Kopin Corp (KOPN) 2008 Q1 法說會逐字稿

Good day and welcome to Kopin Corporation's first quarter 2008 financial results conference call.

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

You may access an archived version of the call on Kopin's website at www.kopin.com.

With us today from the Company are Chairman and Chief Executive Officer, Dr.

John C.C.

Fan, and Chief Financial Officer, Mr.

Richard Sneider.

For opening remarks, I would now like to turn the call over to Mr.

Sneider.

Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us.

I'll begin today's call by taking you through our Q1 2008 financial results.

John will then discuss the operational highlights from our CyberDisplay and III-V product lines and review our business strategy, after which we will take your calls and questions.

Before we begin, let me remind everyone that during today's call, taking place on Tuesday, May 6th, 2008, we will be making forward looking-statements as defined in the Private Securities 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.

Potential risks include, but are not limited to, demand for our CyberDisplay and III-V products, market conditions, foreign currency exchange rates, the availability of raw materials, and other factors discussed in our most recent annual report on form 10-K, most recently -- recent quarterly report on form 10-Q, and other documents on file with the Securities and Exchange Commission.

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

Turning to our financial results, total revenue for the first quarter of 2008 increased 61% year-over-year to $29.2 million.

In Q1 of '08, CyberDisplay revenue was $17.1 million, up approximately 89% year-over-year, while III-V revenue increased approximately 33% to $12.1 million.

On a reportable segment basis, Kowon sales were $800,000 in both the first quarter of 2008 and 2007.

Kopin U.S.

revenues were $28.3 million and $17.3 million for the first quarters of 2008 and 2007, respectively.

Looking at CyberDisplay by market segment, our sales of display products for consumer electronic applications increased from $3.8 million to $5.7 million for the first quarter of 2008.

Sales from military applications increased from $3.3 million to $7.3 million.

And sales for eyewear applications increased from $1.1 million to $2.1 million.

Research and development increased from $100,000 in Q1 of 2007 to $1.9 million in Q1 of 2008.

Included in the R&D is the sale of qualification units for a new U.S.

military weapon sight totaling $1.1 million.

The sales are classified as R&D until the units pass qualification, at which time they'll be classified as product sales.

The gross margin for Q1 2008 was approximately 25% as compared to 15% for the first quarter of 2007.

The increase in gross margin primarily resulted from a favorable sales mix and the absorption of fixed costs over larger sales volumes.

Research and development expenses were $5 million or 17% of the first quarter revenue.

This compares with $2.4 million or approximately 13% of the revenue in Q1 of 2007.

We typically model R&D expenses in the range of 15% to 20% of revenue.

Selling, general and administrative expenses in Q1 2008 were $3.8 million, or 13% of revenue, compared with $4.9 million, or 27% of revenue in the first quarter of 2007.

The decrease in SG&A reflects reduced professional fees of $1 million and lower bad debt expense of approximately $270,000, which was partially offset by an increase of approximately $225,000 of expenses related to the numerous SEC filings we had in the first quarter.

We model SG&A expenses to be in the range of 12% to 15% for 2008.

Net income for the first quarter of 2008 was approximately $1 million, or $0.01 per diluted share, based on 67.7 million weighted average diluted common shares outstanding.

This compares with a net loss of $3.3 million, or $0.05 per share, based on 67.5 million weighted average common shares outstanding at the end of Q1 2007.

Looking at the bottom line by operating segment, in Q1 U.S.

-- Kopin U.S.

reported net income of $375,000, while Kowon reported net income of $575,000.

Cash and marketable securities as of March 29th, 2008, totaled $88.7 million compared with $93.3 million at year-end 2007.

We continue to have no long-term debt.

Capital expenditures were approximately $900,000 in the quarter.

Depreciation and amortization were approximately $1.4 million in Q1 2008 as compared to $860,000 in Q1 of 2007.

Finally, one item I would like to highlight from today's press release is the dismissal of the two derivative lawsuits against Kopin stemming from the Company's now concluded review of historical stock option granting practices.

Turning to our guidance, based on the current business environment and the economic conditions in our end markets, we continue to expect the full 2008 revenue to be in the range of $105 million to $115 million.

And with that, I will turn the call over to John.

Thank you, Rich.

Good afternoon, everyone, and thank you for joining us for our Q1 conference call.

As I mentioned in our Q4 conference call, since 2006 we have made a significant effort to expand our manufacturing capability and capacity in both of our CyberDisplay and III-V product lines.

While developing -- development work continues, the capital investments we have made over the last two years significantly contributed to our Q1 2008 revenues.

Fueled by those initiatives and our ongoing process development and product developments, Kopin's future is bright in 2008 and beyond.

