Kopin Corp (KOPN) 2007 Q1 法說會逐字稿

Good day, and welcome to Kopin Corporation's preliminary first quarter 2007 financial results conference call.

Today's call is being recorded for telephone and Internet replay.

With us today for the company are Chairman and Chief Executive Officer, Dr.

John C.C.

Fan, and Chief Financial Officer, Richard Sneider.

At this time I'd like to turn the call over to Mr.

Sneider.

Good day and good morning.

Thank you for joining us today for our preliminary first quarter 2007 financial results conference call.

Before we begin I want to remind you that during today's call taking place on Thursday, May 17, 2007, we'll be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 including statements relating to our financial guidance and business expectations and anticipated growth.

We will also make statements about our customers' products.

These statements are based on the company's current expectations, projections, beliefs, and estimates and are subject to a number of risks and uncertainties.

Potential risks include but are not limited to demand for our demand for our CyberDisplay and III V products, demand for our customers' products, market conditions, the company's ability to ramp up production in its manufacturing facilities, the potential that our revenue guidance, product forecast will turn out to be wrong, the potential consequences and impact to our business from findings related to our ongoing internal stock option review and the likely delay in our filing our financial reports and other factors discussed in our most recent Form 10-Q and annual report on Form 10-K and other documents on file with the Securities and Exchange Commission.

The company undertakes no obligation to update the forward-looking statements made during today's call.

Please note that today's results are preliminary preliminary, pending the planned restatement to certain of its financial statements for the fiscal years 1995 to 2006 and the related interim period.

These restatements relate to the preliminary findings this month of an independent special investigative committee's review of Kopin's historical stock option grant practices, which were described in a press release and Form 10-K filed with the Securities and Exchange Commission on May 9, 2007.

As noted in the Form 8-K financial statements and related disclosures for the period 1995 to 2006 to not be relied upon.

Also I have announced earlier this week, the NASDAQ listing qualifications panel has granted the company's request for continued listing of Kopin Securities on the NASDAQ stock market until the company's situation can be further reviewed by the listing council.

I would like to add that there is no timetable as to when the listing council will review the case.

There appears to be some confusion in our release this week.

We mentioned that Kopin has until June 1, 2007, to provide additional information to support our request for a stay of delisting if we choose.

June 1 is not the date of the listing council review.

Again, no date has been set.

We will not be answering questions on these matters but will, of course, continue to update you on matters, going forward.

Okay, turning to our preliminary financial results, total revenue for the first quarter of 2007 was approximately $18.1 million compared with total revenue of $18.7 million in the first quarter of 2006.

III V revenue in the first quarter of 2007 was $9.1 million compared with $12.8 million in the first quarter of 2006.

As we mentioned last quarter, our III V business experienced some pressure in December 2006 due to an inventory correction, which carried over into the first quarter of 2007.

We are now back on track and shipping at about the same rate as before the correction.

III V revenue for the first quarter of 2006 included $850,000 from KoBrite as final payment on the joint venture agreement with KoBrite.

CyberDisplay revenue for the first quarter 2007 was approximately $9 million compared with $5.9 million in the year-ago period.

The year-over-year growth in CyberDisplay was due to increased activity in our digital still camera business and greater interest in mobile video eyewear.

In addition, military continued to be a significant contributor to the top line in the first quarter of 2007 accounting for approximately 23% of total revenue compared with 10% of total revenue for the same period in 2006.

Continued strength in the U.S.

Army thermal weapons sight, or TWF II program, helped to drive Display sales up 54% year-over-year.

Moving on to our balance sheet, as of March 31, 2007, Kopin had cash and marketable securities of $103 million compared with $105 million as of the year ended 2006.

We continue to have no long-term debt.

Accounts receivable were $11.1 million at March 31, 2007, compared with $11.2 million at December 30, 2006.

Turning to our guidance, as stated in today's press release, we are reiterating our guidance to 2007.

Based on current conditions, we expect total revenues to be in the range of $80 million to $90 million with the growth rate accelerating in the second half of the year.

And now, with that, I will turn the call over to John for a business review.

Thank you, Rich.

Welcome, everyone, and thank you for joining us today.

