Kopin Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 25, 2021; comparisons are to the periods ended September 26, 2020. All amounts are U.S. dollars. The statements are unaudited.
Business context
Kopin develops and sells miniature displays, optical lenses, components and higher-level assemblies, and licenses related intellectual property. Its markets include defense, industrial/enterprise and consumer applications. The company reports one operating segment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $10.9 million | $9.5 million | $32.5 million | $26.2 million |
| Operating loss | $2.0 million | $1.1 million | $10.2 million | $5.7 million |
| Net loss attributable to Kopin | $2.1 million | $1.0 million | $10.1 million | $5.7 million |
| Loss per share, basic and diluted | $0.02 | $0.01 | $0.11 | $0.07 |
Revenue increased about 14% in Q3 and 24% for the nine-month period year over year. Product revenue was $6.6 million in Q3 and $21.1 million for the nine months; research and development and other revenue was $4.3 million and $11.4 million, respectively. Product gross margin, calculated from product revenue less cost of product revenue, was about 22% in Q3 and 17% for the nine months, down from about 26% and 20%, respectively.
Q3 revenue gains reflected higher R&D funding, industrial sales—especially 3D metrology—and consumer OLED sales; defense revenue declined with lower thermal-weapon-sight shipments. For the nine months, industrial, consumer and R&D revenue rose, while defense revenue was slightly lower.
Operating expenses increased: nine-month R&D expense was $11.1 million versus $7.3 million, and selling, general and administrative expense was $14.0 million versus $9.4 million. Management attributed higher losses to lower gross margins, increased OLED development spending and higher stock-based compensation. Nine-month stock-based compensation was $3.8 million, compared with $0.6 million.
Cash, liquidity and capital
At September 25, 2021, cash and equivalents were $28.3 million and marketable debt securities were $3.4 million, totaling $31.8 million. Working capital was $36.9 million, compared with $22.5 million at December 26, 2020. Current assets were $50.6 million and current liabilities $13.7 million. The filing reports no conventional borrowings; operating lease liabilities totaled $1.7 million.
For the first nine months, operating cash use was $9.1 million, investing cash use was $0.7 million and financing provided $21.0 million, principally from stock issuance. Cash increased $11.2 million. The company sold 3.1 million shares through at-the-market offerings for $21.7 million gross proceeds, or an average $7.00 per share; $44.3 million remained available under the current ATM agreement at quarter-end. Outstanding shares were 89.5 million at September 25 and 92.2 million as of November 2, 2021.
Outlook, risks and contingencies
- Management expected thermal-weapon-sight production rates to increase in Q4 2021 after process-development work, which it said was complete. The filing provides no revenue or earnings guidance.
- Management expected 2021 capital expenditures of $1.0–$2.0 million and believed available cash and marketable securities would fund operations for at least 12 months from the report date.
- Management continued to invest in R&D despite operating losses and negative operating cash flow, noting that continued losses could require expense reductions or additional capital if positive cash flow and profitability are not achieved.
- Semiconductor supply constraints and vendor warnings about component availability and price increases could affect production, costs and future margins. The company reported no material impact from component price increases to date and was evaluating alternative sources.
- Industrial wearables remain a developing market, and consumer OLED sales are described as sporadic. International sales, foreign exchange movements, customer demand and execution of production plans are additional risks. The company does not hedge currency risk.
- BlueRadios litigation remains pending, with no trial date set. Kopin said it had not concluded a loss was probable and had recorded no litigation accrual.
Most important facts for investors to verify
- Whether planned Q4 thermal-weapon-sight production increases occurred and improved utilization and product margins.
- Whether revenue growth in industrial, R&D and consumer applications persists and offsets defense-market variability.
- Whether semiconductor availability and component costs affect manufacturing, deliveries or margins.
- Cash burn, remaining liquidity and any further ATM stock sales and resulting dilution.
- Developments in the BlueRadios case and any change in the company’s assessment of potential loss.