Kopin Management Discusses Q4 2012 Results – Earnings Call Transcript – Seeking Alpha

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Matt Robinson of Wunderlich Securities.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Rich, on the operating cash flow, can you give us what it was for the continuing operations in the fourth quarter?

Richard A. Sneider

No, actually I do not have that in front of me. I can get that to you later.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Yes, that will be great, because — obviously, saw the filings made with your pro forma for 3 months, but I didn’t get — I didn’t see a quarterly breakdown so — I mean for 9 months. So it will be tough to end 2 things at this point. And there wasn’t cash flow as I recall in that filing either.

Richard A. Sneider

We’ll be filing our full 10-K tomorrow, which will have everything, but if you call me — definitely, I can get to that number.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Okay. And CapEx same story?

Richard A. Sneider

CapEx for — do you want — for the fourth quarter?

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Yes.

Richard A. Sneider

$1.4 million.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

But with the debt, was that only for continuing operations?

Richard A. Sneider

Yes.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Okay. So discontinuing operations that whatever you spent to keep that going is not included in there. Just a….

Richard A. Sneider

Right. It was a couple of hundred thousand dollars.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Okay. And of the depreciation — of the G&A, was it all depreciation?

Richard A. Sneider

No, we have amortization associated with the intangible assets.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

I absolutely expect, so what was that amount?

Richard A. Sneider

The actual breakdown of that number, I think — I can give you that number later. I believe it was around $150,000.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Okay. And that depreciation is, obviously, only for the ongoing, right?

Richard A. Sneider

I provided that breakdown in the table.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Okay. Headcount?

Richard A. Sneider

Right now, we’re about 200 people.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Where do you expect to see that going this year?

Richard A. Sneider

Right now, there — we’ll just leave it at the 200 number.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Okay. And why is the revenue guidance for ’13 so far below the run rate in both the third and fourth quarter?

Richard A. Sneider

Well, we expect a continuing decline in the military during the course of the year. We think what’s going to happen this year is that it’s going to be more R&D oriented. We’re in a number of research and development programs with the government that are really expected to deploy in 2014. So some of the legacy stuff is unwinding, and so we’re kind of in a transition year there.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Is there any potential for some business that might be associated with your ability to supply versus competitors?

Richard A. Sneider

I’m not sure I understand the question.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Or do you have, are there any opportunities for customers to come and change their requirements, because you’ve got a heritage of supplying in some of the legacy business, it might not be supported so well by competitors?

Richard A. Sneider

Yes, I mean, the business goal is always difficult to prepare — not prepare — to predict, so there is potential upside there. And as we’ve indicated, there’s really — there’s no Motorola revenue or any other types of, really, Golden-i type technology revenue that factors in the forecast, so those were all potential upside.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

What’s going on with the fourth dimension and the other high wear and consumer-type applications.

Richard A. Sneider

Fourth dimension has actually done very well over the last 6, 9 months, penetrating the 3D metrology market. I think that they’ve signed up with the 2 largest players in that market, and they’re working on developing a number of other agreements. So they have received a tremendous response. They make it a — John can speak to this better than I can as far as the quality of their display, but extremely high resolution, beautiful color. And it fits very well into that market, so they’re actually doing very well.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

And they have other type of wearable technology in the camera business?

Richard A. Sneider

Well, you see people like ViewSticks have products that are being offered that we supply, recon ready’s another group that is supplying products that are all tangentially related to the wearable computing market. And so we’re supplying to those guys. And they’re all pretty bullish on the entire market.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

Well, that’s been true for quite sometime as we know. And I did see the ViewSticks stuff at the Consumer Electronics Show, it looks like something late this year, that would be a big improvement. But how did that business compare with last year?

Richard A. Sneider

The — you want the breakout, is that what you’re asking?

Matthew S. Robison – Wunderlich Securities Inc., Research Division

No, if you could I just give me the tone of — how was — how the trends, is it — did it improve or have you got offsetting effects with camera versus wearable? What’s the [indiscernible]?

Richard A. Sneider

Yes. I mean eye wear was essentially flat and digital camera was down.

Matthew S. Robison – Wunderlich Securities Inc., Research Division

And do you expect that — any reason to expect that the eyewear would come up enough to offset the trend in the digital camera?

