Q4 2023 Kopin Corporation Earnings Call
Okay.
[music].
Please standby were about to begin.
Good afternoon, everyone and welcome to be coping Corporation fourth quarter and full year 2023 earnings conference call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session you'd be registered to ask a question at any time by pressing star one on your telephone keypad.
And you also made withdraw yourself from the queue by pressing star. Two also today's call is being recorded and I will be standing by if anyone should need any assistance now at this time I'll turn things over to Mr. Quinn Cowen in Investor Relations. Please go ahead Sir.
Thank you good afternoon, everyone before we get started I'd like to remind everyone that during today's call taking place on Thursday March 14th 2024, 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.
The 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.
Although the company believes that the assumptions underlying these statements are reasonable any of them can be proven inaccurate and there can be no assurances that the results will be realized the company undertakes no obligation to update these forward looking statements made during today's call.
In addition references maybe made to certain non generally accepted accounting principles or non-GAAP measures for which you sit there for Tuesday appropriate disclaimers and reconciliations in the company.
Billings in pressure.
Uh huh.
Coking Corporation's Chief Executive Officer, Michael Murray will begin today's call with an overview of the company's progress within the company strategy. Following Michael Kaufman CFO, Richard Sneider will review the company's fourth quarter and full year 2023 research I would now like to turn the conference over to Michael Murray.
Thank you Gwen good afternoon to everyone and welcome to our fourth quarter and full year 2023 earnings call.
I'm very proud of the significant progress we've accomplished this past year on our transformation plan.
Achieving our fifth consecutive positive book to bill quarter, enabling over 55 million in backlog for 'twenty 'twenty four as.
As mentioned on our third quarter results call, we were expecting a new configuration weapons sight order in late December which would significantly increase our demand for the year and if received we would need to take actions within the quarter to prepare the plant for such an increase in demand.
Based on our understanding that are our recently announced $25 million order would be received in early 'twenty 'twenty. Four we took the decision to extend our holiday shutdown period, which impacted Q4 revenues. So that we could install new automation equipment retool and clean the plant to accommodate the anticipated significant increase in production.
<unk> and to improve production flow.
For long term profitability rich will provide more information on the quarter results shortly.
During my first earnings call as CEO last March I referenced our strategic initiatives for long term success and I'll update each of these initiatives briefly and in more detail and in our upcoming shareholder letter.
Turning to our first strategic initiative building the backlog.
During the fourth quarter of 2023, we booked follow on orders of approximately $6 million for our thermal weapon eyepiece assemblies as well as several smaller orders, which resulted in a book to bill of approximately one point to one for the fourth quarter as mentioned our fifth consecutive positive book to Bill.
<unk>.
The $6 million order was a follow on and the 25 million dollar order is it new configuration.
We received this quarter and represent a significant increase in year over year volume and future revenue and brings our current backlog level to $55 million.
We believe this is a record level.
Of orders for the last 10 years. Furthermore, we do anticipate additional follow on orders for both of these products and other products as well in 2024.
Based just on this current demand Copeland will potentially ship triple the volume of weapons sites within the calendar year of 2024.
We also continue to acquire inventory into the first quarter to service. These larger contracts that will go into production in 2024.
Now turning to our second strategic initiative focused on our Fab Lite strategy. We've also made significant progress in the fourth quarter and in 2023 as a reminder, coping as the only U S manufacturer of human centric AI and VR applications specific optical solutions in micro displays that are used primarily to provide.
Uhm awareness for war fighters surgeons and spatial computing device users.
You can find our solutions and weapons sights armored vehicles surgeons head mounted display and pilot helmet advisors.
To support the demanding needs of our individual markets between consumer medical industrial and defense customers. We have taken significant steps throughout 2023 to expand our OLED <unk> and micro led technology development, So partners outside of China.
Which are U S D O D approved and in regions that are NATO supportive.
Bill complete this transition this year.
This new strategy allows coping to manufacturer back clean technology and deposit either LCD, OLED micro Leds or L costs, either internally or externally for cost security of supply and performance beneficent beneficial's beneficial to the end customers.
