Kopin Corp (KOPN) 2013 Q3 法說會逐字稿

Good morning, and welcome to the Kopin Corporation's third-quarter 2013 financial results conference call. Today's call is being recorded for internet replay. You can access an archived version of the call on Kopin's website at www.kopin.com, that's k-o-p-i-n-dot-com.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. Please go ahead, sir.

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

I would like to remind everyone that during today's call, taking place on Thursday, October 31, 2013, 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 that could cause actual results to differ materially from those forward-looking statements.

The types of risks include but are not limited to demand for our product, operating results of our subsidiaries, 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.

Thank you, Rich. Good morning, everyone, and thanks for joining us. Rich will discuss our financial results with you in a moment. But for now, I would like to give you an update on our business.

This morning, I'm calling in from Asia, visiting with some of our important partners. What I've seen over the past few quarters, coupled with the conversations I'm having out here, is very encouraging.

We have received a lot of positive feedback from current and prospective partners and customers; and we do expect the strong momentum in the wearable-computing market to accelerate going forward.

And we continue to be very confident in our business model of establishing Kopin as the pre-eminent developer of critical components, reference systems, and total system solutions for the wearable space.

Since we now are transitioning to the wearable computer space nearly nine months ago, I am extremely pleased with our progress and the overall market trends. We see what we anticipated, in terms of increased interest by both potential partners and customers.

We are well aware that our investors would like us to announce who we are working with and what types of projects we're working on. The [fact] is that our partners require very strict confidence.

This reminds me of when we first introduced our commercial display, and our shareholders were asking who we're working with; and we had to wait until the product was launched before we could make announcements. Of course, later on our shareholders learned our [initial] commercial display customers were JVC, Panasonic, and Samsung.

Then the pattern repeated with our military display launch; and of course, later on people knew our partners were BAE, DRS, and Raytheon. Again, they are the industry leaders.

So we're in somewhat similar conditions in the situation now with the launch of our wearable products. All I can say is that our expectation is to make a number of exciting announcements soon. We do expect to have good products and innovative products in the market by the middle of 2014.

With our long history of developing technologies that [give to what] wearable-computer market, the main aspect of our strategy and directions are very clear. We will [obtain] technologies through development or acquisition, such as software, ASIC, or noise cancellation, or voice recognition.

When combined with a historic portfolio of displays, ergonomics, optics, and [backlights] and our capability and capacity, make us an ideal partner to companies looking to bring wearables to the marketplace.

And we work closely with our partners to custom engineer and develop tailored solutions for them to accelerate the wearable-product development and to enable their visions for the emerging wearable marketplace.

Looking at the recent developments within the wearable (inaudible) computing space over the past quarter, I believe the velocity of the market will accelerate considerably soon.

In the third quarter, there were a number of devices, such as smart watches, (inaudible) solutions start shipping the [Kopin-enabled] HC1. We saw other proposed products in the press, but I want to spend a moment highlighting the diversity of these two type of products.

The watch has a limited feature set, used to augment the smartphone. And the HC1 is actually a fully functional, stand-alone [active] device. The diversity between these two products should provide our shareholders an idea of the magnitude of the marketplace and the innovative products that are to come. And Kopin's technology allows us to play across the whole spectrum of the market.

We view these recent developments as confirmation of our strategy. With more than 20 years of intellectual property geared towards the wearable-computing space, Kopin has been focusing on making the investments necessary to position ourselves as a leading developer of wearable-technology solutions for our partners, who have developed branded wearable computing products.

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

Kopin is helping our customers to bring wearable products to market because we have a strong portfolio of solutions and critical components to cover all those areas and [other] experience to integrate those technologies.

We have some other recent developments that are worth noting. We have grown our patent portfolio to over 200 patents related to wearable-technology solutions. Since(inaudible) back on our business transition in January of this year, we have filed more than 20 additional patents related to wearable-technology solutions.

Kopin's technology solutions are being used by Vuzix and Recon and other wearable companies. (inaudible) our partners, they are beginning to utilize not only our display capabilities and capacities, but oftentimes also our optics, backlights, and chipset solutions.

