Kopin Corporation

Corporation Third Quarter 2020 Earnings Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Richard Schneider, Chief Financial Officer. Please go ahead.

Thank you, Andrea. Welcome, everyone, and thank you for joining us this morning. John will begin today's call with a discussion about the market environment that we see and our progress in actually our strategy to improve our sales activity and technology development. I will go through the third quarter results at a high level. John will conclude our prepared remarks, and then we'll have to take your questions. I would like to remind everyone that during today's call taking place on Tuesday, November 3rd, 2020, we will be making forward-looking statements as defined in the Privacy and Security Litigation Reform Act of 1995. These statements are based on expectations, projections, beliefs, and estimates, and are subject to a number of risks and uncertainties that could cause actual results and a challenge different from those forward-looking statements. Good morning. Thank you for joining us to discuss Oxford's Better Results. I want to start by expressing our hope that you and your families continue to stay well and safe during this unprecedented time. Looking into our third quarter, we are very pleased with many aspects of our business. Our current product sales are incredible. Our funded development program, ELA, has never been stronger. But we continue to make major improvements in our product cost and use while maintaining concise and fair control. In addition, we're making great strides in our next-generation design and display development. Our total revenue increased 55% compared to the first quarter of 2019, which represents the fifth-strict quarter of the double-digit U.S.-on-U.S. top-line growth, excluding a one-time asset fair in February 2019. It has been a very good year for us so far. And we look forward to continue strong momentum through the fall quarter and into 2021. Leading our third quarter revenue growth was our strength in defense quarter revenues, which grew 140% year over year. Our two primary production programs are the F-35 fighter jet helmet and the FWSI program. In September, we announced that we will award a $22.9 million follow-up for the FWSI thermal weapons site program. The deliveries through the third quarter of 2021. Including this week's order, we have received total orders today of approximately 33 million for this program. As discussed in the news release announced, announcing that Contract Wing, The FWFR program is a clip-on thermal record site that provides users with the ability to identify targets in the most extreme circumstances. Clipping is the sole source on that contract, as it is in F35. We expect both programs to continue for many years into the future. Our funded development program revenues grow over 100% year-over-year, which is a clear indication of the strength of our future growth potential. These programs qualify our customers, including both product-specific developments as well as new advanced micro-display technology developments. In fact, Much of the new funder R&D growth is for advanced model display development. We expect these development programs will further build on our current production systems in the coming years. We currently have over 10 different programs in various stages of development, which is the strongest lineup in our history. These defense programs include the use of our products in our vehicles, parking systems, rotary winged aircraft helmets, soldier weapons day scopes, and other programs. Three of these defense development programs are expected to start their production next year, adding to our two current production programs. We also were excited to see growth coming from our enterprise customers who have incorporated our displays and modules into their AR products. The fourth remote and socially distanced approach to work driven by COVID-19 has shown the power of wireless technology and we've seen accelerated adoption and roll out of AR devices to enterprise workforce. With the enterprise market AR to continue to gain traction and to equal system infrastructure elements necessary for the enterprise market, such as 5G, will help to accelerate the mass market for consumer AR and VR production. are already benefiting from the defense and enterprise adoption. We are ideally positioned to meet those demands of those markets with our broad line-up of micro-display products and module solutions, including both LCD and OLED micro-displays. It is important to emphasize here the importance of our module solutions. For micro-display to be used in practice, it must be offered in duct-feed fluid modules which consist of sophisticated optics and electronics within a sealed housing. Coopering has deep experience in this area, and just why many customers turn to coping for their micro-displacement solutions. We're also excited about the technical facets, you know, food stacks, organic, like making dyes, We had the opportunity to highlight these OLED technical advances in a recent webinar sponsored by Insight Media, where we shared the results of our patent efforts to achieve industry-leading high-brightness OLED micro-displays. Especially in the second quarter, achieving high-brightness with low power consumption while maintaining