And early success factor of this strategy was announced on Wednesday. This week, when we announced our European U S. D. O D. OLED partner was able to achieve brightness performance far higher than that of our consumer vendor, resulting in an OLED display with a lifetime brightness performance of more than 20000 candela per meter squared.
At lower power consumption, which is market, leading and enabling.
Our third strategic initiative is focused upon visual acuity systems and head mounted display technology developments.
As the technology of micro displays expands from AML CD to OLED and now it's a micro Leds are industry has reached an inflection point due to the size weight cost usability and neurological issues with AARP, our systems that remain unsolved and are gaining adoption rates.
Pulp and can and will solve some of these issues and last quarter, We announced we are working with our software and working on a software defined AI enabled back clean called our neural display.
The neural display architecture features embedded sensor pixels within the screen focus on the users is providing immediate feedback to the AI software powering the display.
The feedback from these pixel sensors empowers the software it's quickly adjust the contrast or the brightness of the dispute.
Display to accommodate changes in the user's vision neurological state and their environment.
This is what we mean when we say we are providing the knobs to the users through software to allow the technology had to adapt to their personal preference the.
The neural display will empower users to capitalize on the full capabilities of our displays the primary benefit of this design approaches approach our user comfort.
<unk> wait.
Removing cameras in the system adaptive eye tracking and dynamic fishing control and lower system power consumption.
We believe that this new design will resolved many of the flaws inherent in AR or VR headsets on the market today in consumer and military applications alike.
This is primarily due to the ubiquitous human response to fight or flight scenarios video induced nausea next strained caused by cantilever effects are forward facing late and battery sizes required due to high power consumption of the current headsets.
A neural display will allow for smaller more comfortable headsets, where the user can encounter a variety of scenarios, while staying engaged specifically in high stress environments found in defense and spatial computing markets.
More throughout the year.
As evidenced in our recent contract awards, we've been focusing on widening our customer base and taking a greater share of our customer spending by adopting the application specific optical solution strategy.
Indeed, we will still sell individual displays and we are winning sockets from competitors, who have been struggling of late but our core competency and differentiation is in delivering a fully integrated and optimized solution for our customers unique application.
This is evidenced in our success delivering our see our three module to market for our partner H M. D. M D.
Assisted surgery customers.
Design was completed entirely by coping with user inputs from H M. DMD it as elegant lightweight and brilliant to US we continue to work on similar applications with several new customers in the head mounted display market, specifically in spatial computing and defense applications.
Recently, we demonstrated our off divisor heads up display with Wilcox, which will we expect it to be a new source of revenue for the company.
We expect to announce more of these fully integrated systems and new customers to cope and shortly well we continued to drive innovation and research into our advanced display architectures as well that are also being successfully funded like the recent award from the Navy as an example.
As the military adopts more integrated visual acuity systems coping is uniquely positioned as the only U S owned micro display manufacturer that produces for different types of micro displays are fully integrated optical design capability associated drive electronics capability and now a software defined AI enabled architectures.
Sure.
Throughout 2022, we've been working with our government and military advanced research labs to create technology, Roadmaps and funding projects, which will increase our technology readiness level and mature our technology to intersect next generation technology integration and insertion efforts, we expect to announce more progress on these initiatives throughout 2024.
Now I'll sit in the past 2023.
Focusing on improving our on time in full or <unk> rate and delight our customers throughout the year. We've continually improved in this strategic initiative area and have moved from a 63% on time in full rate to 84 across the company in under one year, Indeed, a tremendous improvement, but there is still more to accomplish and we.
<unk> focused on reaching and surpassing our goals in this critical area.
Now complementary to our on time in full initiative returning the operation to a cash breakeven level is a milestone of our transformation. We came very close both in the second and third quarters when expenses related with a lawsuit of noncash expenses are removed.
We achieved this milestone by improving margins and closely scrutinizing R&D and SG&A spending with continued efforts on what we can control and deliver and deliver solid margins and growth our investors look for.
We have the contracts in place to return to revenue growth in 2024, and expect growth of 20% or greater this year and our goal remains to become a more profitable company. This year.
Lastly, and most importantly, our one coping cultural initiative and talent strategy made a significant progress this year due to the hard work of our board of directors the leadership team and all of our coping team members, we were able to retain the best talent within koeppen attract new talent with the skill sets, we require for growth and refocus the company into an <unk>.
