Research: A Few Names, Kopin Industries

by Lsigurd on November 6, 2020

So. Many. Earnings reports. This is the week of the quarter where it is a little overwhelming to go through all of the earnings reports hitting my email. I think it is worse this year because of the election – all the companies that would have normally released results Tuesday delayed it a couple of days to Thursday, so yesterday morning and evening was a deluge.

I don’t have time to take notes on all of them. Read it, decide if there is anything actionable, go onto the next. I will go back to the one’s that warrant another look later.

Three names have caught my attention so far though. Two new names and one old one.

The old one is one I mentioned back in August, Apollo Healthcare and Beauty, which released results this morning. 38c EPS for the quarter, $31 million of EBITDA in the quarter and they generated roughly $35 million of free cash flow. They have a $260 million market cap. Nuff said.

First new one is Dixie Group. So first of all, this is a bit of a shitty company. I’ve followed it for a long time and they always seem to blow it, one way or another. They appear to have decent products (they sell flooring) but they can never put together a decent string of quarters.

But this last quarter, actually last two, are interesting enough to at least get me looking.

The top line is still down (which is not good as I am reminded of Scott Fearon (who wrote Dead Companies Walking) axoim, which was simply – short companies with declining revenue.

But that is largely COVID, and meanwhile their costs are down and gross margins are up. They generated free cash for two quarters and the stock has a market cap of $15 million or so.

Second new one. I added notes below. The company is Kopin Corp. They have kind of a blighted past as well, lots of years where revenue has bounced around from $20 to $30 million and the company has lost copious amounts of money.

But, they make microdisplays. So displays that you would put near your eye. Their traditional market is into military and first responder applications (thermal weapon sights, fighter pilot helmets, firefighter thermal camera masks) and I think that is why the stock is a bit weak (all these military related stocks, or even if they are perceived as being military related, seem to have taken a hit with Biden getting the vote). But the new vertical that is just developing is virtual and augmented reality.

Anyway, Kopin grew revenue yoy by 55% in Q3, which seems quite good but it was off of a weak comp. Most of the quarter was because of military.

So that wouldn’t have me particularly excited. The bigger news for me is that they are finally seeing the AR/VR market get some traction. They said “we are also very excited to see growth coming from our enterprise customers who have incorporated our displays and modules into their AR products.” and “Our view of the market is that the long-awaited adoption AR/VR system is finally beginning to come.”

This stock reminds me a bit of Vicor. A new tech that takes time to get traction with a payoff on the horizon. But I need to dig more.

Here are the notes on Kopin so far:

initiated by HC Wainwright Aug 25
market cap of $130mm
$15mm of cash, no debt
been around 30 years
had success bringing tech solutions to market, developing profitable tech
provide reflective displays, microdisplays