color fidelity as their obstacle to create ARVI assets than we see with the silicon. In the webinar, we describe our color 720p audio microchips that use 7,000 nits of brightness using much lower power than was previously needed to achieve this level of brightness. who also outlined a technical path to achieve even greater brightness as high as 30,000 nits for color OLED micro-displays in the coming years. It is important to note that the use of OLED micro-displays normally results in poor color performance due to color mixing of the individual OLED subjects rendering du-stack structures not practical for color displays. We took on this challenge and introduced our ColorMix technology, which controls the color mixing among the pixels in our du-stack architecture. and ColorMax technology now enables a much wider color gamut of up to 115% as RGB, which is recognized as a very significant breakthrough. We believe our innovative approach is more than refactorable and cost-compatible. This is a huge achievement for all that microdistrict is, as an important step in opening up the market for extended use of AR and VR. Our view of the market is that the long awaited adoption of AR and VR systems is finally beginning to come. As we've said, these systems are being adopted first in defense. are the industrial enterprise and customer applications. Almost all our defense programs are related to AR, VR applications. As VR and AR continue to play and gain traction in this new remote world, we feel we're very well-precision to meet this growing demand. and others. In short, we are making great progress in executing our strategy and ensuring our performance. The market conditions are favorable. and they were well-positioned to capitalize. We are too poor to do not. We are very tired of our future. Finally, I would like to once again thank all of Copen employees that continue working through this unprecedented time. They are the reason of Copen's growing success. and I will send this call to Richard. Thank you, John. Turn to us and ask for results. The product revenues for the third quarter ended September 26, 2020 were $6.5 million compared with $5 million for the third quarter of September 28, 2019. A 31% increase year-over-year. Funded research, development, and all other types of revenue were $3 million for the third quarter of September 26, 2020 compared with $1.2 million for the third quarter ended September 28, 2019. An increase of over 100%. The total revenues for 2-3-2020 were $9.5 million versus $6.1 million the prior year. Cost of goods sold for the third quarter of 2020 was $4.8 million with 74% of product revenues compared with $4.7 million or 95% for the third quarter of last year. The significant decrease in cost of product revenues as a percent of net product revenues for the three months ended September 26, 2020, as compared to the three months ended September 28, 2019, was primarily due to low material costs along with improved manufacturing yields and efficiency gained due to higher sales, which reduced fixed costs per unit at our U.S. plants. In addition, we are commencing production of certain products in which they are higher than normal straps for the person three and nine months of 2019 as compared to the same period of 2020. Combined internal and externally funded R&D expenses in the third quarter of 2020 were $2.7 million compared with $2.4 million for the third quarter of 2019. The higher R&D costs in the third quarter of 2020 as compared to the prior year were the result of an increase in customer-funded R&D expense of approximately $500,000 in support of several development programs. SG&A expenses were $3.1 million in the third quarter of 2020 compared to $5.1 million in the third quarter of 2019. The decrease was primarily due to lower compensation expenses, including stock-based compensation, as well as professional fees, information technology, and travel expenses. Other income expense was income of approximately $168,000 for the third quarter of 2020 compared with a loss of $78,000 for the third quarter of 2019. During the three months ended September 26, 2020, we recorded $184,000 of foreign currency gains as compared to $88,000 of foreign currency losses for the three months ended September 28, 2019. Concerned is the bottom line on net loss due to controlling interest for the quarter of approximately $1 million, or $0.01 per share, compared with a loss of $6.6 million, or $0.08 per share, in the third quarter of 2019, an 87% increase. Coleman's cash and market concerns were approximately $15.6 million at September 26, 2020, as compared to $21.8 million at December 28, 2019. NETCAP provided by Operating Activities for the third quarter ended September 26, 2020 was approximately $500,000, which was the result of improving operations and managing working capital. During the third quarter, we had full patents granted. Third quarter amounts of depreciation of thought compensation are attached in the table to the Q3 press release. The amounts discussed above are based on current Thank you.

If you would like to ask a question, please signal by pressing stair 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's stair 1 to ask a question. We will now take our first question from Glen Mathen from Landenburg, London. Please go ahead, your line is now open.