Organization focused on execution we.
We celebrated our new direction, our new organization and strategy this quarter with the announcement of our new brands are new logo and website.
Our team at <unk> continues to improve win and grow and it will be the talented people of coke and that continued to execute on these initiatives this year.
I'll now turn the call over to rich our CFO to review our results in further detail over to you Richard Thank you Michael.
Turning to our financial results for the fourth quarter total revenues in Q4, 2023 were $8 6 million versus $12 2 million for the prior year, a 30% decrease year over year.
Product revenues for the fourth quarter ended December 30, <unk> 2023 were $6 8 million compared to $8 7 million for the fourth quarter ended December 31 2020 to.
The decrease in product revenues was a result of lower defense and industrial revenues, which decreased by $1 million.
600000, respectively year over year.
Hello Defense revenues were in part due to planned refurbishing of the clean room. During the last weeks of December we discussed in our third quarter.
Financial performance call.
Lower industrial revenues as a trend we saw throughout 2023 due to weakness in the Chinese market.
In the fourth quarter of 2023 funded research and development revenues decreased by $1 6 million or 47% due to the completion of several programs.
Cost of revenues for the fourth quarter of 2023 was $7 2 million or 106% of net product revenues compared to $8 9 million or 103% of net product revenues for the fourth quarter of 2022.
Negative gross margin was partly associated with the clean room refurbishment.
In addition, we wrote off approximately $400000 of raw materials, we believe would have low yield if we use them in production.
Further Q4 2023 cost of sales includes 445000 of noncash stock compensation as compared to 25000 for the fourth quarter of 2022.
Excluding the impacts of these items cost of sales as a percentage of product revenues would have been 94% for Q4 2023 versus 103% for 'twenty Q4 of 2022.
R&D expenses for the fourth quarter of 'twenty, three with $2 2 million compared to $4 7 million for the fourth quarter of 2022.
52% decrease year over year.
The decrease in R&D expenses attributed to a decrease in funded research and development expense at certain programs were completed and lower internal expenses related to OLED development.
SG&A expenses were $5 $9 million in the fourth quarter of 2003 compared to $4 9 million in the fourth quarter 2022.
Increase was primarily due to legal fees associated with our pending litigation.
Turning to the bottom line net loss exceeded the Copa for the fourth quarter of 2003 was $6 5 million or <unk> <unk> per share compared with a net loss attributed copeland of $6 2 million or 7% or seven cents per share for the fourth quarter of 2022.
Turning to the year ended December 32023.
Total revenues for the year ended December 30, 23 were $40 4 million compared to $47 4 million for the year ended December 31 2022.
Product revenues for the year ended December 30, 23, with $25 9 million compared with $32 4 million for the year ended December 31 2022.
The decrease in product revenues was a result of lower defense industrial consumer products revenues, which decreased by $2 2 million $3 4 million.
900000, respectively year over year.
Revenues from the sale of products for defense declined due to lower revenues from thermal weapon sight applications, which were partially offset by higher revenues from avionic applications.
Revenues for industrial applications declined due to lower revenues for products with <unk> automated optical inspection.
Continued weakness in the Chinese automate tweedy automated test market.
And lower revenues from industrial headset application.
Consumer revenues declined <unk> 23, compared to 2022 due to lower sales of OLED displays for consumer applications.
In the full year 2020, we funded research and development revenues decreased 900000 or 6%.
<unk> funding for new display technology developed U S program and OLED TV.
Development costs, which were partially offset by increased funding for army vehicles targeting and medical headsets about.
Cost of product revenues for 2023 was $25 million or 96% of product revenues compared to 32.6.
$6 million or 100% of product revenues in the prior year.
Cost of product revenues decreased as a percentage of revenues in 2023 as compared to 2022, primarily due to an increase in higher margin products.
Thanks applications in 23 versus 2022, and lower sales of lower margin products for defense applications and 23 versus 2022.
2023 cost of sales includes 1.2.
$2 million of noncash stock compensation as compared to 95000 for 2022.
