Kopin Corp (KOPN) 2024 Q3 法說會逐字稿

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Please press zero, good morning, everyone and welcome to the Copen Corporation third quarter, 2024 earnings call.

Please note that this event is being recorded at this time.

I would like to turn the conference over to Brian Penon, new investor relations for coping.

Please go ahead.

Thank you, operator and good morning, everyone before we get started, I'd like to remind everyone that during today's call taking place on Tuesday, November 12th 2024.

We will be making forward-looking statements as defined in the private Securities Litigation Reform Act of 1,995.

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 annual report on form 10-K and other documents filed with the Securities and Exchange Commission.

Although the company believes that the assumptions underlying these statements are reasonable.

Any of them can be proven inaccurate and there can be no assurances that the results will be realized.

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

In addition, references may be made to certain non generally accepted accounting principles or non-GAAP measures for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases.

Copen Corporation's Chief Executive Officer Michael Murray will begin today's call with an overview of coping's progress within the company strategy.

Following Michael Copen CFO Richard Ser will review the company's third quarter, 2024 results.

I would now like to turn the conference over to Michael Murray.

Michael.

Thank you, Brian.

Good morning to everyone and welcome to our third quarter, 2024 earnings call.

We'd like to take a moment to express our gratitude to all the veterans both within and outside of our organization as well as those currently serving in the armed forces.

Their dedication and service are invaluable to cop's ongoing mission to save lives and enhance human performance through advancements and optical solutions.

We are proud of the substantial progress we've made on our transformation plan which is gaining momentum and achieving key milestones.

We now project over 75 million in orders for 2024 and beyond potentially the highest annual order total in our company's 40 year history.

This order book includes repeat orders from existing customers as well as significant new orders from both us and international clients.

Demonstrating our growth in revenue customer base and market reach in the third quarter.

We achieved 13.3 million in revenue.

A 26% increase over Q3 2023 with continued sequential revenue growth, defense products delivered 10.4 million in revenue.

A 109% year over year increase.

Notably five new customers placed development orders which we expect will drive multimillion dollar production orders in the years ahead.

Given these are multiyear indefinite demand and quantity or IDIQ contracts secured by our customers in defense.

Our orderbook has shown significant strategic progress.

We reached the final production qualification milestone for our high performance organic light emitted diode on silicon display designed for Collins Collins Aerospace F-35 lightning two helmet mounted display system or hmds as the sole source supplier of high brightness AM LCD displays for this system.

We are fulfilling a multi year agreement that should continue on for several more years.

Recently, we received a $2 million follow on production order for these AMLCD displays, extending our backlog and preparing us for next generation OLED on silicon microdisplay production.

We anticipate both display types will be in production for an extended period of time.

We also secured a $1.3 million.

Follow on order for our Emerald Microdisplay module for a major weapon site product as part of a multiyear production program.

This positions us for strong revenue growth, especially as our larger thermal weapon site program and subsequent production is expected to increase into fiscal year 2025 in the industrial market, we secured a $1.5 million follow on contract for our Neri thermal imaging system integrated into firefighters masks.

This system featuring a miniaturized AMLCD and optics within the face piece enhances safety and effectiveness for firefighters.

Turning to our 3D AOI automated optical inspection segment, we launched our next generation SXK FLK Microdisplay system called the R 15 MTEK, a leading provider of 3D AOI technology in South Korea secured our first purchase order for this device.

This affordable compact solutions positions us well to meet growing demand in Asia and globally.

Additionally, we received a production order for our high resolution four megapixel two K SLM system also for 3D AOI integration with the global Three Aoi market projected to grow from 700 million to 3 billion by 2030 C and is positioned to serve various segments budget sensitive with the R 15 mid range with our SGA model and high resolution with the two Kr 11 model as well.

In the medical market.

Our growth continues with another production order for the CR three wearable surgical monitor from HMDMD supported by positive feedback from surgical equipment manufacturers.

We expect adoption to increase as more surgeons try the CR three through HMDMD S tier one partnerships.

Overall, our book to bill ratio has exceeded expectations and we are negotiating additional substantial orders anticipated by year end.

This progress reaffirms our strategy to focusing on defense and high performance integrated products.

Notably, our new internal processes aimed at enhancing return on investment for internally funded research and development are showing promise and early results.