We also have made significant progress in advanced development of wearable software [platforms], and we anticipate having an [Android] version by year end to complement our Windows solutions.

Furthermore, given the great deal of interest that's [spread] by partners, potential of our partners -- potential customers and investors, we will be hosting an open house in February 2014 at our wearable-technology center in Silicon Valley, California, which is currently under construction.

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

In conclusion, the trends of advancing technologies and greater mobile connectivity continue to reinforce our vision of wearable space. The stream of consumer electronics and mobile [miligations] and companies are exploring the wearable-computing technology. And we believe Kopin is uniquely positioned to capitalize on this growth.

We look forward to provide updates as this develops 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 revenues for the third quarter of 2013 were $5 million, compared with $8.2 million for the third quarter of 2002 (sic - see press release, "2012"), primarily reflecting the decline in sales of display products in military applications.

Before we go into operating results, 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.

Costs of goods sold for the third quarter was 95% of product revenues, compared to 66% for the third quarter of last year. The increase reflects a decrease in sale of our display products for military applications, [normal] price declines, and lower manufacturing utilization.

R&D expense in the third quarter of 2013 was $5.6 million, compared with $4.7 million for the third quarter of 2012. The increase reflects an increase in our investments in wearable technology.

SG&A increased from $4.7 million in the third quarter of 2012 to $5 million in the third quarter of this year. The increase in SG&A for the [three] months of 2013 versus the corresponding [series] of the prior year is primarily related to an increase of approximately $200,000 in compensation costs and approximately $200,000 of patent amortization and other patent-related expenses

Other income expense [net] is primarily composed of $350,000 of interest and other income, a $1.9-million gain on the sale of investments, and approximately $800,000 in foreign currency losses.

Turning to the bottom line, our net loss for the quarter was $8.8 million, or $0.14 per diluted share, compared with a net loss of $6.7 million, or $0.11 per share for the third quarter of 2012.

With cash, equivalents, and marketable securities totalling $122.7 million at September 28, 2013, and no long-term debt, we are well positioned to execute our strategy.

Year to date, we spent approximately $6 million under our stock-repurchase program and approximately $500,000 on capital expenditures. Third quarter and year-to-date [amounts of] depreciation and amortization and stock-compensation expenses are included in the table attached to the Q3 press release.

And now for the guidance. We continue to expect full-year revenue in the range of $18 million to $22 million. We also continue to expect a [consolidated] loss in the range of $28 million to $33 million for 2013.

This guidance excludes the income from discontinued operations, net of tax. Excluding the effects of working capital, our stock buy-back program, and other investing and finance activities, we estimates we will use between $30 million and $35 million to fund operations for 2013.

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

Thank you, Rich. Demand is growing for wearable-computing products, and I want to assure the investors that Kopin is not standing still waiting for the wave to hit.

We are in active discussions with a number of [very] leading technological companies who are looking to us to accelerate and enable their entrance in the wearable-computing space.

We are not in a position to make any announcements today, but we are committed to keeping you informed as quickly as we are able to. Kopin has been a [thought] leader for many years in exactly the areas that we're making wearable a reality.

Our combination of patents, partnerships, critical components, strong financial position, and talented people bolster our [estimate] and reputation and uniquely position us to ride the wave that undeniably is growing as we speak.

We look forward to ongoing discussion with you in the coming months. And now, operator, please open the line for questions.

We will now be conducting a question-and-answer session (operator instructions). Matt Robison from Wunderlich Securities. S

Good morning, John and Rich. John, can you talk a little bit about the number of companies you're working with these days, where they are geographically? And then maybe, how many you think will have products, as you mentioned, in the next year?

The question is, how many companies we're working with and how spread out globally, as well as how many products are coming out.

It's an interesting question. Obviously, we're working with companies in Asia, as I'm in Asia. We're also very actively working with companies in the United States, as well as in Europe.

And with regard to products, we have to be very careful what we can describe, but it's very clear there will be products coming out next year by very established companies.

Should we think that they'll be one or two mid-year, or what --?

Well, I think most importantly, it's not how many [who are] introducing them.