Excluding the noncash stock compensation cost of sales as a percentage of product revenues would have been 92% for Q4 2023 versus a 100% for 2022.
R&D expenses for 23 were $10 8 million compared to $18 7 million for 2022 up 42% decrease year over year.
The decrease in R&D expense as compared to prior year was seen in both funded and internal R&D.
R&D expenses were $7 2 million for 'twenty, three as compared to $10 three for 2022% to 30% decrease primarily due to the completion of contracts for defense programs awarded prior to 2000 tweet.
Internal R&D expenses were $3 6 million for 23 compared to $8 4 million for 2022, 57% decrease primarily due a decrease in OLED development cost.
SG&A expenses were $21 8 million or 23 compared to $18 million for 2022 <unk>.
SG&A for 'twenty, three increase compared to 22, primarily due to an increase of approximately $5 million in legal and professional.
$1 million in noncash stock based compensation.
Partially offset by $1 3 million decrease in compensation and other benefits.
Net loss attributed equivalent Corporation for 23 was $19 $7 million or <unk> 18 per share.
Compared with a net loss attributed Copeland at $19 3 million or 21 per share for 2022.
Net cash used in operating activities for 23 was approximately $15 3 million.
<unk> cash and equivalents in marketable securities were $17 9 million at December 30 <unk>.
$12 6 million at December 31, 2022.
The amounts discussed above are based on our current estimates and listeners should review our Form 10-K for the year ended December 30, <unk> 2023 for any possible changes and of course additional disclosures.
And with that I'll turn it over to Michael for closing remarks, and then we'll take your questions.
Thanks, very much rich.
Evidenced in our fourth quarter and full year results. Our focus continues to be on strengthening our record order book pushing on time in full rates higher cost controls and making sure that the strategic investments in products and people, which in the aggregate will improve cash flow and provide long term sustainable profitable growth.
We've also been working hard on our brand external marketing and website development efforts, we're ecstatic to announce that we've recently launched a new website and identity.
Looking forward we are.
<unk> fortunate to have world, leading in market, making customers who are supporting customer during this transformation.
Have a unique strategy that distances ourselves from commodity competition tremendous products and capabilities that new and existing customers value.
As we continue to advance and move up the value chain and gain more share of our customer systems and spending we are carefully selecting new strategic partners to work with and remain focused on new opportunities in development projects, which support our strategic plan along with opening the aperture to non organic growth opportunities as well.
To this end and due to our application specific optical solutions strategy are qualified opportunity pipeline has grown exponentially in the past few quarters due to the recent geopolitical issues and increased sovereign and four in NATO spending.
We expect several new customers partners and project awards and announcements.
Soon which will not only add to our order book that will fuel larger returns in the future as these new projects move into full rate production.
Perhaps the most culturally important transformation is that Cooper remains focused on invention and innovation, but with more focus on cost controls and return on our investments.
These new inventions discussed today will help drive our innovations that solve our customers' most difficult technical problems and serve as the bedrock of our business and fuel our long term sustainable growth for our employees our customers and stakeholders. Thank you everyone for your time today and for showing interest in coping I'd like to thank our employees customers and stakeholders.
For the continued hard work support and dedication and with that operator, we'll open it up for a few questions.
Certainly thank you Mr. Murray, ladies and gentlemen at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question and we will pause for just one moment to allow questions to queue.
Yes.
Yes, hi, Thank you good afternoon.
A couple of questions from me.
Yes.
Michael you talked in your your outlook in the release about expectations for double digit growth. This year and you also talked about that $55 million in backlog, how should we think about how that plays out obviously.
You were down for various reasons this quarter.
And I am sorry.
Should we expect to see that growth year over year begin in Q1 or is it going to be more backend loaded and of that $55 million of backlog that doesn't necessarily mean, that's going to be shipped in this year right and some of that could be pushed out.
Yes, great question, Matt So firstly.
We see the back half of this year being exciting growth for the company in Q1, right now where we sit as were actively purchasing materials for those orders. So as we get materials as we start building based on a 606 accounting methods.
We'll be able to achieve higher growth rates and revenue rates along with that as we progress. So I think youre going to see an escalated revenue growth quarter over quarter.
