Kopin Corporation

And welcome to the Copen Corporation first quarter 2023 earnings call. Please note that this event is being recorded. At this time, I'd like to turn the conference call over to Brian Prevenot, investor relations for Copen. Please go ahead.

Thank you, operator. And good morning, everyone. Before we get started, I'd like to remind everyone that during today's call taking place on Thursday, May 11th, 2023, 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 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 the forward-looking statements made during today's call. In addition, references may be made to certain non-generally accepted accounting principles or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliation in the company's SEC filings and press releases. Copin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Copin's progress within the company's strategy. Following Michael, Copin's CFO, Rich Snyder, will review the company's first quarter returns. I would now like to turn the conference over to Michael Murray. Michael?

Thank you, Brian. Good morning to everyone. Welcome to our first earnings call, which is the first earnings call under the new management organization transformation plan in my first quarter with both hands on the wheel as CEO. It's good practice for anyone less familiar with Copin to explain who we are, what we do, and who we sell to. After the brief overview, I'll update everyone on some of our strategic initiatives and discuss the last quarter and some opportunities on the horizon before turning the call over to Rich. Copen designs and manufactures several different types of micro displays. Our proprietary AM LCD technology, our broad portfolio of OLED displays, our FL cost displays, and our soon to be released micro LED technology. What makes Copen unique and valued by our customers is our ability to couple the right display technology and advanced optics, drive electronics, and housings to solve our customers' needs in defense, commercial, and consumer applications. Our products are the overlay of critical digital information on the analog world. Every day, the application of optics continues to broaden, and new industries are discovering ways to use these technologies. COPEN is at the forefront of optical advancements, creating innovative technologies, and we've enhanced how people see, hear, and communicate. Today, COPEN applies much of its expertise as a critical supplier for many of the world's largest defense contractors. But we also look to capitalize on commercial and industrial opportunities wherever and whenever they arise. The global micro-display market is estimated to grow at over 20% per year for the next five to seven years. As micro display technologies continue to improve, more and more industries are finding ways to apply the technology to their end applications and businesses. Beyond aerospace and defense, healthcare, automotive, and consumer electronics are adopting the practical applications of micro displays. The growing adoption means a growing demand for high resolution displays with low power consumption and a compact size for wearable devices. We believe our technology puts Copen at the forefront of companies that take advantage of this growing market. Now, touching on some of our strategic priorities, I've often commented on the need for Copen to improve our quality, which we refer to as on-time, in full, or OTIF. OTIF is the measure of how often we deliver products to a customer on time, in total, with full quality, and without the customer identifying any quality issues. This singular focus on quality ultimately leads to a more profitable Copen, by improving margins, and higher customer satisfaction. We began to see some dividends from this focus in the first quarter of this year, as our product costs in the first quarter were lower than the first quarter of 2022. To give you an idea of our progress on time in full in September of last year, we were around approximately 60%, meaning of every 100 products delivered at that time, approximately 40% or 40 were late. I'm happy to report that we are achieving rates in the high 80s to low 90 percentiles as we are continuing to improve. We believe these rates will remain consistently above 90% after the first phase of our new equipment is installed this quarter. Our improved quality and efficiency also means that we can produce the same amount with less labor resources, which resulted in a reduction in force in the first quarter of 2023. In addition to our efforts to improve profitability through improvements in quality, rationalization in R&D is also a strategic initiative. Copen's R&D spend for the quarter declined by more than half. This occurred because certain activities are moving from R&D into production, and we introduced higher hurdles for assuming new R&D projects. Regarding internal R&D spend, our philosophy has changed as we are now investigating in projects which have a higher probability of success, are less speculative, and offer more value than just a great display. Now I'll discuss some of the developments since the last time we spoke and some opportunities we see on the horizon. In April, we announced a 1.1 million follow-on production order for a long-range version of an international weapons site, a fantastic program that gives soldiers critical information with clear, bright symbols overlaid directly on the real world. Also in April, we announced a $4.4 million PPAP award for an armored vehicle program. For those of you that don't know, PPAP stands for Production Part Approval Process. It's normally the process before going into production, which we can expect to happen at the end of this year. The program represents a significant opportunity for Copen that could exceed total lifetime revenue of over $100 million due to the significance of the design integration the number of COPEN systems per vehicle, and the volume demand projections. The PPAP certification also provides the pedigree necessary for COPEN to compete in other armored and mainstream consumer automotive applications and solutions. We have previously discussed that COPEN is a leader in providing display and optical sub-assemblies in head-mounted industrial wearables and 3D automated optical inspection markets. The semiconductor demand cycle is signaling that demand has reached its lowest point, which is cyclically when 3D AOI markets tend to increase spend. We are starting to see those signals now. Now, a market that we have not discussed much that COPEN supports currently is the military training and simulation market, which is served by our Envis division. We are seeing strong demand signals as training precedes deployment. and are working with several repeat and new customers who look to support the issues in Europe. And I previously mentioned that we are entering the medical field. As an update, we have begun recently demonstrating a head-mounted display system used by surgeons so they can zoom into a specific area while performing a surgery. The initial feedback has been very strong and the final production of this product is brilliantly designed. Turning to another strategic initiative, the Integrated Visual Augmentation System, otherwise known as IVAS, is a United States DOD program to provide soldiers with an augmented reality headset, which provides a wide variety of capabilities to soldiers. The current IVAS program funding is $2.5 billion, with long-term plans for $21 billion. There have been several delays in the program, which provides a real opportunity for COPEN to intersect this program. If you look at the IVAS head-mounted display, In essence, and essentially, it's a head-mounted display weapons site where we have the significant expertise and pedigree to serve this market. The IVAS opportunity is significant in this program, so success here would be monumental for the company. Now, I have discussed in recent contract wins our strong existing, our positive book-to-bill in Q1, The indications of a positive book to bill in Q2 and our expense rationalization, all of which are providing our positive momentum, but to meet our strategic goal of exiting 2023, that cash flow break even and become operating income profitable in 2022, we need an organization structure that can execute. Now to this end, we continue to invest in our people. We've implemented outreach programs to our existing employees to understand impediments to them being productive, and we have established teams to solve specific issues, and these teams are comprised of all levels of the organization rather than a solution from above. We've also recruited top professionals in program management, quality control, and business development. We've instituted a quality and action program which allows everyone to suggest and be rewarded for quality, cost, and efficiency improvements. We feel very good about our team, our products, and our customer base. With our recent equity offering, we believe we have sufficient cash to make the necessary quality and personnel investments required for our transformation and execute on our strategic initiatives. I'll now turn the call over to our CFO, Rich Snyder, to review our results in further detail. Rich, over to you.