Internal R&D investments have led to initial purchase orders and strong demand signals for our new products which are robust, offer broader functionality and command higher average selling prices due to the value they provide quality improvements also continue incoming inspection rates that our top customers reached 94% in Q3 and October as well.

Up from 86% in the previous quarter, positively impacting product gross margins and customer satisfaction.

We're making significant strides in quality and organization evolution with more progress to come as our quality standards continue to improve, becoming more stable and predictable.

We also need to innovate our systems design processes and manufacturing workflows to meet the rising demand and higher volume production expectations.

A new strategic focus for 2025 will be enhancing manufacturing and systems automation.

Now turning to other key initiatives including our one coping initiative.

In response to increased defense spending in Southeast Asia, Europe and NATO countries.

We have expanded the scope of our European based 3D Aoi sales team.

They now promote the full range of coping products and capabilities to defense customers in Europe and Southeast Asia as well.

Early indicators show this strategy is succeeding as we're seeing new opportunities and foreign customers entering our pipeline.

One of our foundational strategic initiatives, the fab lite strategy remains on track.

Copen continues to partner with multiple fabrication facilities across Asia Europe and the United States specifically for us DD applications and our four display types.

Our decision to strengthen OLED on silicon and our micro led capabilities for us.

Department of Defense applications has been proven timely given the possibility of further supply chain security requirements and potential tariffs under the new administration.

Additionally, we're collaborating closely with government and industry partners to build a long term higher volume and more innovative manufacturing approach within the United States.

Now, I would like to highlight a few additional notable accomplishments from the quarter.

This quarter, we expanded our medical technology portfolio by introducing proprietary high resolution fast spatial light modulators or SMS use in fluorescent superresolution microscope systems for biomedical research.

These advanced SMS enhance image resolution often down to the molecular level, significantly advancing research capabilities at leading biomedical institutions worldwide.

In the defense sector, we partnered with Wilcox industries on the fusion claw, a cutting edge head borne information system offering integrated day and night heads up display solutions.

This partnership is the cornerstone of our ibas now strategy which introduces an integrated visual acuity system for war fighters supporting day and night capabilities, compatible with current night vision goggles and helmet mounted systems with millions of night vision goggles in use today.

This solution provides immediate market potential by enhancing telemetry and thermal imaging in a heads up configuration, improving situational awareness.

Additionally, at A US A, we were featured in the kinetic suite to showcase our neural display technology platform, neural display is a sophisticated OLED or micro led hardware and software system that includes embedded sensors for eye tracking position and gauge detection with the ability to process this tracking data in real time.

Through Kopin's proprietary A I powered software within the displays backplane this real time data just optimized user experience in high stakes environments.

The platform has now reached alpha testing marking a major milestone in the development of our neural display architecture.

We believe this display system will be an ideal fit for the next generation of defense visual augmentation systems.

It also has attracted significant interest from consumer spatial computing manufacturers.

Thanks to its ability to reduce size, weight and power consumption while maintaining high image quality high and people tracking and dynamic controls.

We are extremely excited about this new technology.

Currently, we are collaborating with several defense and consumer companies on innovative design approaches, software integrated pardon me, software integration strategies and exploring potential new business models as we look to the future and see our business fundamental strengthening.

We're experiencing favorable market dynamics in the ARVR sector that align with our mission and technology road maps.

Additionally, geopolitical factors and the new administration have created strong tailwinds for our business given these factors we're increasingly optimistic about our financial trajectory for 2025 and beyond.

With that, I'll now turn the call over to our CFO Rich Snyder to review our results from the third quarter.

In further detail over to you Rich.

Thank you, Michael to our financial results for the third quarter.

2024 total revenues from Q3 2024 were 13.3 million versus 10.6 million for the prior year.

A 26% increase year over year product revenues for the third quarter ended September 28th 2024 for 10.9 million compared to 5.5 million in the third quarter of September 30th 2023.

The increase as a result, the increase in product revenues was the result of higher defense product revenues which increased 5.4 million year over year in the third quarter of 2024 funded research and development revenues were 2.3 million.

