Good morning, everyone, and welcome to the Kopin Corporation First Quarter 2023 Earnings Call. Please note that this event is being recorded. At this time, I'd like to turn the conference call over to Brian Prenoveau, Investor Relations for Kopin. Please go ahead.

Thank you, operator, and good morning, everyone. Before we get started, I'd like to remind everyone that during today's call taking place on Thursday, May 11, 2023. 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. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate and there could be no assurances that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call. In addition, references may be made to certain non-Generally Accepted Accounting Principles or non-GAAP measures for which you should refer to the appropriate disclaimers and reconciliation in the company's SEC filings and press releases. Kopin Corporation's Chief Executive Officer Michael Murray will begin today's call with an overview of Kopin's progress within the company's strategy. Following Michael, Kopin's CFO, Rich Sneider, will review the company's first quarter returns. I would now like to turn the conference call over to Michael Murray. Michael?

Thank you, Brian. Good morning to everyone. And welcome to our first earnings call, which is the first call under the new management organization transformation plan in my first quarter with both hands on the wheel as CEO. It's good practice for anyone less familiar with Kopin to explain who we are, what we do, and who we sell to. After the brief overview, I'll update everyone on some of our strategic initiatives, and discuss the last quarter and some opportunities on the horizon before turning the call over to Rich. Kopin designs and manufactures several different types of microdisplays. Our proprietary AMLCD technology, our broad portfolio of OLED displays, our FO cost displays and our soon to be released micro LED technology. What makes Kopin unique and valued by our customers is our ability to couple of the right display technology and advanced optics, drive electronics, and housings to solve our customer's needs in defense, commercial and consumer applications. Our products are the overlay of critical digital information on the analog world. Everyday the application of optics continues to broaden and new industries are discovering ways to use these technologies. Kopin is at the forefront of optical advancements creating innovative technologies and we've enhanced how people see, hear and communicate. Today Kopin applies much of its expertise as a critical supplier for many of the world's largest defense contractors. But we also look to capitalize on commercial and industrial opportunities wherever and whenever they arise. The global micro display market is estimated to grow at over 20% per year for the next five to seven years. As microdisplay technologies continue to improve more and more industries are finding ways to apply the technology to their end applications and businesses. Beyond aerospace and defense, healthcare, automotive and consumer electronics are…

Thank you, Michael. Turning to our financial results. Product revenues for the first quarter ended April 1, 2023 was 7.7 million, compared with 6.5 million for the first quarter ended March 26, 2022 a 17.6% increase year-over-year. The increase in product revenues was driven by a 1.7 or 35% increase in defense revenues over the prior year, which was partially offset by a $605,000 or 39% decrease industrial revenues over the prior year. funded research and development revenues were 2.9 million for the first quarter of '23 compared with 4.9 million for the first quarter of 2020 to a 41% decline. Included in the funded R&D revenues for the first quarter of 2023 is 400,000 of R&D revenue related to an OLED development program. Any future work on this program will be done by lightning silicon. The decline in funding research development revenue is primarily due to certain defense programs moving into production. Total revenues for Q1 '23 were 10.8 million versus 11.6 million for the prior year, a 7% decline year-over-year. Cost of goods sold for the first quarter of '23 was 6.6 million or 87% of product revenues compared with 7.8 million or 100120% for the first quarter of last year. The decrease in cost of product revenues as a percent of net product revenue, as compared to prior years was primarily due to reduce material costs for warranty issues, as well as the usage of material that was previously written off. R&D expenses in the first quarter of '23 were 2.3 million, compared with 5.4 million during the first quarter of 2022. Funded R&D expense for Q1 '23 was 1.6 million as compared to 3.4 million for Q1 2022. The decrease expense was result of certain programs moving into production. Internal R&D expense for Q1 '23 was…

Our focus continues to be strengthening the order book, achieving higher on time and full cost controls and making the strategic investments in products and people which in the aggregate will improve our cash flow and get us to profitability. Now lastly, and most importantly, we are fortunate to have world leading and market making customers who are supporting Kopin during this transformation. During our quality improvements over the past several quarters additional executive management focus on strategic customer relationships, and additional experienced business development and program managers. We're now being invited into larger design opportunities that will allow Kopin to move up the value chain within our customer's applications, solving more of their technical challenges and increasing Kopin's content and these designs. I'd like to thank you and everyone today for your time, and for showing interest in Kopin. I'd like to thank our employees and stakeholders for their hard work this past quarter and their dedication. With this continued work of our team at Kopin, I think we can achieve great things and grow the business to new heights. And with that operator, we'd like to take a few questions, and we'll turn it over to you.

[Operator Instructions] Our first question comes from Glenn Mattson from Ladenburg Thalmann.

Curious Michael, you talked about, congratulations also on the armored vehicle order that you referenced in the call. And that was announced a couple of weeks ago. You talked about that being a potential $100 million opportunity. Can you just kind of help everyone get around, get their hands around? How you get to that number? And just to get a sense of like, how that would ramp and also what hurdles they'll need to be cleared before that goes into kind of full production?

Sure. Great question. Thanks, Glenn. So that program is a pivotal one for us. First things first, we need to go through the process, which is a quality audit of our design. We feel very confident in that, we're working with our customer in that process today that will last the vast majority of this year. Now, the second part or the first part of your question is how do we get our heads around the volume and the resales? So I have to be a bit careful because some of this is what I would consider controlled unclassified information or even classified but in terms of our content of that design, it's fairly significant. And in terms of the resale of that device that will we're selling into the program is in the tens of thousands of dollars. Because of the level of integration, there are several products that go into each vehicle, and also a training module that also gets sold with each vehicle or each upgrade. So there are several of these products that go into each vehicle. We believe that there's going to be roughly a few 1000 vehicles that get upgraded, as well as new vehicle production. So if you do those math, it breaks out to the period of performance coming in over 100 million in revenue over the course of a five to seven year program. So that's the math behind it. I know I'm being a little bit cautious in my wording, but that's trying to give you the best clarity I can around the program right now.

