Kopin Corp (KOPN) 2009 Q1 法說會逐字稿

Good day and welcome to Kopin Corporation's first quarter 2009 financial results conference call.

Today's call is being recorded for 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You may access an archived version of the call on Kopin's website at www.kopin.com.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.

Thank you and good morning, everyone, and thank you for joining us.

I'll begin today's call by taking you through our Q1 2009 financial results.

John will discuss our financial and operational highlights 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 Monday, April, 27th, 2009, 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.

Potential risks include, but are not limited to, demand of 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 10K, and our most recent quarterly report on form 10Q, and other documents filed with the Securities and Exchange Act -- excuse me, Securities and Exchange Commission.

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

Turning to our financial highlights.

Total revenues for the first quarter of 2009 were $21.5 million compared with $29.2 million for the year-earlier period.

The decrease reflects the effects of global economic recession, as well as our strategic decision to transition our Display business from lower-margin consumer electronics to higher-value military, industrial and consumer applications.

Looking at revenue by product line, CyberDisplay revenues decreased approximately 15% in Q1 2009 to $14.6 million from $17.1 million in the same period of 2008.

Looking at CyberDisplay revenue by product category, revenue from Military Applications increased $11.3 million in Q1 of 2009 from $7.2 million in the same period of 2008.

Display sales from consumer electronic applications declined to $2.2 million in Q1 of 2009 from $6.2 million in Q1 of 2008, primarily as a result of our strategy of deemphasizing lower-margin consumer electronics, including low and mid-range digital still cameras.

Sales of Display for our Eyewear applications were $0.4 million compared with $1.7 million in Q1 of 2008, primarily as a result of the effects of the global economic downturn on sales of consumer electronics.

III-V product revenues decreased $5.2 million to $6.9 million in the first quarter of 2009 from $12.1 million for Q1 of 2008, reflecting the effects of the global economic slowdown on the wireless handset market and the aggressive reduction of inventories by some customers.

Research and development revenues were $0.7 million in Q1 of 2009 versus $2.1 million in Q1 of 2008.

You may recall that the R&D revenues in Q1 of 2008 included approximately $0.7 million of revenue from prototype unit shipments to military customers.

Despite the lower revenue, our strategy on focusing on higher-margin applications continues to result in improved manufacturing efficiencies.

Gross margins for the quarter were 29% of net product revenues compared with 25% for the first quarter of 2008.

Turning to our operating costs, research and development expenses were $3.1 million, or approximately 14% of first quarter revenues.

This compared with R&D expenses of $5 million, or approximately 17% of revenue for the first quarter of 2008.

R&D expenses were associated with the development of high-resolution displays, as well as the development of new III-V products.

Selling, general and administrative expenses in Q1 of 2009 were $4.5 million, or approximately 20% of revenue, compared with $3.8 million, or approximately 13% of revenue in the first quarter of 2008.

Q1 2009 SG&A expenses included an additional $1 million in allowance of doubtful account expense, primarily attributable from receivables from KTC, our Taiwanese affiliate, which is experiencing some liquidity issues.

Other income net was $3.3 million in the first quarter of 2009 compared with $1.4 million in the first quarter of 2008.

In the first quarter of 2009, we recognized a gain of $2.6 million from the sale of certain patents that we were no longer using.

We sold them to a group that licenses the patents to third parties.

The amount we receive is contingent on the fees that are generated from these licenses.

In addition, we recorded $0.9 million translation gains resulting from the $14 million of US dollars we hold in Korea, and an impairment of $0.9 million on our marketable securities to record them at fair value at March 28th, 2009.

The write-down of marketable securities did not occur as a result of the sale of any securities.

On the bottom line, we reported first quarter net income of $1.9 million, or $0.03 per diluted share, based on 68.2 million weighted average common shares outstanding.

This compared with net income of approximately $1 million, or $0.01 per diluted share, for the first quarter of 2008 based on 67.7 million weighted average shares outstanding.

We continue to have a very strong balance sheet.

Cash and marketable securities at March 28th, 2009 increased to $104 million from $100 million at the end of 2008.

The $4 million increase is the net of $6.5 million of cash generated from operating activities, less $0.6 million of capital expenditures and $0.9 million from the repurchase of our stock.

We continue to have no long-term debt and we expect capital expenditures for the year to be somewhere between $4 million and $8 million.

Accounts receivable decreased to $13.4 million at March 28th, 2009 from $19.6 million at December 27th, 2008.

Inventory [at year-end] was $13.3 million at March 28th, 2009, which is consist with the year-end balances.

Depreciation and amortization was $1.5 million for the first quarter of 2009 compared with $1.4 million for Q1 2008.

