Kopin Corporation

Good afternoon, everyone, and welcome to Coffin Corporation second quarter 2023 earnings call. Please note that this event is being recorded. At this time, I'd like to turn the conference over to Clint Callinan, investor relations for Coffin. Please go ahead.

Thank you. Good afternoon, everyone. Before we get started, I'd like to remind everyone that during today's call taking place on Thursday, August 10th, 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. Copen Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Copen's progress within the company's strategy. Following Michael, Copen's CFO, Richard Snyder, will review the company's first quarter results. I would now like to turn the conference over to Michael Murray.

Thank you, Quinn. Good afternoon to everyone, and welcome to our second quarter earnings call. I'm proud to announce we turned in $10.5 million in revenue for the quarter, which is also our third consecutive positive book-to-bill quarter. And with our recent announcement of an approximate $12.8 million order, our third quarter book-to-bill is off to a very good start. I do want to highlight that beyond revenue, we were successful in our disciplined operations and managing the factors that were within our control and within our transformation plan. I'd also like to briefly discuss two areas in the P&L, the first of which is elevated legal costs, a portion of which is associated with our new patents and trademark development, but mostly due to a litigation which began in 2016. Details of the litigation are discussed in our recent 10-Ks and 10-Qs, but in summary, we are scheduled for trial in the first quarter of 2024 and remain confident in our position. The second item was a $3.3 million non-cash charge related to our equity investments, whose valuations we review quarterly. These two items on the P&L had significant negative impact on earnings per share. Without these items, our loss would have been approximately $2.9 million, or $0.03 a share. For reference, this compares favorably to our second quarter of 2022 earnings per share loss of $0.06. This quarter is another data point that we are continuously improving the core operations significantly. Again, outside of these items, our operations showed significant improvement, and we remain hyper-focused on controlling what we can control with regards to our strategic initiatives, operational discipline, and growth objectives. Since we spoke last, we have gained several new investors recently. And for those who are unfamiliar with Copen, I'll briefly remind everyone who Copen is, what we do, and who we sell to. After that brief overview, I'll touch on some strategic initiatives and discuss this last quarter and some opportunities on the horizon before turning the call over to Rich. Now, for those new to Copen, we design and manufacture several different types of micro displays, including our proprietary AMLCD technology, our broad portfolio of OLED displays, our FL cost displays, and our recently announced micro-LED technology. Now, what makes Copen unique and valued by our customers is our ability to couple these types of display technologies with advanced optics, drive electronics, and housings to solve our customers' needs in defense, commercial, and consumer applications. We believe we were the only company with the core capabilities and competencies in each of these display technologies, enabling us to objectively provide the right solutions for our customers. Our products are the overlay of critical digital information on the analog world, and we continue to see the adoption and application of optics continue to broaden as new industries are discovering ways to use these technologies to improve their and customers' user experience. COPEN is at the forefront of optical advancements, creating innovative technologies that have enhanced how people interact in their environment, both real and virtual. Today, COPEN applies this expertise as a vital supplier for many of the world's largest defense contractors. Now still, we also look to capitalize on consumer, automotive, medical, and industrial opportunities as they adopt these technologies as well. Touching on some of our strategic priorities, we saw tremendous improvement in our quality measurements last quarter, which we refer to as on-time in full, or OTIF for short. OTIF measures how often we deliver products to a customer on time, in total, and without any quality issues as judged by the customer. This focus on quality ultimately leads to a more profitable coping by improving margins, higher customer satisfaction, and repeat in future business. We continue to see dividends from the focus in the second quarter of this year as our product costs stayed low, our incoming inspection improved, and our supply chain continued to normalize. We expect further improvements ahead as we increase volumes, automate manual processes, and improve absorption rates. And we continue to focus on total cost management. Much of our manufacturing takes place within our Class 100 cleanroom. The cleanliness of the air within our manufacturing facility greatly impacts our ability to keep product quality high. During the quarter, we saw improvements in air quality as we installed several new pieces of equipment and implemented some further operational changes. I'm happy to report that our on-time and full rates are now in the 90% range on a consistent basis. Consistency in this area is greatly important and contributes to our customers' happiness, and ultimately, the amount of their business Copen receives. Higher on-time and full rates also allow Copen to operate more efficiently, requiring fewer touch points by our employees and less yield and quality losses. Now, indeed, we have more to improve upon and accomplish. However, I am proud of our team, our progress over the first six months of 2023, and I'm greatly encouraged by the positive comments received from our top customers that they're experiencing a much improved, reliable, and customer-focused coping. Cost discipline remains a priority as well, beyond quality improvements. We continue to scrutinize internal R&D projects and the profitability of any funded R&D we take on. We began to see returns on this new approach to funded R&D as a profitability in this area dramatically improved relative to 2022. Internal R&D expenses remain low relative to past periods as we formalize the R&D investment criterion investing only in projects with a high probability of success, sustainability, and that offer more than just a great display, which we still make. Reducing R&D spend doesn't imply that Copen will not stay on the forefront of display and optical technology, but rather that our efforts are directed to those projects with the best chances of success, value creation, and capture. An excellent example of our