Kopin Corp (KOPN) 2014 Q1 法說會逐字稿

Good morning and welcome to the Kopin Corporation's First-Quarter 2014 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 You may access an archived version of the call on Kopin's website at www.kopin.com.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. Please go ahead, sir.

Thank you very much operator. Welcome, everyone, and thank you for joining us this afternoon. John will begin today's call with a discussion of our strategy, technology, and markets, and I will go through the first-quarter 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 Tuesday, May 6, 2014, 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.

Potential risks include, but are not limited to, demand for our products, 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 these forward-looking statements made during today's call.

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

Thanks, Richard.

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

I would like to send apologies in advance. As many of you probably are, I'm suffering from a seasonal allergy, so I will keep my comments a little shorter than usual.

We continue to make excellent progress towards our goal of becoming a global leader in wearable technology. During this quarter, we worked on finalizing contracts with several large customers, and we expect to see these completed by the end of the summer. We currently are working on the agreements with those customers which enable us to design products and procure (inaudible) item materials while we're negotiating the final agreements.

While we can never be 100% sure that final agreements will be reached, these customers are seriously investing their time and resources in this program.

We have hired additional executive managers. They are marketing (inaudible) development areas. We have always had very strong military and Asian sales experience. These additional individuals will bring licensing and customized component marketing experience.

[We've been studying] (inaudible) manufacturers for our reference designs. While some potential customers have ability to produce products based on these designs, some would prefer to procure them from our contract manufacturers that Kopin has established relationships with. This is especially important for some customers who have niche applications.

And we continue to make substantial technical improvements in our display, optics and other critical components necessary for the wearable market.

And to resolve the efforts behind the technologies and devices which we demonstrated in February, we filed 40 patents -- new patent applications in the first quarter of 2014.

On the military side, we continue to work on the next generation of military scopes which overlays symbologies and graphic information on a direct-view optic to make an augmented reality scope. We believe our solutions will be designed later this year, and we should see revenue from this program in 2015.

Finally, sales of our components for military applications increased 76% year over year as we continue to make progress in the 3D metrology market, and we expect revenues for this product line will continue to grow.

We believe we'll see the results of our effort in the fourth quarter of this year and then see substantial revenue growth from our wearable products in 2015.

Beyond just our internal efforts and discussions over -- with potential customers, a closer look on recent industry trends further confirms our strategy. For example, Microsoft and Intel have stated they plan to have -- or to make several investments in wearable technology companies. And Samsung, as well as many smaller players, are showing signs of some small commitments to wearable.

Our portfolio of solutions, software and critical components [led] by 20 years of intellectual property geared towards wearable computing space -- plus our experience of integrating these technologies -- makes us the partner of choice for many of those companies.

Kopin is at the front of a growing wave, and we believe the inflection points [are] within the next year. Feedback on potential customers, the success of our February wearable technology event and independent studies which continue to provide robust estimates of the size of the future wearable market, reinforce our focus.

With our strong financial position of $106 million in cash and marketable securities, our industry-leading product and IP portfolio, and our strong reputation in the market, we are well-positioned to execute our strategy and grow with the [ramp] of the wearable market. We look forward to providing additional updates as they develop throughout the remainder of the year.

With that, I will now turn the call to Richard for the quarterly financial results.

Thank you, John.

Beginning with our results for the quarter, total revenues for the first quarter of 2014 were $4.7 million, compared with $6.3 million for the first quarter of 2013, primarily reflecting the expected decline in sales of display products for military applications, which was partially offset by increased sales and components for wearable and industrial applications.

Before we go into operating expense, 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 first quarter was 100% of product revenues, compared with 107.1% for the first quarter of last year. The improvement in gross margin reflects a decrease in sales of our display products for digital (inaudible) applications (inaudible) have our lowest margins.

R&D expense in the first quarter of 2014 was $5.1 million, compared with $4.2 million for the first quarter of 2013. The increase reflects an increase in costs to develop our concept designs, including investments in software development.

SG&A expenses decreased from $5.7 million in the first quarter of 2013 to $5 million in the first quarter of this year. The decrease in SG&A for the first three months of 2014 versus the corresponding period in the prior year is primarily related to a decrease in stock compensation costs.

Other income expense net is primarily composed of approximately $200,000 in foreign currency gain.

Turning to our bottom line, our net loss for the quarter was $9.1 million, or $0.15 per diluted share, compared with a net profit of $21.4 million, or $0.34 per share for the first quarter of 2013. Of course, it's important to note that the net income for 2013 period reflected the gain on sale of $20.2 million on the company's January 2013 sales of its III-V product line, including all of its equity interest in Kopin Taiwan Corporation to IQE plc.

