kopin corporation (kopn) ceo john fan on q1 2019 results - earnings call transcript
At 8: 30 a. m. on May 7, 2019, ETCompany participant john Fan-Q1 2019 results Earnings Call
Cowen Matthew garlinko
Metcalfe national security fund
Welcome to the 2019 conference call in the first quarter of Kopin. [
As a reminder, the meeting is being recorded.
Now, it is my pleasure to introduce your host, chief financial officer, Rich sneder. Thank you, Mr. Sneider. You may begin.
Thank you, operator Richard snendel.
Welcome everyone, thank you for joining us this morning.
John will start today\'s conference call from discussing our strategy, technology and markets.
I will go through the results of 2019 in the first quarter at a higher level.
John will finish the speech we have prepared and then we will be happy to answer your question.
I would like to remind you that at today\'s conference call on Tuesday, May 7, 2019, we will move forward --
Outlook statement as defined in the Private Securities Litigation Reform Act of 1995.
These statements are based on the company\'s current expectations, forecasts, beliefs and estimates and are affected by some risks and uncertainties that may lead to significant differences in actual results from future results
Look at the report.
Potential risks include, but are not limited to, demand for our products, results of operations of our subsidiaries, market conditions, and other factors discussed in our recent annual report on Form 10
K and other documents submitted to the Securities and Exchange Commission.
The company has no obligation to update and forward-
Statement made at today\'s conference call.
With this, I will give it to John.
Thank you, Richard.
Thank you for reviewing our first quarter results with us this morning.
This is a good start in 2019.
Our sales to corporate customers are solid, and we are pleased with our performance at this summit this year.
Over time, businesses are fully embracing the value of reality.
A very important development of Kopin is that we get a lot of attention
Orders from all Tier 1 companies we mentioned last quarter, which was an early promoter of AR.
You may recall that we had transferred 5,000 monitors to the company in 2018.
We have been waiting for them to announce the goal of the next generation of AR smart glasses to the enterprise.
While the business is still waiting, we have received n generally larger support orders and we have just started shipping through the order.
Company slide Boeing, General Electric, DHL and Volkswagen all see the value of assets they provide to their customers in addition to workers in factories, factories and warehouses.
As they have replaced the previous business, we are looking for this key customer to help drive our business.
But as we receive more and more orders and anticipate many of our other enterprise partners, this accelerated growth goes beyond this customer.
AR has the ability to reduce costs in productivity and improve working conditions, driving the business of Kopin partners such as realin (such as RealWear and Vuzix.
With the number of monitors transferred to corporate customers in 2019, we expect the cost of glasses to triple.
We are optimistic about the industry trends that match the large consumer market and the corporate market in the next few years.
As we discussed before, the virtual reality market will grow rapidly as 5g develops.
Because of its superior performance, the micro-OLED display will be the preferred display for VR.
For VR and AR Micro OLED displays, if this OLED display can achieve high brightness, it is very, very ideal for the current 1,000 units to about 4,000 to 5,000 units.
This growth will make possible innovative optical design.
For example, VR phones can be made thinner. Recently, [indiscernible]
Methods have been identified and we believe that the potential number can grow so much from next year.
In fact, even higher brightness in a micro OLED display, up to 8,000 to 10,000 units, is ultimately possible.
Today, one of the main challenges faced by micro-OLED displays is the lack of other disposal plants for more production.
This will change the outcome as the $0. 15 billion manufacturing facility will play a role in the joint venture partner BOE and their initial results are encouraging.
We believe that the BoE plant and other plants that are also coming online will leverage the 5g commitment by creating a cost-effective supply chain to help stimulate interest in developing consumer applications and systems.
During my recent trip to China and Asia, I saw an increase in investment in AR/VR.
We are optimistic that this will be especially if the consumer AR/VR will spread to the US. S.
In the next few years.
Our own consumer asset SOLOS smart glasses may be a little ahead of schedule in our after-sales market, but we continue to work hard to increase distribution channelsindiscernible]product.
Our military business grew again in the first quarter.
Mainly shipment of monitors embedded in helmets connected to F-35 fighter jet.
I know I already discussed it.
35 projects have been different times before, but it is not only a key factor in our current military operations, but also a good example of a successful military project and how we develop.
We turn to the early design cycle to meet F-35.
There, we did a thorough job in the initial production phase of low productivity.
We are in mass production now.
Global demand: F-
35 fighter jets will continue to increase, and we see this project as one of our core military operations, which we expect to join in the coming years.
We are going through the same process with the weapons targeting family program.
As mentioned earlier, FWS-
My project is now in production and shipping. The FWS-
Crew, C crew project is in the development phase and we will expand production in 2020.
Our news program is developing space systems for armored vehicles.
This is the trend you design to win and we will get full protection in about 18 months.
