Kopin Corp (KOPN) 2008 Q2 法說會逐字稿

Good day and welcome to Kopin Corporation's second 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You may access an archived version of the call on Kopin's website at www.kopin.com.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 Q2 2008 financial results.

John will then discuss the operational highlights for the quarter and review our business strategy, after which we will take your questions.

Before we begin, let me remind everyone that during today's call, taking place on Thursday July 31st, 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 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 second quarter of 2008 increased 18% year-over-year to $25.8 million.

In the second quarter of '08 CyberDisplay revenue was $13.6 million, up approximately 28% year-over-year, while III-V revenue increased approximately 9% to $12.2 million.

On a reportable segment basis, Kowon sales to external customers were $1.9 million in the second quarter of 2008 and $1.6 million in the second quarter of 2007.

Kopin US CyberDisplay revenues were $11.7 million and $9.1 million for the second quarters of 2008 and 2007, respectively.

Sales of our display products for military applications increased to $6.7 million in the second quarter of 2008 from $2.3 million in the same period of 2007.

Sales from consumer electronics applications declined to $3.8 million from $6.9 million as a result of our planned transition from certain digital still-camera models.

Research and development increased to $1.7 million in Q2 of 2008 from $600,000 in Q2 of 2007.

Included in R&D revenues is approximately $700,000 from the shipment of prototype units to the TWS-Bridge contract.

As I have noted previously, 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 Q2 2008 was approximately 23% compared with 12% for the second quarter of 2007.

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

Research and development expenses were $3.8 million, or 15% of second quarter revenue.

This compares with $2.7 million or approximately 12% of Q2 revenue in 2007.

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

Selling, general and administrative expenses in Q2 2008 were $5 million, or 20% of revenue, compared with $4.5 million or 20% of revenue in the second quarter of 2007.

Included in SG&A is a charge of approximately $700,000 to reserve for possible uncollectable receivables from KTC, our Taiwanese affiliate.

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

Kopin reduced its second quarter net loss to $1.7 million, or $0.02 per share, in 2008 based on 67.7 million weighted average common shares outstanding.

This compares with a net loss of $3.2 million, or $0.05 per share, in the second quarter of 2007, based on 67.5 million weighted average common shares outstanding.

Financial results for the three months ended June 28th, 2008, included an impairment charge of approximately $700,000 related to a non-marketable equity investment.

This charge occurred after the Company reviewed the carrying value of the investment against comparable publicly traded companies and other data.

By operating segment in the second quarter of 2008, Kopin US reported a net loss of $2.2 million, while Kowon reported net income of $503,000.

For the six months ended June 28th, 2008, our net operating loss was approximately $724,000 as compared to a loss of $6.5 million for the same period of 2007.

Cash and marketable securities as of June 28th, 2008, totaled $81.8 million compared with $93.3 million at the end of 2007.

And we continue to have no long-term debt.

Receivables have increased to $23.4 million at June 28th, 2008, from $15.1 million at year end.

The increase resulted from an invoice at the end of the quarter for $2.5 million for the state grant that we had previously announced last year, and an increase of about $1 million in receivables from a military customer who had an accounting systems issue with our invoices.

The rest of the increase is attributable to normal revenue increases.

The $2.5 million invoice for the state grant also explains the increasing in billings and [excessive] revenues earned, which is essentially the other side of the entry.

Capital expenditures were approximately $2.3 million for the first six months of 2008.

Depreciation and amortization were $2.8 million for the six months of 2008 compared with $1.7 million for the same period of 2007.

Turning to our guidance.

Based on the current business environment and the economic conditions in our end markets, we expect to meet, or perhaps exceed, full-year 2008 revenue guidance 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 on today's conference call.

Before I go into details of our CyberDisplay and III-V categories, let me begin with an overview of our financial performance in Q2.

I'm very pleased with our 18% top-line growth and the positive trend in our gross margin expansion, which increased about 100% from last year's second quarter.