Let me start by saying that I am pleased with our first quarter performance.

In III V, our business was fueled by sustained orders from HBT wafers -- by HBT wafers from our wireless customers.

Thanks to our strong relationship with those customers, and also sustaining and maintaining a technology and cost advantage, our III-V business (indiscernible) remained a strong contributor to the top line.

In CyberDisplay, Q1 reflected continued orders to the military as well as robust sales to our digital media customers and also resulting in increased activities in mobile video eyewear.

Let's first talk about HBT, where we continue to be the prominent player in the industry.

Demand is good for our new generation of HBT transistors for advanced wireless handsets, further amplifying our position in the marketplace.

Multiple power amplifiers are now imperative to handle the advanced features and functions of next-generation cell phones, and Kopin continues to be in a very strong position to capitalize on this new demand.

Our technology is not just used for cell phones, however.

As you may recall, this March we announced that the development of our high gallium electronic mobility transistors.

Our gallium nitrite have high efficiency compact solutions packaged for customers who are commercial as well as military systems including wireless base stations, expand radar, military wave, military communications links in electronic warfare.

Another exciting accomplishment during the quarter was increasing our capacity and capability through the qualifications of our Taiwanese OEM.

There are new high-capacity reactors at our Taunton facility.

In Taunton, Massachusetts, we installed three new [estron] integrated concept strap-on tools.

The most advanced MOCVD production system available in terms of capacity, performance and flexibility.

Also in Taiwan, some of our OEM systems have already been qualified by a customer.

We are on track to increase our capacity by 50% over 2006 level by the second half of this year.

Going forward in our III-V business, we are focused on investments in production systems, information technologies, new product development, and, most important, personnel to increase our operation efficiency.

Now turning to our Display business, on the military front, increased shipments of our ruggedized Display system hardware for U.S.

Army TWSII products provided steady growth in our military Display systems during the quarter.

As a percentage of revenue, the military represents approximately 48% of total Display revenue during the first quarter of 2007.

To serve as a reminder, the TWSII product provides for the production up to 60,000 units of light, medium and heavy thermal weapon sights over a four-year period.

Each TWSII system utilized the Kopin CyberDisplay 640M at the LCD display.

Looking ahead, we believe our strong relationship with the U.S.

Army through the TWSII program will potentially afford us greater opportunities to participate in projects [as nations] as well as new military programs.

Moving on to our commercial Display business, during the first quarter, we significantly increased our penetration with the digital still camera in a design win from top-care customer.

In March went after Olympus, one of the world's leading camera manufacturers.

The Kopin CyberDisplay EVF 230K, as the electronic viewfinder for its new ultra-high, ultra-wide zoom digital camera.

This new full-color microdisplay included 2VGA, which is 320x240 resolution, ultra-thin backlights, optics, and housing with an easy-to-use focus mechanism.

Our relationship with Olympus represents another milestone in our goal to make CyberDisplay -- Cyber EVF as the EVF standard for the newest generation of high-resolution cameras.

We are very excited about our opportunity to partner with a company like that as our own and is driven by unyielding commitment to excellence.

Our success in digital still camera during the first quarter represents a significant increase in orders over 2006, and we expect this trend to continue well into 2008.

We anticipate additional top-tier digital still camera customers with design wins are just around the corner.

To meet this demand in this commercial market, we are installing an 8-inch line, which is on schedule to begin initial production by the second half of this year.

Our new line will allow us to increase performance as well as manufacturing efficiency.

It will almost double the number of microdisplay for each wafer as lower cost per unit as compared to our current 6-inch line.

Overall, Kopin continues to gain traction in the consumer and military markets.

We are constantly improving our technology and manufacturing processes.

Now let's turn to video eyewear.

The growth video eyewear market continues to build momentum, as smaller and less expensive models are developed.

In the first quarter we continue to see a high level of activities for major OEMs in the consumer electronics and toy industries.

As we announced previously, Wild Planet toys last year introduced a remote-control video car equipped with an infrared camera that connects to eyewear device.

We continued to ship our Display to Wild Planet in Q1.