As we continue to advance other military projects, our experience in working with the Ministry of Defense is invaluable.
You will benefit from Kopin as the defense budget increases.
In addition, our company now has rich experience in defense systems companies, and our good record with them is also a key factor in our leading position in this industry.
For example, for two consecutive years, we won the top pattern award from Collins airlines.
There are 35 helmets now.
This is only a high Award for Customer rewards, with less than 2% of suppliers receiving the award.
Our consistent delivery performance has grown with the confidence of our customers in finding reliable suppliers for innovative and recognized display products.
So when we spend our military footprint and beliefs on the acceleration of the enterprise market, especially as our leading monitor supplier in this market.
This will match the current situation of the market, which we are realistic.
In the first quarter, we began to make strategic adjustments with the company.
This includes reviewing all of our operations, integrating projects as much as possible and reducing costs.
Our main use of development and investment most of our projects are now ready to be commercialized. With the [indiscernible]
The project will turn to monetization.
In the first quarter, we adopted some positive strategies.
Over the next few months, we continue to review the elements of our operational structure and expect more statistics to be made this year, including further reductions in our cost structure. We also proposed [indiscernible]
In order to complete our balance sheet more quickly and provide additional financial stability as we conduct a business review.
So overall, we started very well this year.
We are developing our core business through successful positioning of Kopin to evaluate our operations over the long term and amortize our technologies and products.
Now I\'m transferring the phone to Rich.
Thank you, John.
Total revenue for the first quarter of 2019 was $5.
Compared with $5, 5 million.
7 million in the first quarter of 2018.
Although our first-quarter earnings were basically flat, the composition of our revenues changed --over-year.
In the first quarter of 2018, our subsidiary NVIS contributed approximately $1 million in revenue to the upcoming project.
In the first quarter of 2019, industrial wearable devices and military R & D revenues increased by about $1 million.
I would also like to stress that our military programs, in particular FWS and F-, are based on ASC 606 revenue standards-
35 has nothing to do with shipment, but rather a model that includes inventory levels of goods and finished products.
The sales cost for the first quarter of 2019 was $5.
Product revenue is 9 million or 127% compared to $4.
The first quarter of last year was 1 million or 81%.
Including the first quarter of 2019 of the cost of product revenue is 1.
Write 2 million
Free from excess inventory
As John points out, all versions of solos are charged.
R & D costs for the first quarter of 2019 were $5 million, compared to $4.
The first quarter of 2018 was 5 million.
Including R & D as of the third quarter, 30 2019 is about 500,000 of the material related to the development project, which is being cut as part of the consolidation project discussed by John.
SG & A costs $6.
The first quarter of 2019 was $3 million.
9 million in first quarter of 2018, mainly due to reduced compensation costs, including stocks
Compensation and amortization based on intangible assets.
In the first quarter of 2019, other income expenditures were about 3,000, compared with 4.
3 first quarter of 2018.
In the three months ended March 30, 2019 and we recorded about 2,000 of our foreign exchange earnings.
Other income for the period from 2018 was 2.
9 million transferred intellectual property rights and exchanged equity through investment and $1 million in insurance proceeds.
As for the bottom line, our net loss attributable to controlling equity this quarter was about $11.
3 million, or $0.
A net loss of $15 per share was $5.
5 million, or $0.
First quarter of 2018 08 per share.
The first quarter amount of the depreciation inventory compensation fee is attached to the form of the first quarter press release.
As previously announced in this quarter, we completed the sale of about $8 million in stock for about $8.
Revenue growth of 8 million.
Our weighted average share price for the rest of the year will be around 83 million.
In addition, in Q1 2019, we have adopted the new rental confirmation standard ASC 842.
This resulted in the inclusion of leased assets and subsequent liabilities on the balance sheet and had a minimal profit and loss impact.
The amount discussed above is based on the current estimate and the listener should look at our table 10-
K any possible changes or additional disclosures in 2019.
So we can answer the question. Question-and-
Our first question came from the link between Glen Materson and rydenburg Talman.
Please continue with your question.
Glen Matterson curious, John, I think there is good news on the first order, and maybe we think that at this point there may be an investment in the first level, in terms of announcing the product, so I\'m just wondering if you know when they\'re posting this
So, can you give us an idea for a better order process? John FanYes.
I mean, we obviously provide any shift for the announcement, we don\'t know the exact reason for the announcement being delayed, which of course will not affect us.
We must have been so big.
Very large order, we don\'t actually want all the orders to come in.
So it doesn\'t affect us.
I still believe that the National Assembly is coming soon.
That\'s why we pulled the horse down so late.
Glenn MattsonAnd will this be a research report, is it a record of revenue on these orders, or is it a surge in the latter half, or how does this work?
I think I obviously-
I can\'t really describe it in detail, but it will be the most stable order, so this is the real production.