Cash flow used in operating activities was approximately $6.1 million for the first quarter. First-quarter amounts for deprecation, amortization and stock compensation expense, as well as CapEx and share repurchase amounts, are included in the table attached to the Q1 press release.

Now for guidance. For the full year 2014, we continue to expect revenues in the range of $18 million to $22 million and a consolidated loss in the range of $32 million to $40 million. We estimate we will use between $28 million and $32 million to fund operations for 2014.

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

Thank you, Rich.

As the demand in this industry grows, we're collaborating closely with our partners to ensure they will be ready with devices that match the needs of their enterprise, industrial and consumer end users.

Kopin has been driving the development of technology and products in precisely the areas that are crucial to make wearable a reality. The transformation business model positions us for growth and will give us ability to generate potentially higher gross margins.

As I said earlier, we look forward to reporting new, exciting developments on future calls.

And now, operator, please open the line for questions.

Thank you. At this time, we'll be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS.) Our first question comes from Tom Stephens from Wunderlich Securities.

Good afternoon, gentlemen. Quick question. I think in the February open house you had -- you talked about some design wins, and perhaps John already answered this in his opening remarks, but just to be clear. Have you had some additional design wins since February? And then kind of a follow-on. How do you -- how are your expectations of the US market relative to overseas for the wearable computing? And anyplace overseas where your thinking evolved that you think are particularly attractive relative to other opportunities?

Thank you, Tom for those questions. Yes, we had some design wins resulting from the launch [event]. I want to make it clear that because the launch event was so intensive, we actually filed 40 -- 4-0 -- patents, not 14. So (inaudible) all activities [going on] and we have additional designs after that. To answer your question about which area -- [I would] most look at for growth, we actually see a global event here. We're assuming that very good customers are in domestically, but we also have growth -- very good customers in Japan and in other countries in Asia. So right now, we think we are now establishing ourselves as the leader of the wearable, and our critical components are [much] desired by people all over the world right now.

Okay. Thanks very much.

Thank you. (OPERATOR INSTRUCTIONS.) Our next question comes from Mario Cibelli from GAMCO Investors.

Yes. Hi. I was hoping my analyst would be on the call. I haven't met with you and we look forward to saying hello in person. I know our team is interested. Just share with me -- and I wasn't early on the call because I've been grazing on three calls. What's your cash burn look like for the -- as you look at your cash burn of $40 million or whatever you gave in the outline -- I also see that you're buying back stock. Can you share with us why you're buying back stock in light of the possibility that you may have to [need] financing down the road? Or how do you look at cash flows in 2015?

Sure. So for the operations, we burned $6.5 million in the first quarter. Our overall projection is $28 million to $32 million for the year. And our stock buyback program -- the authorized program -- actually terminated at the end of March.

Ah okay. So you bought a small amount of money just -- that was a (inaudible)?

Right. It was about $300,000 worth of buyback in Q1.

So looking into 2014-2015, what -- any time frame in which you guys think you have enough to be cash flow positive? At what point --

Well, we would expect -- if all things hold true, we would hope to be cash-flow-positive next year.

Fourth quarter of 2015? And what do you need to do that? A bunch of license wins? A bunch of product wins? I can't --

Both. Component and license revenues.

Alright. And so you've got the show coming up next month. I have another teammate going to that. What should he be looking for? Are you presenting products at the Consumer Electronics Show -- or not Consumer Electronics -- the Technology Show?

Society of Information Display. So the SID Show -- we will have people there demo-ing products. I think it's next week the (inaudible) Show is going on. That's military products. We're there. And then CES is January.

Which is -- I know the CES. That's Las Vegas.

Yes.

Tell me what -- which one is the one that somebody's going to look at within the context of getting a better handle on some of the dynamics that you're addressing.

So that'd be Society of Information Display. I believe that's June of this year.

Make me look smart with my analysts. Tell me where that's going to be.

San Diego.

Alright. We'll get somebody there. Excellent. And what other elements should we look at with regards to dynamics either of products, licensing or any announcements?

Well, it's our expectation that there will be products being test-marketed in the second half of this year, and hopefully --

No, but -- look. Your annual report was quite -- gave a lot of enthusiasm for a microcap stock. That -- delighted -- don't take that in the wrong way, by the way. I'm just using market cap as opposed to your intellectual IP prowess in terms of the dynamics. My problem is somebody took my earnings release that came out and I can't find it. Any other comments that I -- should be highlighted that I -- you want to embellish on beyond what we've talked about?

No.

No. I got it. I figured as much. Listen. You're -- hey, Rich, you're a smart guy. Alright. I'm going to have either Laura Linehan or someone else contact you. Thank you very much. Have a good day, John, and yourself. Take care.

Thank you. I will now turn the call back over to management for closing comments.

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

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.