Kopin Corp (KOPN) 2013 Q2 法說會逐字稿

Good morning and welcome to the Kopin Corporation's second quarter 2013 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 You may access an archived version of the call on Kopin's website at www.kopin.com.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.

Thank you, Mr. Sneider. Please go ahead, sir.

Thank you.

Welcome, everyone, and thank you for joining us this morning. John will begin today's call with a discussion of our strategy, technology and market and I will go through the fiscal second quarter -- second quarter 2013 results at a high level. John will conclude our prepared remarks and then we'll be happy to take your questions.

I would like to remind everyone that during today's call, taking place on Tuesday, August 6, 2013, 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 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 for our subsidiaries, the 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. The Company undertakes no obligation to update the forward-looking statements made during today's call.

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

Thanks, Rich. Good morning, everyone, and thanks for joining us today. Rich will discuss our financial results with you a bit later but, for now, I would like to give you an update on our business.

As I have mentioned in previous calls, our decision is to focus our engineering talent and IP investment in wearable computing, and to transform our business model from a more commodity-like business to a solution-based business with higher gross margin potential.

Throughout these years -- this year we are beginning to see a number of growing trends in the wearable technology space. And we have been very encouraged by the feedback we have received from current and prospective partners and customers. We expect to make a number of exciting announcements as the year progresses. I want to take some time this morning to discuss some of the positive trends, and to comment on where I think the wearable computing market is headed and why I believe we're in a position to capture -- capitalize on this emerging technology.

With our long history of developing technologies that gear towards wearable computing market, the three main aspects of our strategy and directions are very clear. First, our track record of technological innovations in wearable computing and its displays has given us an optimum portfolio of critical components and solutions. Our expertise to integrate this technology makes us an ideal partner to companies looking to bring wearables to market.

Second, we'll also work closely with our partners to custom engineer and custom develop tailored solutions to accelerate their wearable product developments and to enable their vision for this emerging wearable marketplace.

And third, our IP and our expertise allow us to innovate solutions to problems that our partners are unable to solve with their own staff. Whether this is display, optics, software, ASICs, ergonomics or noise-cancellation and voice recognition, the breadth of our knowledge and capabilities is of great value to our customers and partners.

The wearable computing wave is coming and Kopin is uniquely positioned to capture it by helping our partners to enter the market. With more than 20 years of IP and knowhow that prove us geared towards the wearable computing space, Kopin has been focusing to make the investment necessary to position the Company as the leading developer of wearable technology solutions to partners who develop branded, wearable computing products.

The wearable wave represents a secular shift towards computers that are more integrated into the way we work, communicate and live by combining advances in wireless connectivity, cloud computing, predictive data analytics, microdisplays, optics and voice recognition technology.

A July 2013 report from Visiongain forecasts a multi-billion dollar market for wearable technology with explosive growth and high adoption rates expected over the next five years. An April 2013 report by Moody's found that all ages, incomes, education levels, 39% of Americans would buy or wear smart glasses.

These reports and others that we have seen are consistent with our observation that there is a strong growing interest on many major players in the technology space. From our discussions with our partners, we anticipate substantial growth in the wearable computing market starting by the middle of 2014. As we continue our transformation, Kopin will be well positioned to meet the demand for this inflection point in the wearables market.

With so much market potential, the desire for companies to become a player in this market is very strong. However, to build a wearable product, competencies in software, speech enhancement, display ASICs, optics and ergonomics are necessary.

Kopin is helping our customers to bring wearable products to market because we have been in this area for many years. We have already a strong portfolio of solutions and critical components to cover these areas and our experience to integrate this technology. With feedback from our customers and partners we are actively developing even stronger solutions for this emerging market.

The following items are some recent additional developments worth noting. First, we have grown our patent portfolio to over 200 patents. In this last quarter alone we have filed 18 more patents related to wearable technology solutions.

Second, we are making significant progress in advanced development of our wearable software platform and we anticipate having an Android version by year end to complement our Windows version.

Third, Kopin's technology solutions are being used by Vuzix and Recon wearable products, two companies that are early movers in the wearables market.

And finally, we announced our first wearables technology center in Silicon Valley to enabled testing and refinement of our solutions for our customers and partners.

