Kopin Corporation

Good afternoon, everyone, and welcome to the Koppen Corporation third quarter 2023 earnings call. Please note that this event is being recorded. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. I'd like to turn the conference over to Quinn Callahan, Investor Relations for Copen. 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, November 9th, 2023, we'll 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 third quarter returns. I would now like to turn the conference over to Michael Murray.

Thank you, Quinn. Good afternoon to everyone and welcome to our third quarter earnings call. I want to start with a brief explanation for rescheduling our call. A technical accounting issue was raised on revenue recognition of a development contract that required additional research to ensure proper accounting and was resolved earlier today. Moving on, I would like to welcome David Nuzma, who joined our board of directors this week. David joins us from Collins Aerospace, where he spent over 32 years in several key senior leadership roles and is a former Air Force officer. He understands our customers, our technology, and our culture deeply. We welcome David to the team and believe he will be a great asset for Copen and our shareholders. Now, I'm proud to announce that we've made significant progress on our transformation plan and turned in $10.6 million in revenue for the quarter, our fourth consecutive positive book-to-bill quarter at improved margins. Turning to our first strategic initiative, building the backlog, in the third quarter of 2023, we booked follow-on orders of approximately $12.8 million, $3.4 million, and a $1.9 million NRE order, as well as several smaller orders, which resulted in a book-to-bill ratio of approximately 2 to 1 for the quarter. We believe this is a record order level for COPEN over the last 10 years. Our continually growing order book translated into good third quarter revenues at 10.6 million as compared to 11.7 million for the third quarter of 2022. Our industrial revenue were down 1.4 million year over year due to continued weakness in the 3D automated test market, specifically in China. I'll now introduce Copen to those who might be less familiar. before diving more deeply into the events of the last quarter. Copen is the only U.S. manufacturer of human-centric AR and VR application-specific optical solutions and micro-displays used primarily to provide situational awareness for warfighters, for surgeons, and gamers alike. You can find our solutions in weapon sites, armored vehicles, pilot helmet visors, and soon, surgical head-mounted displays. The heart of these visual systems and solutions is composed of a micro-display no larger than the human thumb. Copen offers four different types of micro-displays, our proprietary AM LCD, FL-COS, OLED, and micro-LEDs, which are the absolute cutting edge of display technology. Copen is the vanguard of this technology and has developed a monochrome micro-LED and has a color version within reach. If a micro-display is the heart of our application-specific optical solutions, then the software that controls the knobs of the solution, that's the brain. Software will be critical to the next stage in Copen's growth as we adapt our technologies to each individual unique user. Indeed, our new mission is to adapt technology to the user and not force the user to adapt to the technology. This compares to companies that require users to insert specialized lenses into their displays or systems to adapt that person's vision to the device. Software and artificial intelligence are new endeavors for COPEN, and we recognize that we lack certain capabilities to tackle these on our own. This recognition has led COPEN to partner with MIT's CSAIL Lab. This lab is the premier institution of technology and AI development. With this partnership, Copen is looking to augment our internal software capabilities and to turbocharge our firmware powering all of our products and ultimately resolve the AR-induced nausea that currently bedevils users by allowing those knobs of the display to be turned either automatically or by the user. Custom optics and ruggedized solutions and housings are the eyes and skeletons of an application-specific solution. Arrays of custom optical lenses need to work harmoniously with the rugged housing to transmit crystal clear image produced by our micro displays. And that is where Copen's expertise shines. The pairing of micro displays, optics, housings, and firmware continue to progress our application specific solutions far from where we began. But as I mentioned, empowering software and algorithms will drive Copen into the future. What is missing from this anatomical pairing is the optical nerve that transmits to the brain, or the software in this case, what the eyes see and what the user needs from the display to reduce eye fatigue, nausea, and enhance the user experience. Copen has the solution to bridge this gap and enable AR and VR marketplaces. We recently patented a revolutionary new display architecture that will be embedded within what we refer to as our neural display. This architecture will feature a non-standard RGB pixel setup, as in OLED or micro LEDs, but we've added several other elements, including sensors that relay to the firmware what is happening with the user's situational environment, their ergonomics, and their eyes. As an example, are the user eyes dilating quickly, implying that they're in a state of fight or flight? In that case, the display's brightness should go down quickly and contrast must increase. Conversely, if the eyes of the user are reverting normally, the display should react in the opposite direction. This complete chain of heart, brain, optical nerve, eye, and skin, and skeleton provides the framework that we will allow the future realization of augmented reality's yet unfulfilled promise. Other companies have their own approach to monitoring the status of a user's eyes that rely largely on an array of cameras pointed back at the user. Our approach incorporates sensors within the display itself, which has the benefit of reducing size, weight, power consumption, design complexity, and ultimately cost. We will provide more information on this platform and our partnerships to deliver it to the market very soon. Turning to the third quarter, 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 very sophisticated augmented reality 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 significant additional orders shortly for the same product. The order is scheduled for delivery in 2024, but we can deliver earlier if we're able to procure the necessary raw materials. If we receive this expected additional demand, Copeland will potentially ship triple the volume of weapon sites within the calendar year of 2024. If so, we do not require additional machinery in our plant, but we may need to take additional steps to prepare and potentially reconfigure the production line and subsequently clean it in this quarter to support the significant increase in volume and demand. These orders are a result of improved customer relationships, program management focus, and the dedication to improving on time in full processes and a great customer who has been very patient and supportive of our transformation plan. We also received a $3.4 million follow-on order for our high-brightness liquid crystal display for the F-35 Joint Strike Fighter program. With the F-35 scheduled for production through 2030, we expect additional orders over the program's life. This follow-on order extends our backlog of scheduled deliveries into the fourth quarter of 2024, providing steady production rates. As we previously stated, the F-35 helmet is scheduled to transition to an OLED display. We're also in process of finalizing that required production tooling and contractual agreements to support that transition. Now, turning to our ongoing armored vehicle program. We've been told by General Dynamics that COPEN's weapons site program developed under the SEP 4 upgrade will continue as planned since our system reduces size, weight, power consumption, while improving accuracy. We are progressing well against our PPAP milestones and continue to engage with General Dynamics on opportunities for the platform to be integrated into previous upgrade packages and into light armored vehicle programs as well. Now I've said in the past, this year's focus is on returning the operation to cash break even levels as a milestone of our transformation plan. And we've progressed well against that milestone in Q3. We approach closer to this milestone by improving margins and closely scrutinizing R&D and SG&A, spending by continually focus on what we can control and deliver and we expect to deliver solid margins and the growth our investors look for. We now have the contracts in place for solid revenue growth, and our goal remains to become a more predictable and profitable firm in the coming year. I'll now turn the call over to our CFO, Rich Snyder, to review our results in further detail. Over to you, Rich.