KOPN
#Thank you, operator.
Welcome, everyone, and thank you for joining us this morning.
<UNK> will begin today's call with a discussion of our strategy, technology and markets.
I will go through the 2017 fiscal third quarter results at a high level.
<UNK> 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, November 7, 2017, 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 the forward-looking statements made during today's call.
And with that, I'll turn the call over to <UNK>.
Thank you for joining us this morning.
We continued making the record progress in the third quarter in many fronts.
First, let's talk about Lightning OLED microdisplays.
As we've stressed in the past, our goal is to be the world's leading OLED microdisplays provider.
Our revolutionary 2k x 2k Lightning OLED displays and our reference headset design, codeveloped with Goertek, has continued to make a strong impact on the industry.
The small size, high-resolution, low-power and high-field factor makes it perfect for the future generations of VR headsets.
We already received development orders for several Tier 1 global partners.
In parallel to our current aggressive push to further enhance our Lightning OLED performance, we ---+ our foundry partner has made rapid progress in getting our OLED microdisplays ready for New OLED production equipment is to be delivered to our partner later this month, as scheduled.
And we plan to start volume production of OLED displays in the first quarter of 2018.
This display will be incorporating an exciting consumer asset, which will be introduced by our partner at CES.
In addition, working with our joint venture partners BOE and OliGHTEK, we now expect to break ground shortly on the world's largest OLED on silicon factory, played ---+ to be built in Kunming, China.
The interest in AR and VR continue to grow around the globe.
And we firmly believe the OLED microdisplays are uniquely suited for this market.
We're seeing a strong interest in our microdisplays from key members ---+ key players in the consumer, enterprise and military markets.
So the volume of OLED displays will be available from this new fac should be truly a game-changing event for the industry.
While we push forward on our OLED microdisplays strategy, we have taken another jump in our leadership of our LCD market with the current introduction of a Brillian LCD microdisplay product line.
This new generation of LCD incorporates advanced designs and processing techniques to dramatically increase performance over current LCDs in brightness, switching speed, uniformity and contrast.
We have already received great feedbacks from our military customers.
The Brillian offered brightness level only possible with our LCDs, which are critical for many AR applications, especially for military and enterprise.
We believe, Brillian will help further the development of AR market.
Our third quarter results were driven by military business with revenues more than doubling from a year ago.
To be clear, our military business really is 1/7 of our wearable business.
We have been providing critical components for military assets.
We'll continue to ship displays for the F-35 pilot AR helmets and our VR optical systems for simulation and training headsets are entering into active production and revenue generation phase in this quarter.
And we'll look for the momentum to accelerate in Q4.
We are also pleased that in this quarter, we have won a major new military production program, which represent tens of millions of dollars in revenue for company in the coming decade.
We'll provide additional details in this program when we're able to do so.
Our extensive experience in military wearable headsets help us to overcome many of the common issues that slowed the expansion of AR/VR markets, such as the weight and look and ease of use of the headsets.
We've seen our insight and knowledge reflected in the significant increase in end-users applications as well as rapid development of new types of headsets.
We have spent many new exciting enterprise and consumer assets to be announced and show at CES in January 2018.
In fact, we plan to host a special reception at CES, highlighting the newest AR/VR headset platforms for consumer and enterprise applications.
Many of these new innovative headsets will be a (inaudible) in our reception.
Since it's founded, Kopin has provided partners and customers with enabling components.
Our unique position has allowed ---+ has also allowed us to come to become a strong leader in wearable computing.
While we've continued to actively support our customers, as we've developed new and innovative products, we have also taken steps to help to accelerate wearable market options and to show the industry what's possible when combining Kopin's technology with our industry's insight.
Our first success here was with Solos, our branded headset for health and fitness.
As a reminder, we shipped hundreds of units earlier this year under our kick-start program.
It was well received, and we have been benefited from the extensive feedback on these early adopters.
We've made many enhancements and our Solos product is in the final preparation with our manufacturing partner, Goertek.
We expect to launch it at CES in January, and begin shipping in the first quarter of 2018.
The Solos will showcase much of our Kopin's most exciting new technology, including Whisper audio technology and our Pupil optics, along many other new features.
Finally, we have made good progress with our Whisper technology.
Whisper is very useful for headsets.
And many of the new headsets we're showing at CES will feature Whisper inside.
The Whisper technology has now been successfully extended to include mid-field and far-field applications, which expands the potential business uses.
Improving the voice interface is critical for wearables.