Companies that make wearable computing products turn to Kopin to use our technology expertise and solutions to accelerate their product development. Given the robust estimate on the size of future wearable computing market and recent uptake in interest in Kopin's wearable technology and solutions, we believe that we are starting to see the confirmation of our business strategy.

In conclusion, the relentless trends of greater and greater mobile connectivity continue to reinforce our vision of the wearable space. Consumer electronics and mobile communication companies are actively exploring the wearable computing technology market, and we believe our company is uniquely positioned to capitalize on this growth and we look forward to provide updates as they develop throughout the remainder of this year.

With that, I will now turn the call to Richard for the quarter's financial results and guidance. Richard?

Thank you, John.

Beginning with the top line, total revenue for the second quarter of 2013 was $6.1 million, compared with $7 million for the second quarter of 2012, primarily reflecting the expected decline in sales with display box for military applications.

Now, before we go into the operating expenses, it is important to remember that our expense structure is not tied to the current quarterly revenues or fiscal year revenue projections, but to our longer-term goals.

Cost of goods sold for the second quarter was 111% of product revenues compared with 81.5% for the second quarter of last year. The decrease reflects a decrease in the sale of our display box for military applications, the accrual of $800,000 for a state job grant repayment, approximately $600,000 for the reserve for excess and obsolete inventory, and manufacturing inefficiencies resulting from lower volumes.

As you may recall, we received a state jobs grant several years ago and, under the terms of the agreement, our selling of our III-V product line triggered repayment. However, there are additional terms which may allow us to keep the funds, though this may be reversed in the future.

R&D expense in the second quarter of 2013 was $3.7 million, compared with $2.9 million for the second quarter of 2012. The increase reflects an increase in costs to develop wearable computing technologies.

SG&A expenses increased from $4.1 million in the second quarter of 2012 to $4.7 million in the second quarter of this year. The increase in SG&A for the second three months of 2013 versus the corresponding period in the prior year is primarily related to an increase of approximately $500,000 in patent expenses and other professional fees.

Other income and expense net is primarily composed of $285,000 of interest income and approximately $371,000 of foreign currency gains.

Turning to the bottom line, our net loss for the quarter was $7.8 million, or $0.12 per share, compared with a net loss of $5.2 million, or $0.08 per share for the second quarter of 2012.

Cash and marketable securities totaled $130.4 million at June 29, 2013, compared with $92.5 million at the end of 2012. We continue to have no long-term debt.

Year to date we have used $6.7 million of cash in operating activities. We have spent $2.2 million to repurchase approximately 625,000 shares of our common stock and spent $513,000 on capital expenditures.

Second quarter year-to-date amounts for depreciation, amortization and stock compensation expenses are included in a table attached to the Q2 press release.

Now, our guidance. We continue to expect full-year revenues in the range of $18 million to $22 million. Our current expectations indicate that gross margins will be lower than we initially expected and that certain expenses, specifically R&D, non-cash stock compensation and patent expenses, will be higher than we initially forecasted and, accordingly, we have expect -- we expect a consolidated net loss in the range of $28 million to $33 million for 2013.

We have provided guidance for 2013 revenue and net loss ranges in order for investors to understand the impact of both the sale of our III-V product line and the expected changes in our remaining business in 2013 as compared to 2012. However, we believe that Kopin has a great opportunity to position itself in the growing wearable computing market. Our primary focus in 2013 is developing technology, establishing relationships with partners, and feeding a high-potential market. Accordingly, our 2013 losses may exceed our current estimates.

John?

Thank you, Rich.

Demand is growing for wearable computing products and I want to ensure everyone that Kopin is not standing still waiting for the wave to hit. We're in active discussions with a number of leading technology companies who are looking to us to accelerate and enable their interest in the wearable computing market.

We are not in a position to make any announcement today, but we are committed to keeping you informed as quickly as we are able to.

Our balance sheet is very strong and debt free. As we transform to a solution and licensed-based model, we anticipate we will produce fast-growing, recurring revenue that will drive high gross margins.

Kopin has been a thought leader for many years in many of the areas that are making the wearables a reality and our combination of patents, technologies, partnerships and talented employees uniquely position us to ride the wave.

We look forward to ongoing discussions with you in the coming months.

And now, Operator, please open for questions.

Thank you. (Operator Instructions.)

And gentlemen, we have no questions in queue at this time.

With that, I'll say thank you, everyone, for joining us today. I look forward to speaking with you again in the near future.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.