new approach is the partnership with the MIT Computer Science and Artificial Intelligence Laboratory, or CSAIL for short. We announced this in the second quarter. The goal of this program is to integrate AI capabilities into our products to solve the problems which have been limiting the success of AR and VR products. This activity will augment current research and developments in these areas of displays, optics, software, and algorithms. By joining MIT's CSAIL program, COPEN becomes part of an elite group of members in non-competitive markets that share information and capabilities for functional integration and deployment of application-specific AI capabilities that bring additional value to the products we design and manufacture. We look forward to actively participating in this group, and we will help improve our solutions and solve several of the human-centric computing issues of today. Joining this organization also brings COPEN full circle, having been spun out of MIT almost 40 years ago. Now, I'll provide some updates on key programs since the last time we spoke and some opportunities we see on the horizon. As per our previous calls, COPEN is unique in that our OLED backplane technology does not require a custom deposition process. This allows us to utilize multiple deposition fabrication strategies globally. Within the quarter, we announced new agreements for OLED deposition which utilize U.S. DOD approved vendors. I highlight this announcement as this event has been misunderstood by some in the investment community. So to clarify, by adding these new vendors, Copen can support U.S. DOD customers with our current and broad portfolio and future OLED devices. At the same time, for our non-DOD OLED customers, We will continue to work with our existing OLED deposition partner in Asia. This dual strategy enables us to provide the lowest possible cost to our customers in automotive, consumer, industrial, and medical markets, while also supporting our USDOD sovereign supply chain requirements. With recent shifts in competitive landscapes, we are seeing a dramatic uplift in both consumer and defense opportunities alike due to this strategy. In early June, Copen introduced our first micro LED display. This micro LED is an ultra high definition monochrome version that provides millions of nits of brightness. It's difficult to describe just how bright a display with several million nits of brightness is, and it's truly a wonder of engineering achievement. By comparison, many of the new AR VR headsets that use OLED displays, as an example, only offer 5,000 to 10,000 nits of brightness, and these manufacturers of the devices recognize that to offer better brightness, contrast, thinner and lighter weight designs, a much stronger light engine, and bespoke optics are required. We believe micro LEDs will enable these key requirements and bespoke optical solutions, and they are the future of wearable display technology. Copen is undoubtedly the vanguard of micro LED development as we continue to develop our color micro LED display portfolio. Earlier this week, We announced a follow-on order for one of our IP sub-assemblies to a Department of Defense prime contractor that integrates our IPs into a sophisticated video AR module. This $12.8 million follow-on order represents a significant increase in year-over-year volume and revenue from this strategic customer, and we expect further additional follow-on orders for the same product as well. This order is the result of improved customer engagement, program management focus, and on time and full processes and a great customer who has been patient and supportive of COPEN and our transformation plan. Recently, COPEN has been informed of our success in being down selected for several new dismounted soldier projects. We are now in the final stages of submitting formal proposals and we expect to receive feedback on those strategic pursuits in the next few quarters. Turning to our General Dynamics Armored Vehicle Upgrade Program to remind folks this program is in the final quality review process, which is called Production Part Approval Process, or PPAP for short. And we expect this program to be significant revenue for Copen. The program continues to progress well and is a perfect example of the parenting advantage Copen can bring to our customers. In this specific case, We were selected for the program because we were able to offer the right system technology for the application. In this specific use case, the best display was an FL COS display developed by our team at Fourth Dimension Display in Scotland. The drive electronics and optics were developed at Copen in Westboro, Massachusetts, and the complete system prototypes were developed and designed by our talented team of Envest in Virginia. The final system will be built at Copen in Westboro, and this assembly sells for tens of thousands of dollars each, and there are several assemblies per vehicle. Multiplied by several thousand vehicles, which we expect to be upgraded, equates to well over $100 million in potential revenue for this program over the period of performance once in production. Now, turning from land systems to air systems, our low-rate initial production, or LRIP, rotary wing and fighter aircraft helmet OLED programs, remain on track, and we expect several successful milestones in the coming quarters. Furthermore, we are continuing to see strong demand in military training and simulation markets, with both new and repeat orders for a variety of products serving this market. Now, training precedes deployment, and the broader issues in Europe, among other regions, are driving increased demand for these products. Turning to the 3D AOI market, we continue to experience weaker demand in the Chinese commodities, semiconductor, and industrial sectors. We expect this part of the market to remain weak through the remainder of the year. There are modest demand signals from our high performance customers, though, however, in Europe and the Americas. Lastly, we continue to experience increased customer design and proposal demands in both defense and consumer markets. With recent consumer announcements in AR and VR headsets and continued human-centric issues slowing higher adoption rates in both markets, customers are turning to Copen to help them solve some of the most significant application-specific human-centric issues their end users are experiencing. Copen has decades of experience solving these specific issues relating to optically-induced nausea, comfort, and performance of head and helmet-worn systems. We expect these efforts will result in new business with current and new customers as we introduce exciting new technologies in these areas in the very near future. So now I'll turn the call over to our CFO, Rich Snyder, to review our results in further detail. Rich, over to you.