Good day, and welcome to the Copeland Corporation First Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I will turn the conference over to Mr. Richard Snyder, Chief Financial Officer. 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 on our on Strategy, Technology and Markets. I will then go through the Q1 results on a high level. John will conclude our prepared remarks and then we'll be happy to take your questions.
I'd like to remind everyone that during today's call taking place on Tuesday, May 4, 2021, we will be making forward looking statements as defined in the Private with the 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 ks and other documents filed with
the Securities and Exchange Commission.
The company undertakes no obligation to update these forward looking statements made during today's all. And with that, I'll turn the call over to John. Thank you, Richard. Good morning,
and thank you for joining us to discuss our Q1 results. I want to start by expressing our wish Thank you and your families continue to stay well and safe as we hopefully are closer to the end of this awful pandemic. We are pleased with our strong start to the year, reflecting continued increasing demand for our customers across multiple segments. Revenue increased approximately 48% in the Q1 of 2021 as compared to the Q1 of 2020, with growth led by our defense production programs and are funded development programs. We now have more than 10 programs in various stages of development.
While some of them may not contribute Significantly, the product revenue for the next year or 2, this is by far the strongest defense program portfolio in COVID-nineteen's history. They set the stage well for the coming years. We continue to aggressively pursue additional opportunities in the defense market and expect to make some announcement regarding these opportunities in the coming months. Our R and D activities have been increasing in the past several quarters, reflecting the significant opportunities we're seeing in the augmented and virtual reality space. In particular, our customer funded R and D revenue jumped more than 80% year over year, Primarily because of the accelerated interest in our next generation displays and is based on our activities.
Additionally, We continue to see strength in our enterprise market segments. With strong volume growth in Enterprise AR and 3 d Automated Optical Inspection Systems, which are recovering nicely following a slowdown in the early days of pandemic. The growth in these areas was offset by a decrease in the public safety sector as municipal government budgets were affected by the pandemic. Our defense revenues in the Q1 of 2021 increased by 42% compared to the Q1 of 2020. Our defense revenues continue to be driven by FWSI These 2 defense programs, which are still quite early in their product phases, to continue as core component of our revenue in the coming years.
We also remain on track To transition several more products to early low rate production this year, we expect revenues beginning in the second half. As mentioned, Kopin has over 10 defense programs in various stages of development. It's proven that all using our microdisplays are increasingly Utilizing our specialized optical systems and recognized assemblies, We believe we are the sole source supplier for most of these programs. All our defense programs are either AR or VR applications, and Kopin continues to explore additional AR and VR applications in defense, Industrial and Consumer Areas. One example is in the Q1 of 2021, We announced the Kopin Cyber Display, YUVGA Display Backlight modules and 8230 driver ICs are now incorporated into the Canadian based, Canada based, Shearwater, wearable near eye remote display driving computer.
This product has our near to eye display for underwater divers and provide critical dive information, including depth, lifetime compass and breathable guest levels. This is just one example of the many areas of the market finding a solution to a need using Kopin microdisplay product. It's the only microdisplay company in the world with product and technology solutions Utilizing each of the leading micro display technologies, OLED, microLEDs, LCDs, as well as LCOS. Kopin is immediately positioned to offer the right technology solution for the expanding markets and applications for AR and beyond. As mentioned last quarter, We'll receive our first production order from a U.
S.-based customer and begin shipment Of our 720P Pangent Planning Dual Stack ColorMax OLED Micro Display This new technology represents a milestone for Kopin as we exhibit a record 7,000 nits of brightness with a much lower power than previous technology. This is a huge achievement for the OLED Micro Display. We continue to ship our 720p Micro OLED display to our customers in Q1. Meanwhile, we continue to innovate and improve further our audit technology to meet the market demands. In addition to our customer based R and D activities, We have been increasing our R and D spending to meet the retirement of AR and BR.
We believe this is a one single deck opportunity as the device will expand from handheld to hands free devices. I was hoping we'd be ready to meet the market demand. Finally, we are highlighting our long history and leadership in wearables in a 3 part webinar series entitled AR and VR: The Paradigm Shift to Smart Glasses Starts Now, hosted by Incyte Media. The first segment called ARVR Attack was held on April 27 and now is available on YouTube. It was very well received with over 500 registrants.
And I must apologize, We will oversubscribe for the live event, which was unfortunately limited to 300 attendees. Yes. Not everyone who want to attend live connected. The webinar, however, was recorded right away, and we did provide a link through the recording to all the registration people shortly afterwards. We have since increased the capacity for live participation in the next two sessions.
