Since Michael Murray took over as CEO at Kopin Corp. (Nasdaq: Copen) In the past year, the company’s operational efficiency has witnessed an enhancement, thanks to his visionary leadership and dedication to the company’s restructuring, which included the announcement A complete overhaul of the company’s OLED production unit. Michael Murray’s focus on strong customer relationships and timely product delivery is making a real impact, resulting in increased orders from customers.
Kopin has been providing components and solutions for wearable products for the military, enterprise, industrial, medical and consumer markets since 1990. The company’s product line includes AMLCD, FLCOS, OLED and Micro LED displays, as well as optical modules. And low-power ASICs. Kopin’s current focus is on developing innovative display technologies, such as NeuralDisplay, AI-powered firmware and software solutions for augmented and virtual displays. Realistic wearables (AR/VR). Neural rendering is a major advance in AR/VR. NeuralDisplay is designed to integrate sensors (using Advanced Sensor fusion) that can detect and respond to the user’s environment and physiological responses in real time. Through the use of artificial intelligence, NeuralDisplay can dynamically adjust display settings, such as brightness and contrast, to suit users’ needs and immediate reactions, potentially reducing common discomforts associated with AR/VR use, such as eye strain and motion sickness.
Incorporating “neural” capabilities into AR/VR displays is in line with Kopin’s strategic vision to create advanced human-centric display solutions. NeuralDisplay’s ability to adapt to the user and not the other way around is a key differentiator that can address some of the barriers to widespread adoption of AR. By focusing on such user-adapted technologies, Kopin puts itself in a position to meet the evolving requirements of both defense and consumer markets, as the need for advanced AR/VR solutions grows and the market size expands.
Immersive technologies such as AR/VR are gaining popularity in the aerospace and defense sectors. The growing demand for AR/VR in this sector is mainly due to the adoption of simulation training for military personnel, as this offers lower operational cost compared to traditional training environments, among other advantages. The global virtual reality market size in aerospace and defense is expected to reach $5.84 billion by 2026, growing at a CAGR of 37.9% between 2015 and 2026. The North American virtual reality market in aerospace and defense was $136.3 million in 2018.
Kopin has secured major military contracts that underscore the increasing integration of AR/VR technologies into defense applications. In August, the company announced a $12.8 million follow-on order from a Defense Department prime contractor for its augmented reality module called the eyepiece subassembly. This is in addition to a separate $1.9 million follow-on order for the Non-Recurring Engineering Thermal Weapon Sight (NRE) program.
In September, Kopin received an additional $3.4 million order for high-brightness LCD displays for the F-35 Joint Strike Fighter program, with production expected to continue through 2030. Kopin was the preferred supplier for small displays in 2030. F-35 pilot helmets Since its inception.
Kopin also has an ongoing collaboration with the General Dynamics (GD) Combat Systems segment for demonstration systems for the armored vehicle upgrade program. Kopin could generate up to $100 million in revenue over the life of the software.
These follow-up orders, along with ongoing collaboration with GD, demonstrate Kopin’s pivotal contributions to the development of AR/VR applications in the military domain, with the potential to revolutionize training, operations and equipment for defense personnel, and gain significant market share in the process.
Look at the Q3 numbers
Kopin released third-quarter 2023 earnings results last month, beating consensus EPS estimates by $0.02 and revenue by $565.83K.
Kopin Corporation’s third-quarter financials show a mixed set of results. The company’s total revenue for the third quarter of 2023 was $10.6 million, which represents a 10% decrease year over year from the total revenue of $11.7 million recorded in the third quarter of 2022.
Industrial revenue saw a decline of $1.4 million year over year due to weakness in China’s 3D automated testing market; This affected overall revenue. Defense revenues also saw a contraction, falling by $800,000 or 14% year-on-year. The reason for this decrease is due to changes in the pattern of purchase orders submitted by customers in the defense sector.