A decrease of 2.7 million as compared to Q3 of 2023 due to the completion of several programs like the Monochrome Micro Led program which is now entering low volume initial production cost of product revenues for the third quarter of 24 were 8.3 million or 76% of net product revenues compared with 5.4 million or 99% of net product revenues in the third quarter of 23.

The decrease in cost of product revenues as a percent of sales was the result of a decrease in expected costs because of lower estimated rework costs, essentially improved quality R&D expenses for the third quarter of 24 were 2.6 million compared to 3.1 million in the year ago quarter.

This was primarily due to a decrease in funded R&D expense of approximately 1.2 million on the US defense programs that were previously noted were completed.

This was partially offset by an increase of 700,000 in internal R&D expense for process improvement.

SG and A expenses were 5.2 million in the third quarter of 24.

Compared to 4.8 million in the third quarter of 23.

The increase was primarily due to an increase in legal fees of $400,000 partially offset by a decrease in public relations fees of 100,000 legal expenses associated with the blue radios matter.

In the third quarter of 2024 and 2023 were 1.5 million and 1.2 million respectively.

With the trial portion of the lawsuit behind us and potential appeals process in front of us, we expect legal fees to normalize at a much lower level than recently experienced.

We believe the appeals process involves much less expense than funding a trial other expense net for Q3 of 24 includes a 1.1 million impairment loss on equity investments.

According to the bottom line, the net loss for the quarter of 24 was 3.5 million or 3¢ per share.

Compared with a net loss of 2.5 million or 2¢ per share for the third quarter of 23.

The amounts discussed above are based on our current estimates and listeners should review our form 10-Q for the nine months ended.

September 3,028 excuse me, 24 for any possible changes.

And of course, additional information and filings and with that, I'll turn it over to Michael for closing remarks.

Thank you, Richard.

This quarter's results demonstrate our ongoing success in delivering solutions which improve the human experience, performance and save lives.

Our operational improvements, stronger customer relationships and momentum in orders, give us greater visibility and a clear plan towards achieving sustainable net income profitability.

We continue to strengthen margins through improved quality rates, cost controls and strategic investments in our products, automation and our talented and dedicated workforce.

Our pipeline of qualified opportunities has grown significantly.

In recent quarters, largely driven by the US need to replenish stockpiles modernization of defense technology and weaponry and respond to recent geopolitical developments, increased sovereign and NATO spending further boosts this trend.

We anticipate that these new partnerships and progress will fuel full rate production and they'll lead to contributing larger future returns to capture these opportunities and accelerate our market momentum.

We've recently expanded our North American business development team with two new hires and we retained a consultant specializing in consumer applications.

Thank you all for your time today for your interest in coping.

I'd also like to thank and extend our gratitude to our employees, our customers and stakeholders for their dedication and continued support with that operator.

We'll now offer time to take some questions.

Thank you.

At this time.

If you would like to ask a question, please press the star and one on your telephone keypad, you may remove yourself from the queue at any time by pressing star two.

Once again, that is star and one.

If you would like to ask a question, we'll take our first question from Jason Jason Schmidt with Lake Street.

Your line is now open.

Yes.

Thanks for taking my questions and congrats on the strong results.

Michael want to dig in a little bit on the international market.

You noted some nice traction there.

Just curious where you're seeing that.

And I guess relatedly is your sales infrastructure to address the international market fully built out at this point?

So international I think is a growth opportunity for us.

Jason, thanks for the question.

Right now.

The international business is actually, I'd say less than 5% of our total revenue this year, we do exceed see that exceeding our expectations next year and the year after just simply because of geopolitical issues in Israel, Ukraine and some other hot spots that currently need the technology that we have, we also see the perturbation of NATO requesting and demanding 2% of GDP actually be spent.

So I think as we move forward, international business for us in defense specifically is going to grow exponentially.

Moreover, we also see interesting trends in the medical side of the business with future potential medical customers globally here looking at the CR three module as well as those displays for high end microscopes as we talked about.

So overall, I think international is going to grow for us.

And that's the pivot that we made with the three day A O I team which resides mostly in Europe, but we're not fully built out for international sales just yet.

We expect to make some small investments and augmentations if you will to service that business next year in the future.

Okay.

That's helpful.

And then I know you noted a kind of a strong book to bill here today.

Just curious what that number was for Q3.

Q3, it was slightly below 1 to 1.