Our customers are pulling demand to the left meaning they will take earlier deliveries and our goal is to ship everything we've got in backlog in 2024.
Whether or not we're able to do that as a function of getting the parts in here.
But I am pleased to say that our hiring is going quite well in terms of production and we took the really tough decision in Q4 to take those couple of days to realign the fabs. So that we can grow. So that's why we took that decision in Q4 versus this year.
So you do expect Q1 to be up year over year then.
Up over Q4.
Sequentially.
Okay, but year over year, it'll still be down in other words right. Because you were at $10 7 million. Okay. Okay. So to get to that Doug So youre looking at.
You were talking like.
High teens plus growth in the second half basically to get to those numbers right.
Okay, and then on gross margin.
There were a lot of moving parts I love hearing the clarifying on that that what was that that raw material write off all about and.
Given that your it sounds like Youre in the build mode. In Q1, So should we expect gross margins should be depression in other words below where they were in an ear of Q2 and Q3, which is in the mid forty's.
Okay.
Yes, so as it relates to the $400000 material write off.
We are working hard as you saw when you pull out the noncash charges, we did pretty good job both in Q4 and year over year in improving gross margins and we want to maintain that track.
As Michael said, it's all about materials for us.
And so.
We're asking our vendors to step up.
Certain components, which are very sophisticated.
In our product and every now and again when they try to increase and ramp up we get a lot of it.
A lot of material.
Not a lot a lot not a lot of material.
That just doesn't pass inspection and so sometimes you look at it and you say well maybe it'll work maybe it wont.
But we're just making.
As Michael mentioned, we've put a lot of quality programs in the stop that stuff from getting in the line.
Before we spent a lot of money manufacturing product that ultimately may or may not pass.
And so that's what we did we had $400000 material, we looked at it and we said okay.
Not really sure that we put this stuff through the line, it's going to get there.
And so we've made the decision just to write it off.
We work with the vendors, sometimes they give us credit sometimes they don't it's an ongoing issue and so that's just going to continue probably through the first half of the year and that's why honestly, we're being somewhat cautious about guidance for the first half of the year on growth because we really need to see our vendors step up and provide the materials.
If we're successful then we will do better.
But we're taking a conservative approach right now.
Yes.
Okay.
Understood. So in other words, you expect growth so what should we be modeling gross margins in the first half like below 40%.
Yes.
Yes.
And that just goes back to the question of profitability, Michael I know last year, you talked about entering fiscal 'twenty for cash flow breakeven EBITDA breakeven and obviously youre going to be below that for the next couple of quarters.
So.
The question is what confidence you have that you kind of get to get to that those profitability goals by the second half.
Yes, it was a function of scrap and.
In revenue.
And Ah.
Absorption rate on the fab so as we build more through the fab, we're able to keep that absorption rate high and Thats, what will drop through the bottom line. So one of the early success factors that I see it.
I'm confident that we'll achieve that goal. This year is we are touching more on inbound inspection, which is great news the problem that that creates though if we order 100 lenses as an example, and 10 of them are returned to the vendor for quality issues that leaves US 90 to build so we went through those <unk> last year quarter.
<unk> three in quarter, four and now we're adjusting our models and ordering appropriately based on the new quality levels that we're seeing so that's number one number two the volumes that we're now seeing on the thermal weapon sights will allow us.
To increase our absorption rate on the fab and get to that breakeven point, where we then start to drop more down the bottom line. So we see that time being Q3, Q4, but we really got to hustle and get the product in here and get moving.
Got it okay. Thanks very much.
Yes, the other thing Matt I would add is the litigation goes to trial in.
And days roughly and so we would expect it to be over.
By Middle of April.
And that has been a substantial cash right.
Thank you we'll go next now to Glenn Mattson at Ladenburg.
Yeah, Hi, congrats on the business momentum and the backlog build and everything rich.
Speaking on the trial that you just mentioned the.
Can you quantify what do you expect the expense to be in I guess it will be partial.
Well I'll be Q1, I don't know how long the trial is expected to last that kind of thing just your general sense for how we model out that portion of the expense line.
File starts March 20th we're told it's a four week trial. So third week in April it's over.