Microdisplays

these a small form factor displays used at near-eye placement
three microdisplay technologies:
- transmissive – they call them their CyberDisplay products
- reflective
- emissive
at a high level the two more mature technologies are AMLCD and LCOS, the OLED is newer, and is just being designed into products
they “believe some customers will want to switch from AMCLDs to OLED microdisplays in the next two to three years”
so their development focus is: AMLCD display subassemblies for military applications and OLED display components for military, industrial and consumer applications
miniature transmissive active-matrix liquid crystal displays – AMLCDs
AMLCDs are either transmissive or reflective
AMLCDs go into thermal weapon sights, fighter pilot helmets, firefighter themal camera masks, augmented reality, virtual reaity consumer products
they have 428 x 240 resolution to 2048 x 2048 resolution
reflective liquid crystal on silicon – LCOSs
LCOS are used in 3D optical inspection
these are reflective displays
LCOS have 1280 x 720 pixels (“720P”) resolution to 2K x 2K resolution
AMLCDs and LCOSs are time domain imaging
organic light emitting diode – OLED
OLED are Lightning displays
OLEDs are emissive displays
OLEDs emit light when there is current flowing thru, whereas AMLCD requires separate light source – this is probably emissive vs. the other types
OLED light is evenly distributed across fwd direction, so better for wide angles, and has higher contrast than AMLCDs
they seem to be focused on OLEDs – they say they think they can bring down costs by breaking up manufacturing into 3 parts, I think focusing on design and not manufacturing
their proprietary tech is in the backplane circuit design – so they will do that piece, outsource the backplane manufacturing and the layering of the OLED on the backplane wafer
OLEDs have 1280 x 720 (“720p”), 2048 x 2048 (“2K”) and 2560 x 2560 (“2.6K”) resolution
currently KOPN has two OLED microdisplays on the market:
- a 2k display with 2048 x 2048 resolution in a 0.99” diagonal size aimed at VR/MR
- 720p display with 1280 x 720 resolution in a 0.49” diagonal size, which is aimed at AR applications
they also have a 2.6K display that is in demo/prototype
say OLEDs are used in “Customer development programs” whatever that means – they are superior for some AR and VR applications
their transmissive products – they explain this proprietary manufacturing process they have for creating the transparent circuit on the transparent substrate
ASICs – these are ASICS to interface with the displays they make
backlights, optical lenses
they design all components, manufacture all the displays, outsource the ASIC and backlighting
they sell the displays standalone or in a module with an optical lens, backlight, pastic/metal housing and other add-ons
have a subsidiary called NVIS that sell to military – head mounted and hand held military equipment that is used for training – also may be used for some industrial applications, not sure
most common application is military – thermal scopes, rifle sights, aircraft headgear, missile targeting, replacement CRTs
this is an industry where military leads tech – subsidizes development that is eventually used in commercial applications
expect more commercial applications over coming years
commercial applications are: ophthalmic surgery, semiconductor inspection (3D metrology), visual
- enhancement in firefighter breathing apparatus helmets
they design and manufacture the visual systems into modules that can be integrated into various products
products encompass a bunch of different display technologies: AMLCD, LCOS, OLED)
have wins with companies like: 3M Scott, Solos, Vuzix, and RealWear
they recently reduced investment in new system design other than the NVIS sub
focusing on just selling the display components, particularly the OLED

Market

micro display market currently $700mm
expected to grow 20-24% CAGR
they are targeting emerging market called “wearables”
describe wearables as three markets:
body-worn devices such as sensors, scanners and terminals which are sold to the military to improve soldier effectiveness
industrial markets to improve worker productivity
consumer market to monitor health and fitness metrics such as heart rate, speed and temperature.
smartphone makers looking to create products that complement/replace smartphone

Customers

a big chunk comes from military:

I think the funded R&D is generally military as well

Solos Spinoff

happened Sept 30/19
sold and licensed Solos product line and Whisper Audio technology to Solos Technology
received 20% equity in Solos as a result
it’s a related party transaction, their CEO owns 15.5% of Solos and two other family members hold 37% interest in Solos
sold off the product lines to focus on the display products
it looks like Solos makes glasses that have builtin speakers, also tie-in to a mobile app called AirGo
so Whisper is the sound tech that goes into the glasses – including noise cancelling algorithm

Competition

general commercial display market: dominated by Asian companies: AUO, BOE Technology, Himax, Samsung, Sharp, Seiko, Sony
their competitiveness against these guys depends on consumers wearing near-eye displays
also compete against cell phone displays from Samsung and Oculus – these are lower res, greater image latency, but lower cost
also are other AMLCD, LCOS, and OLED techs: include plasma, LEDs, virtual retinal displays

Investments

they own 20% equity in Solos Inc
they had equity in RealWear but wrote that down to 0 in Q419 – this isn’t good b/c RealWear was 20% of revenue in 2019
have 153 employees
they depend on their sales to military: F-35 Strike Fighter, FWS and other U.S. military programs
are in qualification for Family Weapon Sight program – which is next gen procurement program from military

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