Good day and welcome to Kopin Corporation Third Quarter 2019 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Richard Sneider. Please go ahead sir..

Thank you operator. Welcome everyone and thank you for joining us this morning. John will begin today's call with a discussion of our strategy, technology, and markets; I will go through the third quarter 2019 results at a high level; John 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 Thursday, November 7th, 2019, 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 John..

Thank you for joining us this morning to discuss our third quarter results. We are pleased that we are beginning to see the benefits of the strategic steps we discussed last quarter to monetize our intellectual property while reducing our cost structure.

For the third quarter, we achieved a 20% revenue increase including 105% growth in industrial revenue and 31% growth in military business, while reducing expenses by approximately 20%. In addition to our proactive steps to streamline our cost structure, we are also benefiting from lower R&D costs as program move from development to production.

We are now essentially harvesting the investment we have made for the past several years in our technology and product development. This should create much more stable and predictable growth as we enter 2020 and beyond. In our industrial business, we achieved greater than 100% growth this quarter, albeit from a small revenue base.

One repeat customer was Scott Safety owned by 3M. In the public safety sector, Scott Safety was an early adopter of our display technology for alternate reality or AR applications creating the first hands-free thermal imaging system which allows firefighters to see in the dark and through smoke.

We believe public safety will be an increasingly important category for AR. We also see continued strong demand from RealWear which has been a good partner for many years. We continue to benefit from the growth in AR for enterprise applications.

We anticipate that business for Kopin will further increase when they introduce their Golden-i Infinity system. 31% growth in military revenue was another highlight for the quarter. We again saw strong demand for the F-35 Fighter Jet program, which is currently one of the cores of our military revenue.

We also received a new production order on the FWS-I program significantly larger than the previous order. In the coming years, we do expect to see a significant increase in our military revenue as a number of programs will move from development to production.

As the production volume from multiple programs ramps, we are optimistic that our military revenues will not only continue to grow, but also will be more predictable. As in last quarter, one element of our new strategy will be the continued development of our Lighting micro OLED display.

As we have discussed earlier, our fabless model allows us to cost effectively invest in this exciting and differentiable technology which actually has many multiple applications across our customer base.

We continue to make progress in the development of two advanced OLED displays scheming with two global companies, both for broad consumer-related applications. Our Q3 savings of approximately 20% include both lower payroll expenses as well as reduced product development costs.

We expect continued improvement in our cost structure in Q4, as we benefit from further savings after the spinout of Solos and Whisper technology. Finally our stock is below $1.00 and we are exploring steps to regain compliance with NASDAQ. We have until April 2020 to put a plan in place and we will address the issue by then.

To summarize, we are pleased with the progress in Q3 both in revenue and costs and look forward for this momentum to continue. Now I'll turn the call to Richard, so he can provide additional details especially around the cost structure..

Thank you, John. For the quarter total revenues were $6.1 million compared with $5.1 million for the third quarter of 2018. Cost of goods sold for the third quarter of 2019 was $4.7 million or 95% of product revenues compared with $3.7 million or 100% of product revenue for the third quarter of last year.

R&D expense in the third quarter of 2019 was $2.4 million compared with $4.6 million in the third quarter of 2018 primarily due to the licensing of certain products and other development programs being curtailed. SG&A expenses were $5.1 million in the third quarter of 2019 compared with $7.2 million in the third quarter of 2018.

SG&A expenses decreased for the three months ended September 28, 2019 as compared to the three months ended September 29, 2018 primarily due to a decrease in compensation expenses including stock-based compensation and the amortization of intangible assets.

Other income expense was expense of approximately $77,000 for the third quarter of 2019 compared with income of approximately $175,000 for the third quarter of 2018. During the three months ended September 28, 2019 and September 29, 2018, we recorded approximately $89,000 and $227000 respectively of foreign currency loss.

Turning to the bottom line our net loss attributed to non-controlling interest for the quarter was approximately $6.6 million or $0.08 per share compared with a net loss of $9.8 million or $0.13 per share for the third quarter of 2018. Third quarter amounts for depreciation and stock compensation are attached in the table to the Q3 press release.

The above amounts discussed are based on current estimates and listeners should review our Form 10-Q for the third quarter 2019 for any possible changes and additional disclosures. Operator we will now take questions..

Sure sir. Thank you. [Operator Instructions] We will now take our first question from Glenn Mattson, Ladenburg Thalmann Company..

Hi, thanks for taking the question. So curious about the Scott -- the 3M public safety revenue coming through this quarter, was that expected now? I think you were talking in the past about having a good Q4 outlook for that as well.

Did you pull any of that forward or is that just the beginning of a better ramp for that product?.