However, it wasn’t all a downward trend in third-quarter detailed revenue. Research and development revenues jumped 47% to $5.1 million. This increase is related to the large $1.9 million NRE R&D order received for the previously mentioned Thermal Weapons Vision program. This increase in R&D revenue underscores Kopin’s strong innovation streak and the value the market places on its R&D capabilities, particularly in the defense sector.
Cost of goods sold remained relatively flat year over year at approximately 99% of product revenue, indicating a stable production cost structure amid sales volatility. R&D expenses saw a 10% decline year over year to $3.1 million, reflecting the company’s strategic efforts to rationalize operations and focus on high-potential projects. SG&A expenses increased to $4.8 million during the quarter, driven by an increase in legal expenses and non-cash stock compensation expenses, which were partially offset by a decrease in compensation and benefits costs.
Despite the decline in revenue, Kopin saw an improvement in its bottom line. Net loss narrowed to approximately $2.5 million, or -$0.02 per share, compared to a net loss of $6.1 million, or -$0.07 per share, in the third quarter of 2022. This improvement in net loss indicates Cobain’s concerted efforts to streamline operations and control costs. , even as they navigate a dynamic market landscape with ever-changing customer demands and needs.
Cobain’s improved financial health is also evidenced by an increase in cash and marketable securities to approximately $21.7 million at the end of the third quarter, compared to $12.6 million at the end of 2022. Since the beginning of the current fiscal year, Cobain’s cash has decreased and marketable securities have increased by approximately 72%. The current value at the end of Q3 represents an increase of approximately 44% year over year.
Cobain’s growth momentum
Kopin’s third-quarter earnings call highlighted a key metric that indicates the company’s future momentum: its book-to-bill ratio. The book-to-invoice ratio is a measure that compares the quantity of orders received (bookings) to the quantity of products shipped and invoiced (invoices).
In Q3 2023, Kopin reported a strong book-to-bill ratio of about 2:1. This means that Kopin received twice the amount of new orders compared to the revenue generated during the quarter. For every $1 in revenue, Kopin received $2 in new orders. This impressive figure is a testament to the company’s strong demand and also indicates the current rise in demand for Kopin products. The fact that this is the fourth consecutive quarter in which Kopin has achieved a positive book-to-bill ratio adds to the ongoing demand narrative and provides a glimpse into the company’s potential for revenue growth and stability.
A consecutive positive book-to-bill ratio bodes well for Kopin’s future revenue growth. It reflects a company’s ability to attract new business and retain existing customers in a competitive market. It also indicates a healthy backlog of orders, which could lead to more predictable and potentially increased revenue streams. With this momentum in back-to-back new orders and the potential for revenue growth, coupled with an improving operating margin trend, I believe Kopin is headed toward profitability.
The current P/E ratio of 3.46x is slightly above the industry average P/E of 3.00x and lower than Kopin’s historical 5-year P/E ratio of 5.18x, suggesting the stock is trading at a discount to its sales. Historical evaluation. With less long-term debt on its balance sheet compared to its long-term assets, investors looking for a company with less financial risk can consider this a positive sign.
An EV/sales ratio of 2.95x, which is 31% lower than its 5-year historical average EV/sales of 4.76x, indicates that the market is currently valuing Kopin’s revenue stream at a significant discount to the historical average. This may indicate that the stock is undervalued based on this measure, which may provide a more attractive entry point for investors.
He stays away
The new CEO’s focus on customer retention and timely product delivery is great, and I think it’s working well for the company. This is already evident in the number of follow-up orders the company has received this fiscal year, and in the positive book-to-invoice ratio over several quarters. This customer-focused strategy is particularly wise given the inherent difficulties associated with securing new customers in some of the sectors (aerospace and defence) served by Kopin, where barriers to entry are high and the emphasis on reliability and trust is paramount.
As the company continues to execute on these fronts, investors need to monitor how these efforts translate into financial performance and market share expansion.
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