During the first quarter we repurchased 482,000 shares of our common stock for approximately $887,000 as part of our $15 million stock buyback plan, which the Board of Directors approved in December, 2008.

As previously announced, Kopin plans to buy shares in the open market, or through private negotiation transactions, from time to time, subject to market conditions and other factors and in compliance with applicable legal requirements.

The plan does not obligate us to acquire any particular amount of stock and can be suspended at any time at the Company's sole discretion.

Turning to our guidance, we expect Military Display revenues will continue to grow in fiscal year 2009, and that sales of our Commercial and Industrial Display products will decline as a result of the weakness in the global economy.

Currently, the degree of sales decline in the Commercial and Industrial markets is difficult to forecast.

However, based upon discussions with customers and our projections for Military Display ramp, we expect 2009 revenues to be in the range of $90 million to $110 million.

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

Thank you, Rich.

Good morning, everyone, and thank you for joining us on today's conference call.

In thinking about this very difficult global economic climate we're facing today, I'm gratified that one of Kopin's enduring strengths has been product and customer diversification.

When economic or market conditions are stressing a particular end product or end market, our broad product leadership and market diversity keeps us sailing.

This is a particularly important attribute in a down market.

We certainly benefited from our diversification in the first quarter of this year and expect to benefit even more going forward.

Furthermore, our solid and conservative financial management becomes a very important cornerstone in this difficult time.

Although the economic recession's contributed to a lower total revenue, our Military Display business is very healthy.

We expect that Q1 will be our most challenging quarter of this year.

As Rich mentioned, CyberDisplay revenue for military applications increased by $4 million in the first quarter to $11.3 million.

This 57% increase reflects our production ramp of Display products for the US Army's thermal weapon sights programs.

Our strategic decision to transition our Display business from lower-margin consumer products to higher-value applications is evidenced by the fact our military applications now represent 77% of CyberDisplay revenue in Q1 of this year, compared with Q1 of 2008, where military applications accounted for about 42% of our total CyberDisplay revenues.

This significant contribution of military products contributed to a much higher margin in Q1 as our gross margin improved to 25%.

We expect our Military revenue will continue to grow throughout the year as we are still in the midst of the ramp up.

But Display business strategy goes beyond simply shifting our focus from one end market to another.

The key, I believe, is our business model.

It's evolving from one in which we're just selling microdisplays to now to providing our customers with an integrated complete imaging solution.

This includes better light, optics, packaging and electronics.

Just as we have done to III-V with our unique and more advanced HBTS structures, in our Display business we are taking the steps to continue distributing our competitive advantage.

By concentrating our efforts on higher-lever display assemblies and other advanced solutions, we're providing customers with products that enable them to improve their efficiency, reduce their time to market and deliver high-quality products at lower cost.

We have achieved solid progress in our Display business and we make the investments to install our 8-inch CyberDisplay line and built a 3,000-square-foot clean room to produce higher-level assembly.

As Rich noted, over the next 12 months we will continue to make additional investments in our Display programs, and we believe we are very well positioned as customers look to Kopin to provide them with advanced display imaging solutions.

Our new VIPER Head-Mounted System is a good example of solution-oriented philosophy.

Based upon our full-color CyberDisplay VGA LV microdisplay, VIPER is a remote viewer that's composed of display and light optics electronics and is assembled inside a clean room into a system that can be directly connected to any surveillance or thermal camera with the idea for Homeland Security, military or first responders market.

VIPER also represents our entry point for industrial product applications where we see significant opportunities going forward.

Another example of our Display strategy is our new suite of low-power -- ultra-low-power AMLCDs, which are based off our most recent breakthroughs in power efficiencies and performance.

Combining our patented low-voltage architecture and innovative [scanner] circuit, this display consumes less than 30 milliwatts at full video speeds, even for high-resolution SVGA, XGA and SXGA displays.

Low power consumption is a performance feature demanded by all our military and consumer products and we have made great advances in this area.

In addition, the market demands higher pixel densities and even better image quality.

We have very active programs to reach these goals and are very encouraged by our recent progress.

Let me comment briefly on the consumer side of our Display business, specifically as it relates to eyewear.

Clearly, in this economy some eyewear manufacturers are having difficulties financing their growth.

But interesting enough, even in this environment demand is still there.

Consumers want the product, which means retailers want the product.

Lower priced eyewear continues to sell very well.

Manufacturers are working hard now to resolve their working capital issues.

Our major eyewear customers are telling us they have exhausted their inventories and have begun to resume their manufacturing lines.

They expect strong double-digit growth this year, especially in the second half of this year.

Turning to our III-V product line.

As Rich noted, revenues were down $5.2 million in the first quarter to $6.9 million, largely because of the decline in global handset sales, which probably -- caused some of our customers to drastically reduce their inventories.