Richard A. Sneider

If you believe the customers’ projections, yes.

Operator

[Operator Instructions] Our next question comes from Joseph Vicaria [ph] of Needham & Co.

Unknown Analyst

This is Joe, calling on behalf of Raji. I was wondering if you could talk a little bit about cash burn moving forward?

Richard A. Sneider

For 2013, we think cash burn will be in the range of $13 million to $16 million.

Unknown Analyst

All right. And can you talk a little bit about what the revenue expectation is for wearable computing once it hits its run rate?

Richard A. Sneider

How far up you want to go?

Unknown Analyst

I guess as far as you’d be comfortable.

Richard A. Sneider

I think, John, prepared remarks started at the call. We think this is a huge market, and we think that we’re very well positioned in it. And so our drive is to become a billion-dollar company, frankly.

Unknown Analyst

Okay. All right, I appreciate. And, I guess, that’s over what the next 4 to 6, 4 to 8 quarters not doubling our company, but the run rate?

Richard A. Sneider

Yes. I mean as, John, as Mark indicated, I think we expect products to start being offered probably in the fourth quarter of this year, and then ’14’s the inflection point where it really starts taking off.

Operator

Our next question is from Aram Fuchs of Fertilemind.

Aram Fuchs – Fertilemind Capital

I was wondering if you can give a survey of the market as you see it both in displays and in the hurdles that have to be overcome? The weight of these glasses tends to be — or when I put them on, personally, in interviews I’ve done with past consumers, the weight is a key variable. Are there other variables that you worry about that you think you have to overcome?

John C.C. Fan

Yes, that’s a good question. I think you’re addressing the ergonomics and comfort of the 6 areas. In fact, I think it’s one of the most important areas, because if people are not willing to wear you kind of get started. It’s not just the weight, it’s the balance on your head, balance on your ears. There has to be comfort to wear. That’s the most important thing. Another thing that’s very important, you have to be willing to wear. You have to look good on you. It’s just not just the comfort alone, it has to look good — or look in some way, look familiar, you don’t want to look odd. All those things are again subtle, and, of course, also it depends on your application. In the case of industrial application like the Motorola’s HC1, those are to really perform a task. You fix, check engine, you try to catch a criminal. In this case, both comfort and look are not as important. But in the case like Glass for consumers, it becomes very important. So all this tells me that it tells us that the ergonomics is very important, also it tells you that the weight is a very important like you mentioned. So the optics, everything — it’s, actually, everything, electronics, every packaging had to be very lightweight. If you have gone to CES see our Golden-i, it was more than 3.8. It’s extremely lightweight. It’s made out of magnesium. You plan to have it extremely comfortable. And that’s really, in many ways, a game changing. So to answer your question, yes, it’s very important. We knew about this for a long, long time. We’ve worked with the military. We’ve worked with Motorola. We’ve worked with other companies. And we’re very trained to how to solve the problem.

Aram Fuchs – Fertilemind Capital

And then on the display, there are all these different technologies, LCD costs, where do you see yourself sitting there, obviously, in Golden?

John C.C. Fan

That’s again a very good question. Of course, I’m slightly biased. But let’s take away the bias ahead. Just look at the situation. If you go back to your first question again, the weight is very important. That means the optics and the weight started to be very small, and also have to be very bright, because the image has to be very bright, because it has to go outside in the sun. It has to be very bright. So ultimately, we look at all this. And I think, our customers and partners agree, there’s only 1 technology that exhibit for this kind of application. That is our technology, fiber display technology, the translucent LCD is best tailor-made for this application. It’s not an accident. Remember, we work on these things for 25 years. 25 years ago, we already had that dream, that wearable mobile computer will come. We developed our technologies that specifically tailor-made for this market. And right now, we are right. We’ll give you the lowest, highest — lowest-power, brightest, lightest optics system for wearable computing. And I think the market will certainly prove us to be right in the near future.

Operator

It appears we have no further questions at this time. I would like to pass the call back to management for closing comments.

John C.C. Fan

Well, thank you for joining us today. And then we’ll hope to keep you updated very soon. Bye-bye.

Operator

This concludes the teleconference. You may now disconnect your lines at this time, and thank you for your participation.