Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Uni-Pixel, Inc. (NASDAQ:UNXL)

Q1 2014 Earnings Conference Call

May 8, 2014 4:30 PM ET

Executives

Jeff Hawthorne – President and Chief Executive Officer

Jeff Tomz – Chief Financial Officer

Analysts

Louis M. Toma – Craig-Hallum Capital Group LLC

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Uni-Pixel Incorporated First Quarter 2014 Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for question. (Operator Instructions)

I would now like to turn the conference over to our host, Jeff Hawthorne. Please go ahead.

Jeff Hawthorne

Thank you, Lurk. Good afternoon, everyone, and thank you for joining us today. As most of you know, I joined Uni-Pixel as President and Chief Executive Officer in mid-April after acting as an operations consultant to the Company for several weeks. Over this time I have learned a great deal about the Company’s process, development activities and the significant market potential of Uni-Pixel’s touch sensors for smartphone, tablets, notebooks and all-in-one PCs. I have been impressed by the Company’s culture of innovation and its drive to succeed.

I believe that the Company has a strong technical foundation for its touch sensor product, one which will allow it to overcome the near-term challenges, but also offers tremendous long-term upside potential for the Company and its stakeholders. I am looking forward to leading the Company through this critical stage of its development.

On today’s call, we will address these challenges and discuss the progress we have made during the first quarter of 2014 towards finalizing a reliable, high volume manufacturing process for our touch screen sensors.

But before I go further, I would like to turn the call over to our CFO, Jeff Tomz, to take us briefly through the financial detail of the quarter. Jeff?

Jeff Tomz

Thank you, Jeff. Earlier today we filed our Form 10-Q with the Securities and Exchange Commission as well released our first quarter financial results and the press release. Both of these are available for download from the Investors section of our website.

In the first quarter of 2014, we did not generate revenues as we focused on development of our touch screen manufacturing process. This compares to revenue of $5.1 million in the first of 2013, which was primarily due to a $5 million payment from our PC OEM licensee.

Our SG&A expenses totaled $2.9 million in the first quarter of 2014 as compared to $2.2 million in the same year-ago quarter. Increase was mostly due to increase in depreciation expense as well as partially driven by increase in the number of employee. The increase in SG&A was partially offset by decreases in legal expenses and decreases in bonus accrual as well as decreases in stock compensation expense and restricted stock expense attributed to SG&A.

Our research and development expenses totaled $3.3 million in the first quarter of 2014 as compared to $1.9 million in the same year ago quarter. Increase was primarily due to increased lab expense related to prototype development of products based on the Company’s performance engineering films. Increase was also partially driven by increase in the number of employees as well as increase in stock compensation expense and restricted stock expense attributed to research and development.

Increase in research and development expense is partially offset by decrease in related bonus accrual. Our net loss in the first quarter was $6.2 million or $0.50 per basic and diluted share. This compares to net income of $0.9 million or $0.07 per share in the same year ago quarter. Cash and cash equivalents totaled $34.4 million at March 31, 2014 as compared to $39.4 million at December 31, 2013.

Non-cash items for the first quarter of 2014 included depreciation expense totaling $1.5 million restricted stock expense totaling $0.1 million and stock compensation expense of $0.7 million. We believe our existing capital resources were adequate to finance our operations for the foreseeable future as we continue to make prudent use of these resources.

Now with that I would like to turn the call back over to Jeff Hawthorne. Jeff?

Jeff Hawthorne

Thank you, Jeff. Overall I’m encouraged by our recent progress, our fundamental technology and our new path toward resolving our remaining process development challenges. This is why I joined the company at this critical juncture.

Based on the past several weeks I have been involved with the Company. I can say we are developing a truly unique product based on complex material science and leading edge flexographic printing and electroless plating technology. Significant effort has been put into resolving substrate ink and plating challenges.

Our development teams have learned a great deal about how substrate and plating chemistry interactions affect optical quality. Our substrate and ink interactions affect adhesion and line width, and how ink and plating interaction affect adhesion.