In part 2 of this trilogy to be held on May 25, Bell traps We'll focus on the present. We will tackle the current state of the art, Analyzing interesting success stories today and concluding In Part 3 to be held on May 26, we will focus on the future. We'll look to the next stages of ARVR SmartGlass products, offering a roadmap to develop products with the right form factor, technology, performance, features and costs to succeed Indeed, this exciting transformation will present our views of the next 3 to 5 years Without engraving from the lessons we learned for all these past and present AR and VR products in the marketplace, We will then speculate how to get to the ultimate consumer base smartphone. This will be the Holy Grail. Really, One can learn so much on what the defense systems have been doing.
Please join us and the next two webinars. You will not be disappointed. Registration links and replays can be found on our website as well as on Incyte website. In short, we're continuing to make great progress in executing our strategy and is showing our performance. The market conditions are favorable as AR and VR are gaining strong traction throughout the past year.
We believe Copay is in a great position to capitalize on this growing trend. With this, I will turn this call to Rich.
Thank you, John. Turning to our financial results. Total revenues for the Q1 ended March 27, 2021 were $11,700,000 compared with $7,900,000 for the Q1 of March 28, 2020, a 48% increase year over year. Cost of product flow for Q1 ended March 27, 2021, was $6,400,000 compared with $5,600,000 for the Q1 ended March 28, 2020. Gross margin for the Q1 of 2021 was 15% compared with 5% for the Q1 of 2020.
The increase in gross margin for the 3 months ended March 27, 2021, as compared to 3 months ended March 28, 2020, was primarily due to improved manufacturing efficiencies driven by higher volumes. Research and development expenses for the Q1 of 2021 were $3,600,000 compared with $2,300,000 for the Q1 of 2020, a 52% increase year over year. R and D expense for the 3 months ended March 27, 2021 increased as compared to the 3 months ended March 28, 2020, primarily due to an increased spending on U. S. Funded development programs and internal R and D expenses for OLED development.
Selling, general and administration expenses were $5,900,000 for the Q1 of 2021 compared with $3,400,000 for the Q1 of 2020. SG and A expenses for the 3 months ended March 27, 2021, had approximately $2,400,000 Stock based compensation costs as compared to $89,000 for the same period in 2020. Excluding the non cash stock based compensation costs, SG and A expenses were $3,500,000 for the Q1 of 2021 compared with $3,300,000 for the Q1 of 2020, a 5% increase year over year. Other income expense was income of approximately $37,000 for the Q1 of 2021 compared with $87,000 of expense for the Q1 of 2020. During the 3 months ended March 28, 2021, we recorded $28,000 of foreign currency gain as compared to $172,000 of foreign currency losses for the 3 months ended March 28, 2020.
Turning to the bottom line. Our net loss attributable to Coking Corporation for the Q1 of 2021 was 4,100,000 or $0.05 per share compared with a net loss attributable to Coking Corporation of $3,600,000 or $0.04 per share for the Q1 of 2020. Non GAAP net loss attributable to Coking Corporation for the Q1 of 2021 was $1,800,000 or $0.02 per share compared with non GAAP net loss attributable to Cofin Corporation of $3,500,000 or $0.04 per share for the Q1 of 2020. Copeland's cash and marketable securities were approximately $35,600,000 at March 27, 2021, as compared to $20,700,000 at December 26, 2020. During the quarter ended March 27, 2021, we issued 2,400,000 shares under our then existing at the market ATM program and generated $15,500,000 in net cash proceeds, which concluded our $20,000,000 ATM program.
1st quarter amounts for depreciation and stock compensation expense are attached in the table to Q1 press The amounts discussed above are our current estimates and listeners should review our Form 10 Q for the Q1 2021 for any possible changes and additional disclosures. Finally, I'd like to address the global semiconductor shortage. Kopin did not experience any significant effects caused by the shortage in the Q1 of 2021. We accordingly. Operator, we will now take questions.
Thank
Please make sure your mute function is turned off to allow a signal a chance to reach our equipment. We'll now pause for just one moment. So we will now take our first question from Glenn Mattson from Ladenburg Thalmann. Please go ahead.
Hi. Thanks for taking the question and congrats on the great results. So first question, the two areas of out Performance versus my model were in the industrial side and the R and D. Can I just get a little more color? Is that was the industrial bounce back in the Fire and safety stuff or is it more the RealWear type end user?
And then on the R and D front, I'm curious, is that all government related or some of that is there any Commercial or consumer related R and D revenue?
So mostly it was the industrial headsets to folks like RealWear with the strength in the industrial segment as well including our 3 d AOL was very strong in the Q1. And as far as R and D, the majority of it is defense related, but there is some commercial Consumer R and D in that also.
Okay, great. Thanks. And
On the defense side, you've talked about for
a while 10 programs in development. So and I think I'm not sure if you reiterated it this quarter or not, but in the past you said you expect one of those to kind of contribute initial production volumes, But contribute meaningfully towards the second half. Is that still the case? And when have you won that yet? Or would you announce When you win it or are you not allowed to or just some thoughts about how that news flow is going to play out over the course of the year?