Without question, the strategic investments we have made to expand manufacturing capacity, to enhance our manufacturing capability and to improve yield are starting to pay off for Kopin.

And we hope to see this margin enhancement to continue in the quarters ahead as we focus on higher value applications in both areas of our business while maintaining our top-line growth.

Turning first to CyberDisplay.

The 28% increase in display revenue was primarily fueled by our military display products.

As Rich noted, military display sales nearly tripled year-over-year to $6.7 million.

Those of you who follow Kopin know that a primarily driver of this revenue is US Army Thermal Weapon Sights II program, or TWS-II.

Under this program Kopin is supplying our pilots with ruggedized displays and modules for light, medium and heavy thermal gun sights.

Our successful participation in this TWS-II program resulted in Kopin winning the contract to provide displays and modules for the follow-up program, TWS-Bridge.

We also have been selected as display optical module partner for the Army's Enhanced Night Vision Goggle program, or ENVG.

Each of these programs are in the final qualification phase.

So far, we believe that both are on schedule and expect production to begin for both TWS-Bridge and ENVG in the fall quarter of this year.

To support these programs, in June we began producing high-level assembly mercury modules and eyepieces in our newly completed 28,000 square foot clean room facility at Taunton, Massachusetts.

The quality and performance of those specialized military eyepieces and modules produced in this new facility have been outstanding and has obtained very good acceptance from our customers.

On the commercial side of our display business we're making steady progress in the video eyewear segment of the market.

Eyewear display product sales increase about $0.5 million -- from $0.5 million to $1.6 million in the second quarter.

For the first six months of 2008 eyewear display sales were up more than $1 million to $3.2 million.

We're actively engaged in design activities with the world's leading video eyewear manufacturer, as well as a number of larger companies which are now putting a toe in the water of this segment.

We believe that advances in such areas as 3D video gaming and portable video entertainment devices will drive this category forward.

Display revenue for camcorders and digital still cameras declined about $3.0 million in quarter two, reflecting our plan to reduce participation in the commodity consumer electronics segment.

Our objective is to develop more advanced display products for eyewear and other non-commodity, higher margin electronic applications.

Our newly installed 8-inch display processing line greatly enhance and increase such capability for us, as well as for more advanced displays in military applications.

In our III-V product category revenue increased about 9% for the second quarter and 20% for the first half of this year.

We are encouraged by the growth opportunity in this business for several reasons, not the least of which is the long-term purchase and supply agreement we have in place with our partner, long-term partner, Skyworks, through July 2010.

As we noted in this afternoon's news release, according to a recent study the market for gallium arsenide devices grew 17% in 2007 and the outlook for this market remains robust.

This business is right in our sweet spot.

And with our recent expansion of our new 6-inch III-V wafer manufacturing capacity and capability -- as a reminder, we have installed three largest and most advanced OMCVD production machines and they have now all been qualified for production -- we expect to capitalize as this market continues to grow.

In summary, we have completed our expansion plan and are now aggressively developing high-end product.

We are more than encouraged by our strategic market position.

Our financial situation remains very strong, and we'll begin the second half of this year optimistic about our ability to deliver top-line growth and margin improvement.

For 2008 we are on track to achieve, or perhaps exceed, our full-year revenue guidance of $105 million to $115 million.

With that, we're ready for your questions, operator.

Thank you.

(OPERATOR INSTRUCTIONS.) Thank you.

Our first question is from [Mr.

Jeffrey Britt] with Janney Montgomery Scott.

Please proceed with your question.

Mr.

Britt, your line is live.

Excuse me?

(OPERATOR INSTRUCTIONS.) I think there are no further questions at this time.

I would like to turn the conference back over to Dr.

Fan for closing comments.

Okay.

Thank you very much for joining us this afternoon.

We look forward to keeping you updated on our progress.

This will conclude today's call.

Thank you.

And that concludes our conference call.

Thank you for joining us today.