During the first quarter we made good progress towards overcoming new challenges necessary to complete the manufacturing process for our touch screen technology and particularly as it relates to ink and printing. We have finalized the base catalytic ink and confirmed production scale performance at the Kodak Rochester facility. A state-of-the-art manufacturing and test facility within the Eastman Business Park in Rochester, New York.

A significant focus of our development effort has now turned to the critical process of plating the conductive material on a roll-to-roll basis. Our lab based single center batch plating process that we have used for proof-of-concept sample units and low volume customer orders has been robust and with relatively high yields.

However, the roll-to-roll plating process still requires modifications and adjustments to hardware, geometry and chemistry in order to produce yields at our target production levels. To this end, we have teams pursuing several parallel development paths to improve the roll-to-roll plating process.

Our roll-to-roll electrical test systems are operational and then providing important yield data. We are also reviewing our overall in-process and then final test metrology to ensure we have the proper equipment and procedures in place to measure and correct in-process yield and to ensure overall final product quality. While solving these and other issues have been time consuming and hasn’t resulted in longer than anticipated development time.

We believe the proprietary material science knowledge and the state-of-the-art flexographic printing and electroless plating equipment and processes we are developing further sets us from our competitors and makes our innovative touch screen solution even more attractive to our customers.

Another significant reason for why a baseline manufacturing process has taken longer than initially planned, so because of the additional complexity created by multiple teams developing technology and manufacturing process for a full range of products from amartphones, tablet and notebook to all-in-one per common share. To reduce the complexity and speed our time to market, we have now focused our technical work streams on a development project to produce an initial product with the tablet market. We have also engaged a development customer for this product. The development project is being led by our recently promoted Chief Operating Officer, Rob Rusenko,

I have had the opportunity to work closely with Rob over several week before I was recently appointed President and CEO and I believe his extensive experience with roll-to-roll manufacturing and a deep understanding of our technology will provide the key operational leadership we needed, as we work close with Kodak towards finalizing a reliable, high volume manufacturing process for our touch sensor film.

We have established a new product and technology roadmap that will build upon the initial tablet product development. Our new roadmap for this Company’s touch screen technology will allow us to address the other touch screen market segments and expand our business opportunities.

I have had the opportunity to work closely with the Kodak team, review the Kodak Rochester manufacturing facility and engage with Kodak’s senior management. I am impressed by Kodak’s worldwide commitment in terms of quality and quantity of the resources dedicated to this program.

We have a strong working relationship between the technical team. The manufacturing facility and operations are well established and weighed on a process development activity. We are aligned at the strategic level with Kodak’s senior management and Kodak remains committed to achieving the full potential of this exciting business opportunity.

I have also met with our touch screen ecosystem partner to discuss our progress and new strategy. They are encouraged by our strategy and have expressed their continued desire to work with us pending our successful demonstration of a roll-to-roll manufacturing process.

As we advance these process development activities, we continue to expect our additive roll-to-roll flexible electronics process fully priced and performance competitive due to its lower cost base, especially when compared to traditional photolithographic subtractive ITO base and ITO alternative touch sensor solution.

Touch penetration in the tablet market is 100%, displaying search to research firm, expect this market to grow at a 13% compound annual growth rate from 2013 to 2018. This is exceptional growth and underscores the magnitude of the initial opportunity we are pursuing.

Now to touch on Diamond Guard, our hard coat technology. While our primary focus has been on touch sensors, special characteristics of our Diamond Guard Hard Coat continues to garner much attention from potential customers. As most of you know, Diamond Guard is a low-cost alternative to glass on touch screen devices. It is super hard rated 6h and scratch resistant, making it highly resistant to abrasion and shattering. This film is also very light and flexible with glass equivalent gloss finish.

Our go-to-market strategy for Diamond Guard is to sell it as a liquid resin. This enables customers to use Diamond Guard in their own manufacturing processes and apply Diamond Guard functional hard coat to flat surfaces such as films as well as a variety of other substrates. Selling Diamond Guard as a resin allows us to support many more applications than we could as a Diamond Guard film only supplier. It allows us to reach more customers with Diamond Guard technology and to do so more quickly and easily.