The Whisper's ability to make voice more reliable and useful present numerous opportunities.
In summary, we expect a strong fourth quarter for our military business.
We support our 70% revenue growth in the second half.
The new innovative enterprise and consumer headsets are coming out soon.
The wait is about over, and we are facing the calm before the big wave.
We have close to $80 million in cash and no debt.
Our product plans are well in place.
We are ready.
Thank you.
Thank you, <UNK>.
Total revenues for the third quarter of 2017, were $6.1 million compared with $5.8 million for the third quarter of 2016.
The increase in Q3 revenue year-over-year was primarily driven by an increase in sales of our virtual reality systems for military training, which was partially offset by a decline in sales of our products for industrial applications.
The sales of our industrial applications declined in Q3 2016, because it was the first ---+ because 2016 was the first quarter we shipped products to many new customers.
For instance, display modules used in the thermal fighter pilot's mask.
So there was some change going.
In addition, we used to sell display products to NVIS, the company we acquired in 2017.
These sales are now eliminated in consolidation.
Cost of goods sold for the third quarter was 74% of product revenues compared with 83% for the third quarter of last year.
R&D expenses in the third quarter of 2017 were $5.3 million compared with $4.1 million in the third quarter of 2016.
SG&A expenses were $5.3 million in the third quarter of 2017, compared with $4 million in the third quarter of 2016.
The increase in third quarter of 2017 as compared to the same quarter in 2016, was primarily due to an increase of approximately ---+ a stock compensation expense and additional expense of approximately $500,000 from the NVIS acquisition.
The incremental SG&A from the NVIS acquisition for the 3 months ended September 30, 2017, primarily relates to the amortization of intangibles resulting from the acquisition.
Other income and expense was income of approximately $306,000 for the third quarter of 2017, compared with the expense of approximately $1.2 million for the third quarter of 2016.
Third quarter of 2017 included approximately $80,000 of interest and other income and $224,000 of gain on foreign currency.
Third quarter of 2016 includes approximately $150,000 of interest and other income, loss on embezzlement of approximately $200,000 and approximately $1.1 million of foreign currency losses.
Turning to our bottom line.
Our net loss attributable to controlling interest for the quarter was approximately $8.2 million or $0.11 per share compared with a net loss of $8.1 million or $0.13 per share in the third quarter of 2016.
Third quarter amounts for depreciation and stock compensation expense are attached to a table in the Q3 press release.
Turning to the fourth quarter.
As stated in our second quarter conference call, expectations for revenues for the second half will increase in the range of 70% over the first half.
You will note that inventory increased $2.6 million over the prior year ---+ excuse me, year-end.
This inventory is a support of Q4 anticipated shipment.
We believe, operating expenses will remain largely flat in 2016.
We conclude the quarter with approximately $77 million of cash from marketable securities.
We have no long-term debt, and we continue to maintain a very strong cash from marketable securities position in order to execute our strategy.
As always, we'd suggest you review our final Form 10-Q for possible updates.
And now operator, we will take questions.
No.
It's not.
It's entirely a different program.
But it's still involved with displays.
Yes.
It is ---+ one of them is our Solos product, yes.
That's pretty much on track.
It's fairly solid year-over-year.
As I mentioned in my prepared remarks, our overall industrial sales are down, because FDD has sold NVIS.
And those sales are now eliminating in consolidation.
So we're actually not going to see the benefit of those until Q4.
Yes.
I think we need to stay tuned.
China is actually moving towards 3D now.
Well, I think the invisible optics is the dream that we have maybe even 5, 6 years ago.
Ultimately, it is clear that the display and optics will be embedded into an eyeglass frame.
It may take some time, maybe 3 or 5 years for now to be really practical.
Meanwhile, I think Solos represent really a near-term revival approach.
I'm glad that we've got a patent because we're the earliest guys advocating it.
And we have the original patent now.
Yes I'm impressed that you study all our patents.
Maybe we should announce more of them.
We're getting a lot new patents, which are very fundamental, but, as you know, we are never ever happy with describing our patents.
Maybe we should start having a new approach to talk about patents, yes.
Yes to both comments.
We will be showing this at CES next week.
In addition to that, we are talking to potential customers.
I think that, first of all, the technology itself has distinct advantage.
In addition to that, sometimes using our technology allow them to use their processes more efficiently.
So there are 2 ways, one is the better technology anyway and maybe, just some ease of system applications.
Okay.
Thank you very much for joining us this morning.
And I hope to see you all at this coming CES.
It will be an exciting CES.
Thank you.
