in it but the way I view the consumer businesses. That's the part that's visible right. It's it's we're positioned well we have a strong portfolio of products.
Dr. <unk> is working on some really interesting things with our Chinese partners.
It's going to help fuel that growth.
But then I think about the overall business.
As consumer grows we're going to have this wonderful base business, that's profitable and will move along at a decent compound annual growth rate well, the consumer business will ebb and flow as they do.
But I do believe our consumer business will grow next year based on some of the <unk> that we've got there.
Some key customers and you're starting to hear some of the announcements that are coming out recently.
Cope and being involved with pancake optics, and some <unk> headset.
I think youre going to hear more of those in the future.
And to that end I highly recommend will.
We'll be at CES this year, Kevin and hopefully you're able to come visit us and Youll see some more of our new products in that suite and we're hopeful to have a great CES this year.
I appreciate the invitation I, usually try to make it its always a big show for John .
So it's it's it's definitely being considered so thanks very much like last question for me if I may Mike.
We've talked about a.
I think it was.
2 million I can't give the P&L it showed 2 million.
Write offs and you spoke to 1 million can we just have a little more detail on that at.
It kind of went by a little too quick for me.
Apologies for that.
Yes.
Burden of.
Maybe not a complete deck that you're talking to here.
Rich do you want to take that.
[laughter], sorry, Kevin I got distracted by someone.
Welcome to my office and relies on the call could you repeat the question.
Yeah sure I was just I was just wondering about the write down rich.
Hey, Dara I showed it to I think on the P&L and and and Michael mentioned, one that I was just looking for a little more color on that and I and it seems that.
That that might be the end of it.
Well so as you know we have a number of investments equity investments in this particular case, we have a significant investment in a company located in Asia.
Their business has been significantly affected by Covid.
And every quarter, we go through and do an impairment review on our investments.
And based upon the current <unk>.
Situation in Asia related to Covid and this customer.
We did evaluation and determined it was impaired and we took it.
And we did not fully right the investment off we just wrote it down too.
What our analysis says it's worth it's all part of the fair market value of accounting at the financial statements are based on.
There's a lot of assumptions in there about future growth rates and so on and so forth.
As promulgated by the accounting literature.
The noncash charge.
And.
It's something we're required to do every quarter.
But it is directly related to the impacts of Covid.
In the countries that they operate in.
Okay. Okay.
And the other.
Thank you very much.
Thanks, Kevin.
Yeah.
Ladies and gentlemen. This concludes today's Q&A session includes today's conference. We appreciate your participation.
You may now disconnect.
Yeah.
[music].
Yeah.
Yeah.