Kopin Corporation — Q2 2021 Form 10-Q
Business context and reporting period. Kopin develops and sells miniature displays, optical lenses, modules and related technology for defense, industrial/enterprise and consumer applications, and earns revenue from research and development contracts. This unaudited report covers the three and six months ended June 26, 2021, compared with the periods ended June 27, 2020.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total revenue | $9.91 million | $8.81 million | $21.58 million | $16.69 million |
| Operating loss | $3.92 million | $1.10 million | $8.11 million | $4.64 million |
| Net loss attributable to Kopin | $3.85 million | $1.12 million | $8.00 million | $4.72 million |
| Basic and diluted loss per share | $0.04 | $0.01 | $0.09 | $0.06 |
| Net cash used in operations | Not separately reported for quarter | $5.60 million | $6.76 million |
Q2 revenue increased about 12% year over year; first-half revenue increased about 29%. Product revenue was $6.93 million for Q2 and $14.50 million for the first half. Product gross profit was approximately $0.88 million in Q2 and $2.06 million in the first half; product gross margin fell to about 13% and 14%, respectively, from about 28% and 17% in the comparable periods. Management attributed weaker product margins mainly to lower manufacturing efficiency from lower volumes.
R&D and other revenue rose to $2.98 million in Q2 and $7.08 million in the first half, primarily reflecting greater U.S. defense program funding. Operating expenses increased, including R&D to $3.74 million in Q2 and $7.30 million in the first half, and SG&A to $4.04 million and $9.95 million, respectively. Management cited increased OLED development, stock-based compensation and bad debt expense. First-half stock-based compensation was $3.12 million, versus $0.32 million a year earlier.
Balance sheet, liquidity and financing
- At June 26, 2021, cash and equivalents were $27.36 million, marketable debt securities were $3.42 million, and combined cash and securities were $30.78 million, versus $20.75 million at December 26, 2020. Working capital was $33.9 million, up from $22.6 million.
- Total assets were $57.82 million and total stockholders’ equity was $39.64 million. Current liabilities were $16.08 million. The filing reports no conventional borrowings on the balance sheet; operating lease liabilities totaled $1.25 million. The prior-year PPP loan had been repaid in 2020.
- First-half operating cash use was $5.60 million; investing cash use was $0.45 million, including $0.67 million of capital expenditures. Financing provided $16.33 million, primarily from ATM stock sales. Cash increased by $10.25 million over the half-year.
- The company sold 2.5 million shares in the first half for $16.8 million gross proceeds, approximately $16.3 million net. A new ATM agreement permits up to $50 million in stock sales. On June 28, after quarter-end, Kopin sold 0.6 million shares for $4.8 million gross proceeds.
Business trends, outlook and risks
- Q2 defense revenue declined to $3.78 million from $4.49 million, as thermal weapon-sight shipments were reduced while a customer made system and production enhancements. Management expected the lower rate to continue in Q3, with shipments increasing in Q4 2021.
- Industrial revenue rose, mainly on 3D metrology and industrial headset sales; consumer revenue also increased. International sales were 35% of Q2 revenue versus 21% a year earlier, driven largely by metrology and industrial wearable demand.
- Management expected $1.0–$2.0 million of capital expenditures in 2021. Remaining performance obligations were $22.7 million, expected to be recognized over the next 12 months; these government-contract amounts are subject to cancellation. The filing provides no broader revenue or earnings guidance.
- Management said it intends to continue investing in R&D even during unprofitable periods. It cautioned that continued losses or negative operating cash flow could require expense reductions, including R&D cuts, or additional capital. Management believed available resources could support operations and capital needs for at least the next 12 months.
- Semiconductor industry shortages had not disrupted Kopin’s supply in the first half, but vendors warned they might not fulfill some commitments; some component prices were rising. Management was evaluating alternative sources and warned that future availability and costs could pressure margins or production.
- Other identified risks include COVID-19 impacts, customer and market adoption of developing wearable products, foreign exchange exposure (not hedged), and dependence on suppliers. The BlueRadios lawsuit remained unresolved; trial had not been set, the company did not consider a loss probable, and no litigation accrual was recorded.
Investor verification priorities
- Verify whether anticipated Q4 thermal weapon-sight shipment recovery occurred and how customer production changes affected subsequent orders.
- Track semiconductor component availability, supplier pricing, inventory growth and resulting product margins.
- Assess whether revenue growth and funded R&D translate into improved operating performance and cash generation, given continued losses.
- Review ATM share issuance and dilution, including post-quarter sales and the remaining capacity under the $50 million agreement.
- Monitor cancellation and timing risk for the $22.7 million of remaining government-contract performance obligations and developments in the BlueRadios litigation.