And it will be several million dollars.
But I'll also comment back to Matt's question one.
One of the perturbations to the business has been that that ongoing litigation and we did take a significant amount of cost in Q4 expecting that this would have gone to trial or at least was prepping to trial.
And then there was a COVID-19 issue in the courts. So.
That was an unforeseen issue.
Quite frankly, just cost us more cash.
Great.
On the general.
The backdrop that you talked about on the business side, Mike you mentioned the backlog in <unk>.
The order flow that you've gotten recently, but also that there could be some further bob.
So on to some of these orders that you are doing now and some potential kind of bigger things as well can you just kind of help quantify what are the some of the <unk> like one or two or three biggest opportunities just remind us what's out there maybe it's like the armored vehicle programmer or something else that just kind of frame how to think about what that could mean for this year and for 2425 potentially is.
As this stuff comes through.
Sure so to quantify it as best I can.
Thermal weapon sight program is really actually hitting full rate production now.
It was ongoing for a few years I think it is hitting its stride now.
And those retrofits and upgrades are happening at the army level. Furthermore, there were some recent new weapons selections.
If you Google hard enough you can find them for squad weapon what have you.
We are also increasing adoption rates just simply because there's new guns to outfit. So we're seeing the benefit from that Moreover, I mentioned NATO and NATO spending if you do the math around new countries, joining NATO sovereign and foreign.
Spending that is going on we will be beneficiaries of that I believe are hard to quantify when and where and how but we are seeing a lot of uptick in new opportunities from other countries and other ministries of defense So do.
So we see some opportunity in that area, specifically in the international weapons sight business.
So I think that's going to continue and I believe our customer is taking share of the Ida IQ from their competitor because of our quality rates and some of the performance that we've been able to put together in 2023.
So all good things on the thermal weapon sight on the armored vehicle program.
We've actually been having a lot of conversation with that customer and the great News. There is they are still asking us to pull that program in <unk>.
And get done with our <unk> program as quickly as possible. They are now talking to us about additional platforms for that weapons sight, which is exciting news and we hope to have some announcements. There later half of this year and getting those production orders on the books in Q3 Q4. So so that's on track we're on track with that program order.
Which is great news, we also have our avionics customer that is transitioning over to OLED and we're expecting that to happen this year as well, which would be additional orders on coping. So I'll just sit here in March with $55 million of backlog.
A year ago, I wouldn't say, we would get this far but tremendous effort and tremendous results by the team.
Yes. The other thing I would add is that there are also a couple of other significant programs that are in process, if our government ever becomes functional.
And can pass a budget.
And get through this.
And to frame that.
Now we're looking at.
We're between $8 4 million to $15 million potentially even 'twenty. If if once the the government gets back working and has some resolutions that are past months the government works. So.
So where we are.
We're expecting those to happen in my view is that we'll have.
Several new customer contracts that will be able to announce here shortly so.
Yes.
I hope that answers your question right, Yes, yes, no it definitely helps.
Helpful to frame rate then just last one for me.
So during the current quarter to Q1 is when the vision pro launched or whatever can you just.
Give a sense of.
If that's spurring a lot more conversations on the.
You talked a little bit about kind of some technologies that you're developing for.
For VR display type stuff, but some of that might be further out but just perhaps.
There's been a significant uptick, but it's worth talking about it in the <unk>.
Space.
The success of the vision pro thanks.
Sure. So vision I think is going to increase the adoption rate that we all need an ERP systems.
Systems, It's really a software platform in my view, which is what they released.
Are getting.
Decent companies that are now building apps for the <unk> Pro and that's just going to enable the market right and as that market adoption starts to heat up so will the rest of the markets being medical military Etsy.
Et cetera. So so I think the adoption rate is going to increase Glenn and we definitely are seeing an uptick in consumer on our request for or.
Koeppen to work with consumer companies, but I'm very tentative with that right now based on the level of costs and risks that I see in the consumer marketplace still.
Right now, we see tremendous demand from the military customers with real money real demand that I can put my finger on so we're tending to focus on that more having said that we do have consumer.
<unk> that is more of an IP related business and we're developing that relationship now and we expect to have.
