Kopin Corporation

Thank you for standing by. This is the conference operator. Welcome to the COPEN 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 Schneider, 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 in executing our strategy, and then I will go through the second quarter of 2022 results at a high level. John will conclude our prepared remarks and will be happy to take your questions. I would like to remind everyone that during today's call taking place on Tuesday, August 2, 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 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 10-K and other documents filed with the Securities and Exchange Commission. The company undertakes no obligation to update the forwarded statements made during today's call. And with that, I'm going to call over to John.

Thank you, Rich. Good morning. And thank you all for joining us to discuss our second quarter 2022 operating results. We are very pleased with the results of the second quarter of 2022. Total revenues went up 20% year over year, 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 will transition to production in time. Our revenue from previous products were particularly strong, growing 87% year over year in the second quarter. During the second quarter of 2022, we announced additional orders for our displays for F-35 pilot helmets and imaging systems for armored vehicles. In July, we announced a production order for our brilliant higher brightness color displays for helicopter pilot helmets. During the second quarter, we also announced the expansion of our industrial customer base, adding a new Korean 3D automated optical inspection system customer. They use our Spatial Light Modulator, or SLM, as a critical component in their system. With this particular wind, we're now supplying a high-speed, high-performance SLM, which are based on proprietary ferroelectric electrical crystal displays to all the three leading Korean 3D AOI equipment manufacturers. In addition to other markets, leading manufacturers in China, Japan, and Germany. These announcements are very important in several ways. They add to our already strong backlog of orders. But equally important, those programs represent the variety of micro-display technology Coping offers. We believe we are the only company in the world that offers active matrix liquid crystal displays, ferroelectric liquid crystal displays, and organic light-emitting dials or OLED displays. And we are working with partners to develop inorganic light-emitting displays or commonly named micro-LEDs. All our micro-displays, as a reminder, are displays built on silicon. Just as important as our breadth of display technologies to meet customer needs is a variety of advanced, specialized optics which we offer and which provides our customer with an integrated turnkey solution. This allows our customers to offer high-quality visual solutions to meet the variety of needs in the market. For example, our new padding-panning all-plastic pancake optics enables smaller, much lighter-weight VR headsets and also metaverse headsets compared to the optics used in the headsets today. We believe our all-plastic pancake optics are the first in the world. Providing critical components for metaverse headsets that are thinner, lighter, comfortable, and easy to use has been one of our critical objectives. Our all-plastic optics, pancake optics, provide not only the clear advantages mentioned before, But most importantly, they provide a very sharp image with good eye relief. We believe combining our all-plastic pancake optics with our 2.6 OLED micro-displays representing a perfect match, providing magnification of 30,000 to 50,000 times by maintaining a very sharp image. Our goal has always remained the same, which is to lead in these two critical technology areas. They are essential for great VR, AR experiences. This is a good place to put the importance of micro displays and pancakes in the proper context. These two technologies are analogous in importance. as lithium battery technologies are to the electric vehicle industry. As second quarter growth occurred, I was dealt with global supply chain issues. While we are pleased with that growth, it did come at a cost. As our price release indicates, with incurred more costs to keep our customer running and operations running than we would normally expect. Typically, a defense product design has a life cycle of about five to seven years. But given the supply chain issues, there are limited visibility as to when the supply chain issues will get resolved As a contingency, we redesigned several products with alternate semiconductor components so we will have flexibility and a backup plan. This has increased our engineering and park costs, and we also incurred those alternative semiconductor components as we also incurred those semiconductor components. The positive news is based on discussion with our vendors now. It appears the supply chain issues are improving. And we believe our operation in the second half of 2022 will run closer to normal.