And next topic is the you talked about the soon to be released micro LED. Can you give us a sense of the timing or some, just some color on that and then also how significant that could be over the medium and long-term?

You bet so we have our lead customers testing it now. We're seeing tremendous technical achievements out of this product. So I would say we'll be announcing the technicals very shortly, I would expect either in this quarter or next, in terms of our performance levels of that product. Outside of our customer, obviously, their program is classified. So we'll be making sure that we work with them, so that they're comfortable with it. Secondly, that program and micro-LED is very sought after, mainly from consumer applications. We're seeing a significant amount of demand pull for new or old designs to be redesigned for either the AR/VR consumer Metaverse and/or medical applications where brightness along with waveguides is required. Even at the best OLED brightness, it's just not bright enough to use what we think is a decent waveguide or light guide. So we're seeing a lot of demand pull for that product line, and micro LED, because of the brightness performance and contrast performance that it operates in. So we have high expectations for that product line in 2024 for new design activity, and certainly, I would say decent revenue and beyond that. So it's a great product for us. We're seeing sustainable and absolutely fantastic performance results out of it currently.

And just the one for me on the model. So the solid gross margin in the quarter, but you still have from what I understand kind of retooling the facility in Massachusetts. So is there, can you give us maybe, I don't know if riches. But a sense of once that facility has been completed and retooled or whatever. Is this level sustainable, should we expect a little better or just kind of some framework around that?

So I'll give you my answer. And then Rich can give you and see if it's the same. I'm very optimistic, I think we know now where the issues are, and how to improve our quality in the fab. And I think the tools that we're receiving very shortly here and we'll implement in the fab are definitely going to help. We've been working with two of our best customers who have actually been tremendous to work with. We've been working with them to make sure that we learn from them. And they help us guide us in developing the next generation technologies in the fab that is going to be able to support it. So Glenn, there's two parts to that question. One is doing better work than we are currently on the products that we have. The second part is doing better, and being able to support the new products that we're bringing in. So that's the second part or the other side of the coin. And I do believe that new equipment that we're installing this quarter is going to pay dividends. So I believe our margin improvements will continue. I think there's another 5 to 10 basis points of improvement that I'm targeting this year and I think that's very achievable.

[Operator Instructions].

Just one other comment to Glenn's question. I think it's important to note, and I don't think I mentioned it is that. In the quarter, we did see some professional fees continue to fall. I think they'll continue to fall in terms of SG&A, as well as some of the runoff on severances that we have in the quarter as well as some of the costs that we were still incurring in Q1 for the spin out of lightning silicon. So I do believe you'll see other costs improvements in Q2 that were not in Q1. There were some residuals in Q1 Glenn. So I would expect to see those washed through and out of Q2.

And a question now comes from Kevin Dede from H.C. Wainwright.

This is actually Michael [indiscernible] calling on behalf of Kevin Dede. And Michael, you kind of touched upon these but can you talk a bit more about emerging market opportunities such as healthcare applications? And how we should think about lightning silicon going forward for 2023?

Sure, it's exciting times. Yeah. To get the question, right. Can you repeat it one more time actually? There was some interference.

No problem. Can you talk a bit more about emerging market opportunities, such as healthcare applications? And also about lightening silicone, and how we should think about these for the remainder of 2023?

Sure. So first part, we're very excited about the demonstration that we provided recently. We're going to have, I think, a customer success story around. It's a firm called HMDmd. We've been working with them for well over a year on developing a surgical apparatus, a visualization, 3D visualization of a surgery. I just received the new mockup of the final product and it's brilliant, it's absolutely spectacular. So we're very excited about that market, the customer is seeing tremendous demand pull for that technology. And it's now emerging out of R&D, and our team down it and this actually was the one that designed it. So kudos to them, they did a fantastic job. And we see a good runway of opportunity. In 2024, it's going to take, you know, solid 9 to 12 months for them to generate revenue but we think the revenue is going to be exciting because again, Kopin doesn't just provide the displays, we provide the entire assembly, including the molded assembly, the optics, the LCDs, and displays as well as the overall assembly. So, instead of selling one display, and a few hundreds of dollars, were selling the entire module to HMDMD for 1000s. So that's the business model moving forward that we're excited about. And it seems to be affirmed in the medical market. And that's just one of our customers that we think will be going to market in 2023 and 2024. So great market, it's emerging, still somewhat nascent because the demand is there, but the products aren't, and we're racing to get those products to market. So that's number one. Number two in terms of lightening silicon, our relationship with the foundries and I mentioned this I think in Q3, my first call with you folks, is that we're…

And this concludes our question-and-answer session. I would like to turn the conference back over to Michael Murray, CEO for any closing remarks.

Thank you very much operator. I think this quarter is and will become a trend. I think we have a great order book moving forward into Q2, which will be sequential for the company. I see that trend continuing for the remainder of the year. We have tremendous customers that are partnering with Kopin and want us to succeed with them. And they're preparing us for future success. We look forward to working with our customers, our stakeholders, our investors and the family that we're building here at Kopin. Thank you very much for attending. I appreciate it and we'll talk to you in Q2. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.