Some announcements later half of this year to be back at CES in 2025.
Okay.
That's it for me thanks very much.
Thanks Glenn.
Thank you and just a quick reminder, ladies and gentlemen star one for questions. This afternoon, well go next to Kevin <unk> at H C. Wainwright.
Afternoon, gentlemen, Michael Rich Thanks for having me on.
Thanks for being here, Kevin Yes, no.
I guess first thing Michael.
Your your initial remarks spoke to the outline of strategic objectives, you offer in the March call last year.
I was wondering if you wouldn't mind sharing sincerely how you think you've done.
Yes.
Whether or not.
You've accomplished as much as you thought you would as rapidly as you have.
Or whether or not you think that some of the hiccups that you've run into I E.
<unk> with source components problems with the fab have delayed the improvement that you thought you could accomplish it a year ago.
I would answer it this way I think the surprises for me have been.
I think the cash spent on the lawsuit has been more than what I expected it to be lumpy.
Lumpier than we expected it to be so I think that was a probation that I had not expected and caused havoc with our SG&A and our balance sheet quite frankly.
So I didn't quite understand how that was going to impact the year. So that would be number one number two.
The amount of effort that we put into our quality systems.
It was more.
Difficult than I had it I'd say appreciated and how much detail was going to be required to be improved how much documentation was going to need to be improved.
And quite frankly, we needed some.
I would say better talent in that area, and we went out and got it.
And now we're improving the customers are rewarding us I think the best.
Surprise and last year was the customer's willingness to work with <unk> and the fact that they want to give us more they want to give us more business and at this point in time, they are and if we keep doing what we're doing I think we're going to be wildly successful I'm.
Im afraid to tell people, what our opportunity pipeline is because the number is so large so I think we've got tremendous opportunity to grow the company.
And I think it's just blocking and tackling keeping our customers happy and turning out quality products. So I think that's that's where my head is that after.
After a year.
Okay help me.
Make sure that I have the details straight here.
Could swear to that I heard in your prepared remarks, you were comfortable with 20% growth.
Which gets you like $48 5 million. This year your backlog 55, and you expect to convert all of it this year.
So.
Sort of help me reconcile those two or correct.
And my understanding please.
Sure just conservatism, we want to make sure that we're our supply chain can support that level of volume.
We are buying to that level of volume today and expect to ship that level of volume.
But again, we want to make sure that we're very crisp and concise.
Hit our marks.
That's the reason for the Delta.
Okay fair enough. Thank you.
I was wondering if you could peel the onion back a little bit on the on the thermal sites understand.
We're very excited about that but could you.
I know that Youre, obviously very involved with the <unk>.
WSI.
But.
I guess, what I don't understand is.
How much for an interest you are seeing I thought I understood, maybe a 20 million dollar order coming in from.
NATO affiliate can you just help clarify that.
No the $25 million that we received this quarter is for the U S. Dod.
New weapon.
Selection, so with the new weapons selection, Kevin along comes a new weapon sight.
And we had to do some work on the optics to make that weapon site work for this new weapons system. So that is for U S. Dod.
We did have in 2023, several orders for international weapons sights, specifically long range and our customer is.
<unk> for new business in that area internationally and Theyre being successful. So we'll see what happens this year with some of the conflicts that are going on but in the international market. It is much more price.
Conscientious then I'd say the U S. Dod market from my understanding.
I also see opportunity in non conventional weapons sight systems like off the advisor systems. As an example, which is one of the things that we worked on with Wilcox and displayed with Wilcox at the shot show. So I think those are new opportunities for us to grow our business in our portfolio and.
And I think you'll hear some exciting news around those technologies as well this year.
Yeah, Kevin I would add that.
Youll see for instance.
A discussion about the U S providing arms to the Ukraine as an example, our customers in situations like that is the United States government.
Not like Ukraine, or some European nation orders that they actually.
Are supplied by the U S government so.
Technically our customers always the U S government and sometimes we know where it's going and sometimes we don't.
Okay. Thank you.
Michael if you'll allow me you spoke to black back claim development.
And I guess, making sure that.
Your sources are outside of China.
And you mentioned, both internally and externally and I kind of lost your train of thought on that so.