Well you (multiple speakers) but you might be able to tell me the product that could possibly come out.

I think what's important was (multiple speakers). I'm sorry, (inaudible) coming from such a long distance, so I think that scrambled. But I think there will be a significant number of very interesting products coming out by significant companies. I think this is a very interesting time.

And your Android product, it sounds like that's basically on track with the schedule you've been talking about since January. What will be -- how is the target market shaping up for that?

I think that the [Android] market, we developed, of course, as a [converse] to Golden-i, which is Windows-based, into Android. That was primarily our purpose that we develop the Android, and it's on target to get to the Android platform.

But it so happened that during that year that we were developing it, Android gets bigger and bigger market share; so we believe that the Android platform will be useful for other applications [other than just Golden-i] platform.

Is this the -- is there a subsequent version coming out later in 2014 that's more of a prosumer type of product?

I'm not at liberty to describe that. But it's an interesting product, also, yes.

And Rich, you said that $1.9 million came from sales on investments and offset by $800,000 in ForEx loss. Is that right?

That's correct. [Because that's the sale of] two investments.

Okay. And did you say you used $30 million to $35 million in cash this year?

That's what we're projecting. That's the range we're projecting.

What was the cash flow associated with operations, cash [burn] from operations in the third quarter?

Well, if you went and looked at the cash-flow statement, you can see 13 -- well, $12.8 million would be the number of cash flow from operations.

If you took kind of an operating income, added back depreciation and [stock] comp, all that good stuff, you'd be looking at an $8-million number. But one includes the flows of working capital, and one doesn't. It depends on how you want to look at it.

Okay. That's it for me for now.

Rajvindra Gill from Needham & Company.

Thanks for taking my question. I was just wondering if you could describe the competitive landscape and what's your views on Google Glass and some of the other newer products that are trying to get -- attempting to get into this space. Thank you.

Okay, let me take a stab at it. Of course, Google Glass is so prominent in the market, and it's actually a very interesting product, a very good product. It's [not even a] product yet. And I think for everybody within the wearable space, we'll all cheering for Google to be successful. So I think that's the question on the Google Glass. What was your other question, now? Sorry.

I was just wondering -- this technology is kind of in its infancy --.

Oh, yes, talking about the competitive landscape.

Are there -- do you see -- there's Himax that's working with Google with their microdisplays. I'm just wondering what you're view is on that, and how are you going to position yourself in the market.

Well, of course, I'm speaking probably a little bit slightly biased. To be [successful] you -- we are actually doing a lot more than just display. Display is, of course, one of our early core competencies. But I think it's very important to be able to support our customers, our partners, and [relevant] systems to go through the whole spectrum of [stuff] -- display, the ASICs, the backlights, the optics, the ergonomics, and software, and so on and so on.

In that space, of course, Google is there, but [we] have very few real competitors that can provide such a solution base at this point.

I see. And just any, Rich, thoughts on the military business, in terms of defense spending and the procurement cycles there? Thank you.

Well, again, I can only say what's in the budget. And so we're going through a round of investment right now. So as many of you know we were the sole supplier for thermal weapon sights for a number of years with the US military.

But that business has declined, not just because of the fact that the war efforts are, hopefully, winding down, but because of the new generation of sights.

The fact of the matter is, the soldiers never liked the fact that they had to switch from their day sight to their night sight because they're highly calibrated, and so on and so forth. So there was always a trend towards moving to a single sight and a sight that can do much more.

Today, the way a sniper works, for instance, is he's using the sight, and he has someone giving him the readings of distance, humidity, wind conditions, a host of factors. And the government wants all of that [implemented] into a solution.

So we're working diligently on a number of programs that we expect some awards in next year. And again, if you believe the government, roll-outs start happening in the latter half of next year and then picks up in 2015.

And without going through a bunch of technical reasons, our display is very uniquely situated to support what they're trying to create.

Very good. Thank you.

That does conclude our question-and-answer session. I would like to turn to floor back over to Management for any further or closing comments.

Well, thank you, everyone, for joining us today. We look forward to speaking with you again in the very near future. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.