We believe this spy video car has set a new standard of children's toys, and we will begin to see interest in our Display for eyewear for other toys in these companies.

Another exciting development for me in video eyewear was the decision of Apple.com to start selling myvu eyewear on his website.

Interested consumers can now purchase myvu already from Apple.com.

We believe this is a prime example of the increasing interest for larger, more prominent OEMs in the consumer electronics market for video eyewear.

In addition to myvu eyewear, eyewear for Icuiti and EZ are carried in Sharper Image and Costco, respectively.

These customers all use Kopin Display, which has a distinct advantage for eyewear.

We believe that we have a profit in 90% of video eyewear market.

We are very excited about progress in the mobile video eyewear market.

We continue to expect as many as 200,000 to 300,000 eyewear will be shipped in 2007 using our Display.

Before I discuss our outlook for the remainder of 2007, I would like to take a minute to talk about this year's Society for Information Display, SID, conference, which is being held next week in Long Beach, California.

Kopin will showcase next-generation video eyewear powered by digital eyevision technology.

The highlight of our (indiscernible) will include 3-D video for our SVGA and YVGA Displays as well as 3-D video eyewear products for our various customers.

3-D video will soon become the next hot video product.

3-D content is becoming available and eyewear is ideal for 3-D video images.

We began 2007 with solid momentum, and our outlook for the remainder of the year is favorable.

In CyberDisplay, we are on track to add our 8-inch line, which we expect to increase our manufacturing efficiency as with the new Display featuring the highest level of integration performance.

We believe this new Display will be ideal for military, consumer, and industrial applications.

In III-V we continue to offer a superior product that provides new advanced wireless transistor [subscriptions].

In both our III-V and CyberDisplay products, our people, technology, increased capacity, and customer relations continue to give Kopin a distinct competitive advantage.

As Rich mentioned earlier, we expect our top line to be between $80 million to $90 million for the full year 2007 with a majority of the revenue increase will be in the second half of this year.

With that, we are ready to take your questions.

Operator.

(Operator Instructions) Mike Burton.

Could you break out the percent that was in digital still camera and consumer eyewear as a percent of total revenues?

Total revs -- DTS was about 15, eyewear was about 5.

Okay, great, and then on the military side, it looks like it actually came down a little bit quarter-over-quarter, about 16%.

Is that a function of you began your initial ramp, and we should start to see steady growth out of this level?

And can you give us a number of Displays that were actually shipped in the quarter?

I think it represents a more normalized ramp for the military.

We did ship a bunch of stuff, quite frankly, in December.

You know, we had an issue back in Q3 of last year so there was some catch-up in the fourth quarter.

So, again, the first quarter probably represents a more normalized ramp.

And, I'm sorry, what was the second part of your question, Mike?

Well, and then just the -- in the past you've given some visibility on the number of military Displays that you're at at a run rate?

Well, again, the only thing that the government -- we can only give what the government has announced, and that's both programs are at least 1,000 units a month is the goal.

Fair enough.

And then you said that the III-V revenues would be back to up to where they were before the inventory correction level.

Are you referring to the June quarter or the September quarter with that statement?

Well, the September quarter tends to be the biggest quarter seasonally, so they wouldn't be up to that level.

I guess somewhere between the September and the June quarter.

Okay, and then, lastly, how long has the consumer eyewear product been up on the Apple site and have you started to see revenues from that?

This is John Fan.

It was on starting on the Apple site last week.

Last week, okay.

Have you begun to see any shipments towards that?

We better not answer that question.

But we anticipate, at least my view, anticipate good sales.

Okay, fair enough.

And then also can you talk just directionally about margins in the first quarter, and then how we should be thinking about them as they head into the second half, obviously, on a pro forma basis excluding the options?

It's really hard for me to give you any discussion about margins.

I'm not really supposed to be doing it, and so, in any event, I guess I really probably shouldn't touch the question, Mike.

(Operator Instructions) Edwin Lyon, Lyon Investment Management.

Yes, my question concerns the eyeglass aspect of your company.

Can you talk a little bit about where you're seeing acceleration with this product, for example, in what particular countries?

And what do you look for in the future that might further accelerate your orders in that area?

This is John Fan answering.