Now, let me turn to our two product lines, beginning with CyberDisplay, where each of our product categories -- military, consumer electronics, video eyewear -- produced double-digit revenue growth.

Kopin is without question the leading technological developer and supplier of high performance military displays that increases soldiers' mobility, situational awareness and target detection.

The ruggedness, high resolution, (inaudible) low-power displays we produce for U.S.

Army represent one of the fastest growth areas of our business and are the most exciting opportunity for Kopin over the long run.

Our fundamental strategy is to generate sustained, profitable growth by focusing on large market opportunities and higher level display performance.

Our military display program dovetails perfectly with this strategy.

In Q1, as Rich noted, military display product revenue increased almost 75%.

This increase (reflects our participation) in the U.S.

Army five-year thermal weapon sight programs.

In conjunction with our [Power-net BAE] and [DRS] technologies.

This thermal weapon sight II program, which calls for the production of up to 70,000 units over five years, continued to make excellent progress.

In addition to BAE and DRS, Kopin also partnered with Radion for the next program, TWS-Bridge, under a five-year contract to produce 150,000 advanced light, medium and heavy weapon thermal sights.

The TWS program marks just the beginning of a sizeable opportunity for our military display program.

Kopin is also the sole source of display for Army enhanced night vision goggles program, ENVG.

The helmet model ENVG incorporates imagining (inaudible) and long wave infrared sensors into a single system.

The ENVG enables missions during daylight, darkness, and degraded battlefield conditions.

As I mentioned in our previous call, the initial production on ENVG is now underway and full production is on schedule to begin in the second half of this year.

(Inaudible) our military display program.

In April we announced that Kopin has been awarded the first phase of an anticipated three-phase Army ManTech program for $4.2 million.

As part of this new ManTech program we will be working to accelerate production capability and capacity and enhance the performance of our .97-inch CyberDisplay SXGA full color display for the Army's next generation night vision system.

The initial phase of this program is aimed at accelerating the development of manufacturing technology for our standard SXGA.

Subsequent phases will be designed to increase display performance, including transmissions and operation readiness by incorporating advanced materials available with our new 8-inch CyberDisplay line.

To support this, as well as future programs, we recently completed the construction and installation of a 2,800 square foot clean room, equipped with specialized equipments that will be used for high-level assembly of eyepieces for military programs.

Kopin is truly the ideal partner for the military as we develop the next generation technology for the men and women of our armed forces.

And the U.S.

government (inaudible) the ability we're bringing to the table.

We are a very financial strong company so we're going to be around for a long time.

Over nearly 25 years in business (inaudible) together the display expertise, technology background, and manufacturing know-how is simply unequaled by any other company in the United States.

Now, let me comment on the consumer side of our display business, where demand was strong in Q1 of 19 -- of this year as evidenced by the combined $7.8 million revenue from consumer electronics and video eyewear.

Display revenue for eyewear applications doubled in Q1 2008 from a year ago quarter.

We're very pleased with the progress of design activities in video eyewear.

We believe our broad range of high resolution, low-power displays and our long manufacturing experience and capacity will allow us to continue to lead the industry in this emerging market.

In the digital still camera market we are continuing our transition for lower priced, fixed-focus cameras to more advanced models which offer the potential for higher margins and larger addressable markets.

Now, let us move to III-V.

The most significant development in recent months was the extension of our HBT purchase and supply agreement with our long-time partner, Skyworks.

As we announced in April, we will be supplying all the Skyworks requirements for the 4-inch diameter wafers, as well as the vast majority of its requirement for the 6-inch wafers through July, 2010.

Just as important, the agreement continues our [strict] focus on improving yield, lowering production costs, and to (inaudible) new product that capitalize on demand for wireless services to offer ever increasing speed and mobility.

We have enjoyed a wonderful relationship with Skyworks for many years and will continue our collaboration for years to come.

In my last call I mentioned that we're beginning to develop an advanced photovoltaic solar cells.

Recently Kopin was selected by NASA for the award of a $600,000 contract to develop super-high efficient solar cells using nanotechnology, capable of achieving high solar electricity power conversion efficiency while operating in extreme environments.

This project is an initial step towards our longer-term goal of addressing the renewable energy market with a technology capable of high conversion efficiency and low cost.

In summary, Kopin's off to an excellent start in 2008.

Both our CyberDisplay and III-V product lines produced double-digit percentage growth in the first quarter.

And although we see some softness in our consumer electronic markets, we believe we are on track to achieve our full-year guidance of $105 million to $115 million.

Our financial position remains very strong and we are very well positioned across all our markets.

Now, we'll be happy to take your questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS.) Our first question comes from the line of [Robert Lipsey], Private Investor.

Please proceed with your question.