No Q4 -- nothing was pulled forward from Q4. So it was what we expected and what we continue to expect going forward..

Okay.

And can you give us any outlook -- any insight into as far as the RealWear business goes, how that product is doing in the marketplace, if they're selling through all the components that you're providing or any color there?.

So I mean you really need to talk to RealWear about how their end demand is? I can tell you that we have discussions with them all the time and so our demand with them is still strong..

Okay great. Last question for me on the military, was -- you talked about as more of these programs ramp you'll have better predictability over the coming years.

But could you give us any insight as to what your visibility is at this point as far as 2020 goes?.

Well we have orders right now through June of 2020 for our large programs F-35 and FWS-I and we expect to be receiving additional orders very shortly on those programs. So we think those programs are well in place for 2020. And we're hearing discussions that the volumes will continue to ramp as we expect if not higher.

And then the other development programs are on-track..

Okay, great. that’s it for me. Thanks guys..

Thank you, sir. We'll now take our next question from Mr. Matthew Galinko from National Securities..

Hey, good morning. Thanks for taking my question. I guess, just going a little bit further into public safety, I'm curious.

Beyond the Scott's relationship, which I know has been in place for a while now is there anything else you could talk about or any direction where you think the displays are going to be pulled into in public safety and what the timeframe is that you're thinking about?.

Okay. The question is how about the other public safety programs. We are working with several big companies on that and I think we are not privy to talk about the progress or when they are going to use the products. But public safety is the area we're focused on right now..

Gotcha. Okay.

And can you say whether the work you're doing with other companies is relatively new or has that been underway for a few quarters at this point?.

Several of them have been going on for a while yeah..

Gotcha. Thank you. And maybe just lastly I know you touched on the OLED business.

But do you have any updated thinking on when you can move into material volumes there?.

Yes. Micro OLED is a very exciting area. I think that will be the next big thing for wearable. In this meeting – in this conference call we actually mentioned that we are actually developing two advance displays with two global companies for consumer-related products. So it's pretty far along and we hope to see some revenues next year..

Great. Thank you..

Thank you, sir. We'll now take our next question from Mr. Patrick Metcalf from Newbridge Company..

John, can you speak to the two consumer wins you have with the global companies? Can you tell us what region they're in? Are they from north America Asia? Can you give us any color on that?.

It is global. But I am not being cute about it. They are very big companies and they are consumer-related. And they are very advanced displays which I think will enable a lot of wearables to be used..

Okay.

And you just can't tell us if it's North America or Asian headquarters?.

No I don't I better not say that. In fact I probably revealed more than I should yes. Yes they are very big..

Okay. Okay. Great. And then I wanted to ask you regarding virtual reality headsets.

Do you see LCD playing a role – micro LCDs playing a role in VR headsets in 2020 or 2021? Do you see any activity for yourself in that area?.

Yeah. Patrick it's a very good question. Currently, most VR headsets are still using micro LCD. And as micro OLED production rate goes up which I think would be sometime next year I think in 2021 you will see a more drastic shift from micro LCD to micro OLED. But it will be at least another year.

Right now, next year will be still a lot of installation of capacity design-in and then 2021 will be very obvious..

Okay. And then the micro OLEDs I know you guys have spent about two years in stealth mode on that. We haven't heard much about that.

When do you feel comfortable coming out and letting the market know where you basically stand with micro OLEDs and your supply chain with that? Compared to the competition where do you think you stand today and when can you talk about it?.

Yeah. Micro OLED we've actually been working on it in stealth mode about three years since we recognized the next growth mode in wearable would depend on micro OLED. And we're actually making very good progress with that. Sometime early next year we'll let people know where we stand. I think we have a very good position right now..

Okay.

And could – your partner in micro OLEDs today could they be building more capacity in the near term in case a large global consumer player has strong demand?.

The answer is yes..

Okay. Great. And then I want to shift over to the military because my investor base, I keep hearing this company has a better display Kopin's going to get replaced in the F-35 program. However, we keep delivering the revenues. I keep hearing sole supplier.

Can you give us a little idea of where this comes from or how you feel about your position with the F-35 program?.

Yeah. We don't comment on other companies what other companies are doing. But we only look at ourselves. I think in the military programs especially in micro displays we have a very dominant position and we'll continue to be doing so. So we are the company the military programs go to right now..

Okay. Thank you guys and I hope to see a much better 2020..

We expect so..

All right. Talk to you guys soon..

Thank you..

Thank you, sir. It appears there are no further questions at this time. I would like to turn the conference back to you sir..

Well, thank you very much for joining us this morning and we do look forward to discuss with you about our next quarter results. Thank you..

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect your line..