As you well know, mobile video is beginning to start this year in many countries as well as in this country coming up through the cell phone 3G phones.

What we have seen this year, which, unlike last year, is a lot more higher visibility [branding] companies are getting involved.

Apple.com is just one example.

In this case, they're still representing somebody else's product in their stores or in their online stores.

But we are seeing a lot more branding actually involved designing and hoping to produce product for eyewear themselves.

So this is a -- as I say, the tax is extremely vague, a big phenomena.

Many of those products from those branding company will not come out until the end of this year or early next year.

The main application is mobile video.

Did that answer your question, Ed?

J.D.

Abouchar, GRT Capital.

A question for you -- you're adding an awful lot of III-V capacity, three new huge reactors.

I don't think the handset market is growing quite that fast -- and all the die shrinks going on.

So can you give us a little bit more highlight -- you know, why you're adding and, I know, Rich, you really can't touch it, but maybe talk a little bit about incremental margin as you add more capacity there?

J.D., it's a good question.

The cell phone market only grows, at best, maybe 10% to 15% a year.

But there are a couple of things that are going on.

First of all, the die shrink has stopped and, second, is -- I don't think to guess any further, it's pretty small already.

And, second, is they are more and more advanced from more than one PA in which phone?

And then on top of that, there is a pretty strong shift now to InGaP transistors because of linear reasons for their advanced phones.

Then, lastly, we are just seeing activities now in WiFi and WiMax coming on.

So all this tells us that the demand -- what we see are way off the demand increase projections coming on this year and next year.

Both a 50% increase in capacity is done very carefully, and it will be used.

Okay, and how is the competitive environment for you in InGaP versus AlGaP?

Competition is always there, but, you know, we are in the merchant market we are about 80% market share, and we have certainly the largest capacity.

Our performance, I would say, is the best.

So I believe the big companies will go with the big supplier like ourselves, of which I think it would shore up.

On the margin, as I say, we cannot talk about it, but as you well know, (indiscernible) gave us a variable margin, which is very good for us.

J.D., let me give you some help on this margin.

What we've always said was that on a particular reactor, unless you can pass the substrate costs, there isn't a lot of incremental cost, so historically the incremental contribution margin by a reactor is about 50%.

But, you know, obviously that works the other way, also, and so, as you can see, we went from $12 million in revenue for III-V in Q1, and I'm excluding the $850,000 from the KoBrite, and I used the 12 -- as opposed to 12.8.

So you've got the $12 million last year versus $9 million, so obviously volume was down.

And so the fact that contribution margin cuts both ways, and we also give guidance is that we expect the normal 10% price to climb this year.

So, obviously, those things would negatively impact margins in the first quarter.

(Operator Instructions) Mike Burton, ThinkEquity Partners.

Just a couple more -- I may have missed this, but can you talk about the digital still camera?

You mentioned it was 15%.

What was that up sequentially?

Obviously, it looks like you benefited from the Olympus launch.

Would you expect that this would be more of a normalized run rate until some of the other wins that you talked about start coming in?

Or do we have an initial fill here?

This is John Fan, Mike.

I see the digital camera as we see the tax today, that we anticipate additional wins from other customers.

So we think that digital camera rev will continue throughout the year.

Okay, and as we look at the III-V business, obviously, the inventory correction had weight on results, but have we begun to see a bit of a pickup there as we come out of the seasonally slow part for Skyworks and as they start to ramp up towards the second half?

Yes, there are a whole bunch of new phone orders coming up, starting July.

So we anticipate the second half will be quite busy on the III-V.

And so will be Display -- I think we are also very busy in the Display right now.

There are no further questions at this time.

I'll turn the call back over to Dr.

Fan for closing remarks.

Thank you, everyone, for joining us this morning -- or this afternoon, actually -- we look forward to reporting our progress to you on second quarter 2007 conference call.

I would also like to remind everybody that next week in Long Beach, California, Kopin will have a booth at the SID conference highlighting our 3-D video.

And also we'll be presenting at the Cowen Display investor conference at Long Beach next May 22nd.

Thank you very much.

That concludes today's conference call.

Thank you, you may now disconnect.