Yes. So we would actually expect right now our estimate is about 3 programs in the second half of the year to go into I would call LRIP, low rate initial production and start providing revenues. It is low rate initial production and that it would really ramp up in 2022. But our programs are on schedule as John indicated in his prepared remarks.
And Glenn, we will announce when the time's up and as time's there and our customer allows us to announce them. Things are going pretty well.
Great, great. Thanks, John. So moving on to the ARVR stuff, John, you talked about it being Once in a lifetime opportunity, I mean, Kopin has been a part of other opportunities like that in the past. I'm thinking about like Digital cameras and displays
and things like
that for that. Would you Categorize this as similar to that kind of a situation, maybe even on a scale larger, just based on this versus what you've seen
due to Kopin's past.
It's a very good question, Glenn. I mean, I've been preparing this Trinity webinar. And as I prepare for and I would just say that the opportunity is actually bigger than I initially thought. I knew it's going to be a good opportunity. Now I'm more and more thinking it could be turn out to be bigger than even the cell phone business.
So it could be a $3,000,000 business in 15 years. Well, I would talk about that The second and third one, especially the third one, where you talk about the future, which allow to speculate, That's going to be a very interesting seminar. Remember that the last seminar we have about 30 minutes of Q and A And we're very active. A lot of people ask questions and we have to cut off because of time's up. So we will continue to have very active Q and A session after the webinar.
And I think the third one, we might have to look prolong it to a 1 hour Q and A.
Right. Great. Thanks. We look forward to that for sure. And the last question for me just is On the chip supply side, you've said that you guys feel pretty comfortable about the pre orders that you've made and things like that and that you don't Didn't have any effects in Q1, but can you just give us a better sense of just how concerned investors If at all about potential disruptions in supply?
Well, the reality is We saw an article by the CEO of Intel. And like what the auto industry has experienced is you just need one chip missing And the whole product doesn't ship. Now we're not in that type of situation. We have multiple products. But it is pretty dynamic.
And What we think is that there's some panic in the market and people are overbuying. This is somewhat like we saw frankly in the tech bubble where people thought there was going to be shortages and they started Nothing. There are closets with every chip they could get. And of course, we see people taking the opportunity to raise prices. There's no doubt Not bad.
But so far, we haven't had any of our suppliers say, hey, listen, this is a real big problem. So we're monitoring it literally on a daily basis. And we're trying to get into our vendors to make sure that they're on top of their suppliers as much as we can.
Okay, great. Congrats again on the results. I'll pass it on.
We will now take our next question from Kevin Gidi from H. C. Wainwright. Please go ahead.
Good morning, gentlemen. Thanks for taking my question. John, could you just talk a little bit more about the Canadian Near Eye diving display? Which display are you using there? Is there an extra light source?
Just maybe some more, pardon the pun, color on that?
Yes. Kevin, we are using our micro LCD display and using a special backlight that allows them to see very well. So this is a module that we'll be providing to other AI applications. So yes, so this one is a special You obviously have to dive in the water and you have the special Tyler modules, but they are doing well. And I think The product just came out of the market.
I heard that the response was very good. I don't do diving, so I've never tried myself.
Okay. Look, I can't imagine there's a huge market for it, but I was just hoping that you could maybe give us a little more insight. How would you say it compares to the Scott helmet that the Firefighters
use. The Sky Helmet allows you to see the stock through the smoke. This line is not. So it's different. It has different sensor that Scott has made with different sensors.
All those listings are not something that you can sell 1,000,000 per year, okay? That's why I say, at the end of the day, You have to go through the fence and you have to go through enterprise to learn what's needed. This is a major transformation From handheld to handheld free. So we're very happy with the opportunity.
Well, yes, yes, yes. No, that's sort of the way
I was looking at it. And how I mean, what are the features that you see coming from This development and the using of the micro LCD display as applicable in the consumer market?
Yes. Steve, you are actually present half of the Talk for next week, which I'm giving the seminar to. If you really look at what's going on when you move from handheld to hands free, A lot of components developed for the handheld for the cell phones are already there And you should use all the components they already developed on their cell phone. The problem is the display. If you really look at it, because it's display, the display is too big.
And in the early days, Oculus put a home display on your hand, The customer will never accept that. And the Tata knew that even 30 years ago when they fund us to do the display, smaller display. But for display is not enough, you still have to have that special object magnifier and special housing To take care of the water, take care of the particles, take care of anything and to be aware of what our defense business taught us a lot of things. What kind of office do you need? What kind of displacement do you need?