Yes.

Thank you for your presentation.

I've listened to this presentation and the one before, and you guys have given good revenue guidance, and the one before some guidance about GS&A margins and R&D margins.

Do you -- I don't know quite how to ask this, but can you tell me, either say if -- at the upper end of your revenue guidance, tell me what you would hope gross margins would be?

And if you don't feel comfortable answering that, can you tell me if you have any longer-term targets for gross margins?

Of course, the answer always depends on sales mix.

But in our model we would be approaching 30%, if not in a little excess of that, gross margin at the 115 top-end of the range.

Okay.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS.) We have a question from the line of [Lily Woo] with TGRA Capital Management.

Please proceed with your question.

Yes.

Hi.

The first quarter results were certainly very strong.

And I was wondering how much of that is seasonality, as well as what the outlook in terms of the full year would look like in terms of just the seasonal ups and downs.

For example, the display at $17.1 million is actually up sequentially.

And normally, we think of first quarter as a seasonally weaker quarter consumer-wise.

Are we seeing differences in patterns?

Is this just the strength of -- I guess it's the strength of the military, which doesn't have the normal consumer seasonality.

Could you go over that?

And also, why with such a first -- strong first quarter you're not raising full-year guidance?

Okay.

Let me answer this and Rich will answer some more.

This is John Fan speaking.

Yes, I think the question is that our strong quarter certainly is partially due to the military.

Military markets doesn't go with the same season.

And that's one of our reasons why we have this kind of mix, we have consumer and military mix.

On the other hand, we are seeing -- the market is really switching now as when talking about our eyewear, for instance.

We can continue -- the eyewear market continue to be strong as the mobile TV is getting more and more popular.

So Rich, you want to make a comment--?

--As far as guidance goes, frankly, we only gave the guidance probably 30 days ago, if that, when we did our Q4.

So, not a lot has changed, frankly, in the last 20 or 30 days which would have us change the guidance.

So, that would imply that you're looking for pretty flat quarters through the year in terms of linearity?

I mean, with new product -- with the displays, the new night vision products going into commercial production in the second half, and also things like consumer display likely to be stronger in the second half.

Are we not seeing -- even your wafer's primarily selling to mobile phone market, which also has market seasonality.

Are we simply expecting flat quarters, linearity through the year?

Historically we -- Q3 is our strongest, followed by Q2, then 4, then 1.

But the -- as John just mentioned, the strength of the military in the first quarter actually negated some of that, so that we may not follow the same historical pattern.

But from a consumer electronics standpoint, we would definitely think Q3 should still be the strongest, follow the normal season pattern.

And then Q4 should get a lift from some of the enhanced night vision program that John also discussed in his prepared remarks.

I think is a very good question.

As we know, with the economy the way it is, we have to consider what the consumer market will happen in the next few quarters.

Okay.

Thanks.

Thank you.

Our next question comes from the line of Ed Lemoore, Private Investor.

Please proceed with your question.

Hi, John.

Hi, Rich.

Rich and I have spoke many times.

And John, can you give me an understanding of the size of the market opportunity?

I know it might be early today, but with the contract that you got from NASA, can you give me an understanding of where this has the potential to go?

I mean, this is a tough question to really answer.

You know that in the renewable energy and the solar energy area, especially in solar cell, there's tremendous number of [repository] about how big the market is.

So, I really do not need to speculate.

But what we are trying to do is mostly -- right now is focus on technology.

As you well know, solar cells are limited by the efficiency of converting solar energy to electricity.

In the ideal case you may be getting around 30, maybe 30-some percent conversion from solar energy to electricity.

But what we are trying to do with this nanotechnology is to see whether we can improve our -- increase our efficiency, potentially maybe much higher than that.

If that's so, then of course the market can be -- I mean, the market -- any given market is almost difficult for me to even quote a number.

Any number I quote will not be -- it would be quite scandalous anyway.

Okay.

The next question I have is that -- and this is a tough one.

With all of these great opportunities that we're focused on, how are we going to make some money out of this?

It's always a good question.

I think that we are in fact making different mix now.

And I think we are turning profitable now.

But more important to focus is that the entire product we make is actually a brand new emerging product.

In many cases, some company in our sectors -- almost like display company in United States, there's not a single one that actually make money.

We are the only one.

The reason is, is that display, especially small displays, is really many companies are in developmental stage, how to achieve a performance that people can use in the marketplace.

We're the first one to get there and, therefore, we will continue to improve our margins.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS.) There are no further questions.

Gentlemen, do you have any closing comments?

Yes.

Thank you for joining us this afternoon.

I look forward to seeing you in our shareholder meetings on May 20th.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's teleconference.

Thank you for joining us today.