Glenn mattsonok is awesome.
I think only our customers are very optimistic about the customer\'s response.
Glenn MattsonAnd Rich can you give us an idea that, given the plan you have implemented this quarter, will spending really be reduced this year?
Richard SneiderSo, we ran a lap last year.
Our operating expenses are between 11 million and 12 million per quarter, and we expect to continue to decline every quarter for the rest of the year.
The next question comes from the lines of Jeff Bernstein and Cowen.
Please continue with your question.
Jeff Bernstein as far as AR orders are concerned, I think you have talked about 100,000 units this year, are we still on track in this regard, is that good?
As John said in his prepared speech last year, we did about 30,000 units and we expect this to be three times as many as the 90,000 and 100,000 units you just mentioned.
So, as John said in his prepared comments, our client\'s forecast is very optimistic.
We have seen some customers like RealWear have some important announcements with companies such as Shell, Colgate Palmolive, etc.
As John has just said, first-class customers have been sampling their products for a period of time, and the response is very strong.
So we want our data to be conservative.
Jeff Bernstein and Tier 1 customers are currently making AR units with your two monitors, or are there more than one model, one of which has two monitors?
John FanI thinks I can only answer this way, and the customers we talk about use one of our monitors in each system.
Jeff Bernstein, and then I just wanted to know gold-
I am unlimited design, is there any attraction or is there any plan?
We discussed sampling with John FanAs and the initial response from some of the clients we are talking closely to was very positive.
The corporate market is getting hotter and hotter, and now everyone understands the value these systems have for them.
So it\'s no longer a curiosity, it\'s a thriving business.
Jeff Bernstein, and then you mentioned that you wrote down a list of the old design solos, which means that there is a new design for the solo, and so on. What\'s the difference?
Unfortunately, John Farney can\'t connect the problem
In fact, we can\'t review it with new designs, which is clearly related to their point of view.
This is a new product coming soon.
Yes, this is an interesting product.
Jeff Bernstein, and then I believe that on the military side, you guys are engaged to Elbit, just like the multi-tasking helmets of various aircraft.
Can you tell us the progress in this regard?
Richard SneiderYes, this is a common helmet project that we are working on with Elbit and it is on track as far as we know.
I think it\'s John Fanny.
I think we may have announced that we have completed a design win, but yes, we are doing a good job on this project right now, yes.
Jeff Bernstein, in the end you talked about some new technologies that will be applied to OLED space, do you mean you think you can deliver in the middle of next year or in the middle of this year?
I think the key question is how to turn these differential technologies into production preparation, which is a long way to go, but we are very optimistic that these very innovative designs can be produced for free sometime next year.
Is Jeff Bernstein open technology or new materials like gan giving us more information?
John FanIt just wanted to bring-
I think we\'re going to try to put it into production, so my own feeling is that everything depends on the previous one, so it\'s an argument that we\'re actually improving fast now so we see
You will only think most of you.
Jeff Bernstein, a big part of you, okay.
Finally, you talked about the OLED design on the first floor of BOE, how did this develop?
Can you repeat Jeff\'s question? I just wanted to make sure I got the right question.
Jeff Bernstein at a recent meeting, you talked about producing the first-class OLED design at the BoE factory, and I just wanted to get an update on the situation?
John FanYes, OK, this is a project we designed with the first-level customer product company, and that\'s why we started.
There are big secret projects, I would say.
The next question comes from Matthew garlinko\'s cooperation with the National Securities Corporation.
Please continue with your question.
Matthew GalinkoThanks answered my question.
I think I did 0 first.
5 million of the big R & D costs associated with cutting projects are
Is the time cost or is this going to be a recurring problem?
The size and quantity of Richard SneiderSo is unusual for us.
I\'m always looking at anyone.
We have been continuously evaluating project and inventory levels.
So every quarter makes some adjustments through outdated inventory, but in the R & D department it is very unusual to have inventory of this size, which is the recurrence we think we will see.
Matthew GalinkoOn the potential price of your consumer goods, will they make any changes to the way you bring your products to market, or is it possible to increase your investment in youto-
As you go through this cost adjustment process, what is the market\'s expenditure in 2019?
John FanYes, I will comment there as I said in my previous statement, I think Matt we are looking for all the costs of our business, and decide where we will integrate our projects with different commercial strategies.
So at this point, we really think about a whole bunch of different strategies that we can accommodate a lot more today.
Matthew GalinkoMaybe is just one of your highlights, and I think you said in the past that 5g has been covered and is the promoter of VR.
Can you talk about this in more gaps? Perhaps specifically talking to you about reducing the number of OLED by 2020 in order to achieve this market supply chain perspective from an improved market.
How does 5g enable it, what do you think is its schedule?
Matt asked very well.