If you could help me if you could help me kind of understand that and maybe how the process is different than the way you were looking at a year ago.
And what position.
James puts you in going forward.
Yes, no problem, let me clarify so we build our back planes with the silicon partner and.
And we control that internally, so we will send out a wafer.
Request to our partner.
Who is in Asia not in China.
But we will receive those back plates.
So we build the back planes, we designed the back planes, we can deposit certain material, whether it be OLED micro Leds.
L costs and Dalgety Bay as an example.
But it's that deposition partner that I'm, referring to more specifically as being fab light. The reason why that's important is we've moved our OLED deposition out of China.
We have now signed up a European deposition partner that is adapting our OLED designs and using their deposition materials and process and quite frankly, it's working better than expected, we're getting better quality results better brightness and power consumption.
And pardon me not power consumption contrast numbers from that partner. So so that's going very very well very impressed with that but we're also looking at other partners in Korea. As an example that have high volume OLED deposition and capability as well as micro led technology and our U S. Dod approved.
So expanding into that market allows us to still own the back plane, which we need to design, that's where the that's where the brains go the processor itself.
The software that controls the display the deposition Kevin.
OLED or Leds or what have you is what's happening.
Our partners sites does that help.
Yes, yes, yes, it helps a lot and I remember was one of your first initiatives was to move to Fab Lite and then at that point was youre.
Deposition partner the one.
In China or have you already begun to work with the European partner.
So the Fabless strategy was.
Sorry.
It's a very specific initiatives.
Because we we.
We saw tremendous opportunity in U S. Dod and the answer was we'd love to give it to you, but you can't deposit OLED <unk> in China, and I said fine we won't.
And now we do not deposit OLED in China for <unk> customers, and we're being very successful in taking share of individual displays and our optical solutions away from some of our domestic competitors. So.
That strategy is working quite well actually.
Im trying to shorten up my question list for you Michael.
I can't not let this one go.
I'd really love to hear an update on the neuro display.
Thank you referenced it obviously, but.
Not much detail on <unk>.
On time to market and any sort of customer acceptance you may have had to this point.
Okay.
I'll update.
And the next call with more definitive.
<unk> however.
We have been marketing the neural display with.
I'd say, a handful of customers in consumer and a handful of very strategic customers in defense. We've also written several research papers requesting funding for the neural display.
<unk>.
Think we will be successful in getting that funding from the U S. D O D.
For soldier vision systems, So that's going well I have a high degree of confidence in that technology and our ability to fund it.
One number two I have the team working on a very stressful timeline right now.
We want to be demonstrable in Q1 of 2025, it won't be a full two K display or four K display, but I believe we will have a demonstrable display in Q1 of 2025 that we can demonstrate for customers utilizing this new technology and that's our goal Kevin.
Laughter, you went that way.
So that Q1 is CES 2025, Michael which I know you referenced so could we be so lucky as to see something there or am I, assuming too high.
Well, let's put it this way that's what I'm, forcing the engineers towards.
But again I want to stress that is a very lofty goal.
But that is the goal.
And we're working like Mad to make that happen and.
And we also have a USD demonstration.
Demonstration that we want to do in Q4 that has now taken priority over that because of the volume of business that we could associate with it but that's the goal Kevin as 2025 CES.
So we'll do our best but it is a lofty goal.
Yes, well thanks for Indulging me gentlemen, I appreciate it.
I'll turn the.
Call over.
Finally, thanks, Kevin.
Thank you and it appears we have no further questions. This afternoon, Mr. Mary I'd like to hand things back to you for any closing comments.
Thank you operator, thank you all for joining.
We hope you stay safe and have a great spring and we will talk to you.
At our next call. Thank you very much for joining.
Thank you again, ladies and gentlemen that will conclude the coping corporation fourth quarter and full year 2023 earnings call I would like to again. Thank you all so much for joining us and wish you all a great remainder of your day Goodbye.
[music].
Hum.
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Uh huh.
[music].
Okay.
[music].
Hello, Matt.
Okay.
Sure.
[music].
Okay.
[music].
Yes.
Okay.
No.
[music].
Hum.
Okay.
Yes.
Yeah.
Yes.