Gotcha.

And then just the last one for me and I'll jump back into queue, obviously, it's early but would just love to hear your thoughts on how your business might be potentially impacted with the change in administration.

Sure.

So I think firstly, I think the new administration based on what we understand today, which is early is going to be good for CPE and in the long run, mainly because of the strong emphasis on NATO to spend 2% of GDP, which was the previous administration's big focus.

And I think that's going to continue.

Number one, number two, I see the budget process including plus up requirements for defense spending in the United States.

So I think that's the second tail when that we see and then the third tail when that we see with the new administration is just the ability for smaller companies, small cap companies like C and to grow.

And I think that's a big focus of the new administration.

So pound for pound, we see this as a positive for coping.

Perfect.

Appreciate the call.

Thanks a lot.

Guys.

And one other note, Jason real quick.

Although our book to bill this quarter was not positive, the book to bill for the year remains ahead of schedule and positive.

So I wanted to make that distinction.

Okay.

Thank.

You.

Thank you.

We'll take our next question from Vic Victor Santiago with full.

Your line is now open.

Hey, good morning guys.

This is Victor on from Mount Sheeren.

Just a question on the revenue in the quarter is a bit better than we had expected of that kind of mid single digit growth.

Was that a function of pulling pulling orders from Q4?

Was that just your ability to ramp new programs in the quarter?

It was a combination of product mix and our and our ability to produce, we're on 606.

So essentially our revenues are not based on shipment, they're really based on percent completion.

So to the extent the supply chain is flowing nicely, it allows us to get ahead and, and build product.

And so the supply chain worked very well this quarter.

And and also we had a favorable product mix.

Some of the smaller orders that you see actually have much bigger gross margins and are much more profitable.

Got it.

And then I think last quarter, you had talked about growing gross margins sequentially through the year.

You guys saw a nice bump here in Q3.

Can we continue?

Can we expect that to continue going to Q4?

That's the plan.

Got it fair enough.

That's all I have.

Thank you.

Thank you.

And once again, let us start Antoine.

If you would like to ask a question, we'll take our next question from Kevin Dede with HC Wainwright.

Your line is now open.

Thanks gentlemen for having me on.

I'm Michael Rich Michael.

Would you mind diving into the neural display a.

Little bit.

More?

I mean, you, you spoke to specific interest both on Dod and the consumer side.

You've got a new consumer applications consultant.

I know it's early, I get it.

But if you could give us a little more color there, we see that as an exciting opportunity for coping.

Sure.

From a standpoint of neural display.

We see the market going basically repeating history.

If you look at original cell phones as an example, they were built with individual components, not much integration.

And then over time I CS one the day integrated circuits won the day, we see that same sort of and with spatial computing devices or AR VR goggles that sensor fusion systems or integrated circuits need to drive that innovation.

And neural display is a great example of that.

It removes six cameras from some of the spatial computing devices.

Six cameras is very costly, very high power and creates a lot of weight on the nose.

So we think neural display has a tremendous value proposition in both consumer and medical as well as obviously defense on the consumer side of things.

We think all the consumer companies at this point and Ar VR are back to the drawing board, which is good news for us because we're farther down the path with neural display.

I can't talk about some of the things we're working on because they are under nd a at this point.

But we are making pretty substantial progress thus far.

Has the company decided on whether it might or might not offer a demo of it at ce si know that had or was being considered at some point.

We're still trying.

It's up for debate.

We're, we're struggling with it quite frankly to get a better image quality out of it and we're we still have a pretty strong plan to make it to ce s within the neural display as an actual display, running our software and the A I, as you can imagine in the last 18 months, it's been a herculean lift for our engineering teams.

So still TBD, we're, that's the plan, but we're, we are struggling with it.

Regarding I think it was Victor's question on the change in the administration.

I'm wondering if you look sort of the next layer of the onion and and your supply, your supply chain and the potential for tariffs to impact that.

How, how might you be hedging yourself?

Great question.

Thankfully, one of the first strategic initiatives that we had, Kevin was our Fablite model and the concern around our Chinese OLED deposition supply chain.

I'm very pleased to report that we've moved our sensitive U dod applications to a new provider that is UDD approved.

The vast majority of our components will have a dual source UDD as well as our Chinese deposition partner specific to OLED moving forward will be complete that transition this quarter.