Despite the current downturn, we are optimistic about our III-V business, particularly in the second half of this year.

The excellent popularity of iPhone is (inaudible) other manufacturers to develop handsets that offer faster broadband performance and advanced multimedia capabilities.

But enhancing the performance and capability of these phones also means increasing the number of integrated circuits required to handle the added features and functionalities, and that trend plays well into our sweet spot.

Our proprietary vertically stacked transistors enable circuit manufacturers to add more functionality within each layer and allows for more efficient designs.

In addition, virtually all wafer production is moving from 4-inch to 6-inch.

Of course, we are very well positioned for this transition having made the early investments to expand our 6-inch wafer capability.

We continue to invest in our III-V technology, both in terms of new equipment and develop new HBT structures.

Our tier one customers are managing well in this downturn and now we expect to begin to see our picking up additional market share as we move throughout the year.

In summary, we think our most challenging quarter of 2009 is behind us.

Our Display strategy is producing margin enhancement and creating a foundation for growth.

Our Military Display product is starting strongly in 2009 and we expect it to continue with the ramp of TWS Bridge program.

We also are very encouraged by the future of our III-V business.

We expect to produce market share gains in the second half this year.

In addition, we also think it is worth noting that we have a very enviable balance sheet, with a cash balance of $104 million and no long-term debt.

And we have the flexibility and resources to continue to execute our strategy and to further grow our business.

We expect to come out of this global recession an even stronger company.

With that, we are ready for your questions, operator.

Thank you.

(OPERATOR INSTRUCTIONS.) Our first question comes from [George Blagdon], a private investor.

Please proceed with your question.

Could you comment on what's going on with Cobright?

Okay.

This question is about Cobright, which is a joint venture we have with a Taiwan company on LEDs.

The Cobright business, of course, also it comes down with global recession.

But I'm going down to have a meeting with -- in about two weeks.

I heard that business is recovering right now.

(OPERATOR INSTRUCTIONS.) Our next question comes from Edwin Lyon with Lyon's Investment Management.

Please proceed with your question.

John, could you give us some idea of the total revenues of Cobright?

It is a private company and our share of this is only about 20 -- is 19%.

So, yes, I think is of no major consequence to us.

Besides, it's a private company.

We don't reveal the number.

Okay.

I understand you don't reveal the numbers.

Thank you.

Our next question comes from George Blagdon, a private investor.

Please proceed with your question.

The ownership of Cobright is a direct 19%.

But if you add your derivative percentage through your other holdings at KTC that holds more, you end up with much closer to 29% or something like that.

Can you correct us on that?

Oh, the question is still on Cobright from George.

KTC do not own any more of the Cobright shares.

So, our Cobright shares, Kopin owns 19% and that's a total ownership of the Cobright.

I see.

Where did those other shares go?

Cobright bought back the shares from KTC.

I see.

So, you own 19% of a more concentrated company.

Yes.

In fact, the Bright LED, which is a public company in Taiwan in LED, now is the majority owner of Cobright.

If I can throw in one more question, I know you have patents that are used in the space program on solar panels.

Is there any possibility that those patents and your knowledge in that area can come down to the consumer and industrial market, as well as the space market?

The question is whether our IP knowledge in the solar cell is useful for terrestrial solar cells.

The answer is yes.

In fact, we have some active programs with NASA and other US governments to improve the solar cells for terrestrial applications.

And those programs, some of the -- or most of the programs we're in announced them.

So, we are working very hard on that.

We're obviously doing our share to improve the efficiency for terrestrial solar cell applications.

Yes, those IPs, some of the IPs are very useful.

The questions seems slow in coming so I'll ask one more, and that is what would encourage you to buy in your own shares a little faster than you've been doing?

I'll let Rich answer the question.

Well, the Board has established certain parameters under which the program operates.

And we just can't go out and start fluctuating the amount of shares we're buying, per se.

There are legal requirements as to how much we can buy.

It's based upon a trailing, I think, four-week average.

So, it's just not solely at our discretion.

So, between the Board parameters and the legal requirements, that kind of dictates how many shares that we can buy.

Per day.

Per day.

And those requirements change on a weekly basis.

I hope you'll encourage the directors to be a little more aggressive now that they can see what Kopin can do in the first quarter.

Yes.

I think Rich mentioned that we -- there are some legal requirements that we are to follow, in addition to the Board.

I think mostly many of the legal requirements are limiting us.

Thank you.

There are no further questions at this time.

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

Fan for closing comments.

Thank you very much for joining us this morning and we look forward to keeping you updated on our progress.

Enjoy the day and, of course, we have an annual meeting tomorrow.

Thank you.

Bye-bye.

This concludes our conference call.

Thank you for joining us today.