I think we had a special discussion on 5g at the CS meeting a few months ago.
I mean, as you know, 5g can be 10 times faster than 4g.
It allows to move, mobile allows everything you do on your desktop or in a fixed environment to be very mobile, and that\'s where our personal wearable devices become very powerful.
If I see somewhere that allows you to have very fast streaming as well, so all your sports, TV and all your activities are streaming to you at the moment, it allows us to drive cars and everything now.
So they\'re going to create businesses that you might not be able to imagine today, but with the wireless speed five times faster, it\'s moving more and more, and that\'s where more and more wearable devices are.
So the key is what do you need to do?
I think a key thing in a wearable situation is that, for example, it will be important, so it is crucial to display a small micro-monitor, and Kopin is very powerful in both ways.
The next question comes from the operatotour line to shoot the securities of Metcalfe\'s new bridge.
Please continue with your question.
Pat MetcalfSo this is the first time I \'ve heard of a new solo coming out, will the new SOLOS be more specific to the bike market or will it be more widely applied to the consumer or corporate market, can you tell us what you are going to do?
John FanWe can\'t really describe too much as the plan is made.
It is more suitable for the whole consumer market than the cycle.
Pat Metcalfe, and then since you are cutting costs significantly, I think you might go to the market with a different strategy when you do solo?
\\ John FanIs will assume this fairly.
Pat Metcalfe and John, I have the opportunity to meet with you to host, the MIT Media Lab showed up in January and you have a company called Google show, actually highlighting the dhl ge on a customer screen like Boeing is the first person they launch the device.
Do you receive orders that are much larger than the 5,000 units you received in the third quarter of last year? John FanYes.
Pat Metcalfe, and then I saw Qualcomm roll out a PR in the past week or weeks and they got 10,000 RealWear HMT-
I ordered an order for them and at that time it made me feel weird because when I heard you guys talk about your whisper chip technology, you said you won all the breaks in the competition with Qualcomm, Maxim and other companies.
However, these purchasing managers have never been fired for Qualcomm.
If Qualcomm supports HMT of RealWear-
I really think the core competence of HMT is
1 is a whisper because it works on decimals where other technologies-voice technologies-don\'t work.
For Qualcomm, which supports Whisper technology, can you give me some feedback?
John FanOn of Qualcomm\'s hybrid process and process goes to HMT-1.
So, we always use Qualcomm processors in our design. Remember that [indiscernible]
Licensing our assets and licensing is not just a whisper.
They will authorize our display module.
They authorize the entire design, the entire design of HMT.
1. Our design.
We license them.
They designed it all.
You have a Qualcomm chip on the first day.
Pat MetcalfMy\'s point is that Whisper is more of a kind-a whisper chip is more of a software product than a hardware product.
So I think you have a good relationship with Qualcomm, and the HBT design was there in early 2000.
I think Qualcomm is looking for a whisper chip that might be licensed, is it possible for someone like Qualcomm to get a whisper license or a hedge like 2000 match?
John FanWell, I think you asked a general question, that is, Whisper technology, and of course, you can go into a chip, you can go into a processor, you can do a license, it may develop other products further.
Our answer is yes in all respects.
We are looking at all aspects of it.
It\'s a great technology and I can see the world appreciate it more and more as sound becomes more and more important.
Pat Metcalfe do you have any progress in getting someone licensed?
Do you have any list of potential licensees or is this something a few years later?
John Farney does not know what patience will be after many years, but we are clearly working on many aspects of the problem.
So, as I said before, at this point we are looking for a whole bunch of different strategies and I can\'t comment, further comments on this, but well said . . . . . . Pat Metcalfe, and then my last question is about RealWear OK.
I noticed that RealWear has applied for about 11 models related to all software, actually more artificial intelligence, the purpose of artificial intelligence, I know that we have one that we authorize to RealWear
So if they start applying more layers of software on the UI, like making it a software platform where they can get permission without other players,
If this happens, or something like this happens, can we still get royalties?
John Van na really went to the IP now, and of course, how many IPs were embedded in the previous IP.
So we will leave it to IP lawyers, but enough to say we have some very demanding and model.
Pat MetcalfAnd was granted gold card authorization for the last time
Me, why not have RealWear license solo with very cool Enterprise design, you can use it in an outdoor type environment and then use it in a golden environment
I also won back their licenses and helped us to quickly raise our income with less spending, is that possible?
John van once again stressed that what we have just said is that we are looking at all aspects of our strategy. Yes.
No further questions.
At this point, I would like to move my speech back to management for their closing remarks.
Thank you for joining us this morning.
I would also like to remind you that we will hold our annual meeting on May 21.
I hope to see you at the meeting and please vote for us as well. Thank you.
This is the end of today\'s conference call.
At this point, you may disconnect the line.
Thank you for your participation and wish you a wonderful day.