So very pleased and proud of the team for their progress.

And more importantly, we're actually seeing better quality results and better performance out of our new partner on our OLED displays so tremendous progress in that area.

And it was very timely that we took that decision when I came in a couple of years ago.

So that strategy is now proving positive for us.

So.

Have you, I guess I'm wondering if maybe if there's any way to quantify that?

Do you, do you have to worry about rotating manufacturing with a change in import policy?

No, not necessarily.

Okay.

No, it's more about we build our back planes through either Taiwanese or Korean fabs.

Then the deposition process can happen anywhere in the world where we see a technology benefit or performance benefit or cost benefit as an example.

And that's part of the Fablite strategy is we will go to the partners that have the best cost, best quality and best performance.

So that allows us to do that which is take our backplane designs and then deposit OLED or micro led material where it makes best sense for our customer base, the geopolitical issues.

So it just makes us much more flexible.

But as I mentioned in my prepared remarks, we also have an advocacy for a larger footprint here in the United States for Copen.

And that larger footprint is something that we're actively working on with the government, the government customers.

And I'm very pleased to report that the government customer is supporting us in that endeavor, whether that be through DP or Chips Act funding.

But we do have a larger advocacy around building out a footprint here in the United States for all of our technology needs for the US dod.

Well, I'd imagine that's a pretty long lead time though.

Right.

Crab.

Yeah.

Okay.

On back on backlog, Michael, help me with some of the numbers you mentioned.

I think in your prepared remarks, a $75 million order number, which I think is up from 55 million when you last talked about the June quarter.

I'm wondering if, if I'm in the right ballpark on those and what drove the big increase?

You're exactly right from Q2.

We were sitting with 55 million of purchase orders in the calendar year.

At that point, our expectations due to several negotiations that are ongoing that we'll receive in the in the realm of 20 million of new orders for this quarter.

We might see a little bit of creep over the Christmas holiday into Q1.

But my sense is right now the negotiations should land us with those orders in Q4.

And again, if we do end up with 75 million of purchase orders for this year, that would be a record for a 40 year old company.

Any I appreciate that.

Congratulations.

Is there any more insight or should we look to pretty much what you focused on mostly dod foreign and domestic and and medical?

I think, I think that's accurate.

What we're expecting this quarter is some influx of thermal weapon site orders for production next year, as well as our helmet based programs for rotary wing and fixed wing applications.

So we're expecting orders that customer for the fixed wing we already mentioned earlier in the call, we're expecting orders for carry on production.

The rotary wing customer is Elbit and they are otherwise engaged as you can imagine, Kevin in Israel at the moment.

So we've been expecting those orders for quite some time and we are seeing light at the end of the tunnel to receive those orders for our rotary wing applications this quarter.

Okay.

Last question for me before I hop back in, understand that the, that judge Kane is going to consider the ruling in Massachusetts.

And I was wondering, number one and whether or not you have any insight on how that might be going.

And number two rich talked to, I think 1.2 million and 1.5 million in litigation related expense.

I think in the September quarter of this year and last, but I got confused on which one was which and what would you expect that litigation expense to fall to in December, the December quarter?

So 1.5 is 24 1.2 is 23.

Okay.

And historically, you know, we're somewhere now at, at some point, there may be an appeal and there will be a block, you know, a chunk of expense that we estimate would be 5 to 600,000 when that's going to happen.

We don't know it's all dependent on when the judge ultimately without an opinion.

Otherwise we run about 150 to 200,000 a quarter in legal expenses between patents and just normal public company stuff.

And we do not have any visibility into when Judge Kane in Colorado will render his opinion.

Thank you for offering that gentlemen.

I appreciate you entertaining my questions.

Congrats on the nice job in the quarter.

Thanks, Kevin.

Take care.

And we have no further questions in the queue at this time.

I'll turn the program back over to Michael Murray.

Thank you, operator.

I just wanted to say thank you to the tremendous team here at Copen for their focus, dedication and exemplary results this quarter.

It's a great milestone on our path to further revenue and gross margin expansion and we thank everyone for joining us today.

Thank you very much.

This does conclude today's program.

Thank you for your participation.

You may disconnect at any time and have a wonderful day.