So you can go into the fire, you can go to the water, All these things we learned. So I think people do not understand this is really the micro display module They have to replace the touch screen that you have in the cell phone is the biggest challenge, and we are leading this area
All right. So granted your discussion and your answers for Glenn's questions pointed to consumer development and ARVR. Can you be more specific? How are you taking what you've done here for the Scott helmet, What you've done for the diving helmet and what specific kinds of R and D are you doing to develop the consumer side?
Yes. In the consumer side, I think, 1st of all, consumer, as you know, I'm a big creature of the fan side rules. The rule number 1 is we have to be human first And second, technology. So major thing of the human is, if you put on the eye on the head, you should do some kind of eye glass, It has to be very natural, it has to be very small, thin, lightweight, fashionable. And so the consumer introduction for These high demand are reality eyeglasses.
It's very special and I will talk about that next week. What are the special eyeglass that come in for the consumer? And those such glasses are coming up and you will be is already and available in the next few months ago and it will be everywhere the next 12 months. And after that, you will go into more and more consumer applications. So I would say consumer applications It's starting right now in a few months ago and it's going to be very big.
So we'll talk about that on Tuesday. I don't want to
Okay, John. Appreciate that. And thank you for the invitation. Rich, before I let you
go, what was
the official share count at the end of the quarter and not the average, but the official full opinion.
Honestly, I don't have that at the top of my head, what the number was.
It's pretty
close to the average. Okay. Thank you. Thank you, gentlemen. Thank you.
Thank you
for taking my
questions. Yes. We didn't have a lot of stock activity in the quarter other than What we sold? Yes.
Yes. So, right, I guess, that's close and it was really close to the early part of the quarter. I guess, I just have to go look at the date.
Yes. When's the Q come out? Thursday.
Thursday. All righty. Thank you, gentlemen.
Thank you. We will
now take our next Question from Craig Rose from Axiom Asset Management. Please go ahead.
Hello, John. From my point of view, there's no shortage of R and D dollars spent on products revolving around AR and VR. So when I assume that it's great that your R and D is
up, but the balance is in defense,
where do you see R and D dollars in the future? How high could that go considering everyone's trying to get where you think the market is going to go?
Yes. Thank you for the question. The biggest challenge To get into a wearable on the head, as I mentioned before, is the display and optical system. How do you get good display and optical system on your head? And display had to be very tiny, much smaller, Much higher resolution than read the display you have used on the cell phone.
And it will not be the same technology. It's still probably going to be OLED, but not only on glass, it's only on silicon. And I will describe very clearly And the second session, why it has to be on silicon. So anyway, the biggest We searched MoneyNow and all over the world right now is searching for how do you display And replace the touch screen on your head with some kind of display. It had to be a micro display And hence, we have very special optics.
The optics turn out to be a very major challenge. As Richard Zeng mentioned, We actually not just focus on display. We spend quite a lot of activities now on the optics. We found out that our customers We cannot use any microdisplays unless the optics are there. The optics have magnified a 1000 times, 10,000 times and you have to keep image very sharp and you have to be very lightweight and very thin.
Yes. I think there are many systems you see for users, even the Oculus, I think the very wonderful system, the Oculus, the most recent one, very good system, It's still too big and too thick and too heavy. And I will talk about it next week on the Ocular system. I would like to accept quite a few systems in the market right now And keep the pros and cons and actually paying the ways for the next step.
Okay. If you had to list the challenges in order, it would be optics, Form factor, then the screen.
Screen number 1, screen is because it's really, really high-tech. Particular number 2 and the third is the whole packaging. How do you assemble it? It's actually one thing people don't know. You're magnifying sometimes 10000 times.
So your housing is not carefully taken, little particles land on your display, Dan, it looks like a boulder to you. Because of our defense activities, we recognize that there have been a resourceful problem And no particle can come out during operation or the assembly. There few people know about it, including even many of our customers. So nowadays, they just say, please send us the whole assembly, send us the optics, send us the display and send us the Housing, assembly. And that's why we're so many defense industry.
They don't want to touch it anymore. And I think consumer people do not quite understand it yet. Enterprise people know, and I won't go into detail. Almost all our enterprise Companies customers, the high school assembly.
Are you at liberty to discuss how many consumer Product developers you're working with now in R and D and maybe the life cycle of such R and D with those clients?
I think it's safe to say that We are or have worked with all the major Silicon Valley guys that are on everybody's tongue. I mean, I I think, yes, to be honest, I'm sure they're working with everybody else too. This is a big race. It's going to be a huge market. So we have interactions with all of them at this point.
Okay. Thank you very much guys.
Thank you.
And it appears there are no further questions at this time. I will pass the call back over to you for any additional or closing remarks.
Thank you for joining us this morning. I would like to remind everyone that we will be having our Annual Meeting on May 26, 2021. You should be receiving the proxy mode soon. So please note and you'll be able to attend our annual meetings. After the annual meeting at noontime, I would give the 3rd part of our Trilogy webinar.
Thank you.