As we said on our last call, we are currently working with several end customer applications that cover a number of different substrates and coating methods in order to validate the Diamond Guard technology and to support the marketing of the resin. We are working through a number of application specific development issues and are making good progress.

We are in the middle of PET film coating trial with two film coaters. We have also coated polycarbonate and PMMA sheet and have these samples under evaluation at major suppliers for each of the respective substrate. We are expecting results during the second quarter that will further advance our 2014 strategy of licensing the application know-how and resin sale to coating companies.

In closing, new product introduction involving complex materials engineering and leading-edge manufacturing technology is challenging. With our new product roadmap and initial product development focus strategy, I am confident that our development team, working closely with Kodak, will overcome in due course the remaining technical hurdles and achieve a reliable, high-volume, roll-to-roll production process for our projected capacitive, multi-touch sensor films.

I understand the level of frustration and concern within the investment community, particularly given the company’s track record of missed commitments. Its focused development program will improve the visibility and predictability of our development milestone.

As we have said earlier we anticipate achieving certain progress milestones in the second quarter of 2014 that will enhance our outlook regarding the exact timing around volume commercial shipments of our touch screens. We plan to report on these and other product activities as they develop.

Now with that, I would like to open the call up to questions? Lou, please provide the appropriate instructions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Mike Malouf with Craig-Hallum Capital Group. Please go ahead.

Louis M. Toma – Craig-Hallum Capital Group LLC

Hi, this is Louis Toma for Mike Malouf. Just, I have a couple of questions, for your roll-to-roll, when you talked about target production levels. Can you give us a little color on what your definition in that is?

Jeff Hawthorne

Yes, we are talking about somewhere between hundreds to thousands of yielded sensors coming off of the line, so that’s what we mean by at least an initial starting volume.

Louis M. Toma – Craig-Hallum Capital Group LLC

And for the single sensor batch bidding process when you say relatively high yields a little bit of color on that, is it 50, 80 range of…

Jeff Hawthorne

Yes, in general you’re never going to report exact numbers. But let’s just put it as its well north of 50%.

Louis M. Toma – Craig-Hallum Capital Group LLC

Okay, that’s helpful, thank you. And then can you give us an update on how pricing looks in the industry as far as competitive, if anything has changed as far as competitive pricing over the last couple of months.

Jeff Hawthorne

No, I mean I think we are all seeing continued price pressure and it’s been very difficult on the ITO base technologies, so we do see that we are tracking the trending, we have that built into our COGS models, but we haven’t seen any major changes to what’s been tracked out there right now?

Louis M. Toma – Craig-Hallum Capital Group LLC

What’s your expectations for industry pricing for this year as far as the price declining?

Jeff Hawthorne

I don’t know what the exact numbers going to be, but it’s just going to be probably what the third-party marketing organizations are reporting.

Louis M. Toma – Craig-Hallum Capital Group LLC

I am not familiar with I don’t have those numbers in front of me, is it 5%, 10%, 20%?

Jeff Hawthorne

I’m not sure what are you looking exact numbers. I don’t have them in front of me either, so we can get that for you, if needed.

Louis M. Toma – Craig-Hallum Capital Group LLC

Okay, right that’s all I had, thank you.

Jeff Hawthorne

You’re welcome.

Operator

Our next question comes from the line of Jon Hickman with Ladenburg. Please go ahead.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

Hey, thanks for taking my call. Could you explain to me, Jeff the change from kind of the all in one focus for 24-inch product to the tablet and are you focusing on 10-inch tablet there?

Jeff Hawthorne

So it’s not – we’ve not given out the specific size at this point. It’s in that smaller range size, Jon. The real focus – there were several factors that went into it in terms of where we are at from a product development standpoint, where do we think the technology we can first apply that most readily, another factor was do we have several candidates lined up for potential development customers. And then just looking at sort of the end market, the tablet market the growth rates were good there and I think there is a wide selection of target development customers. So that’s why initially we are looking at the target applications to begin with.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

So when you say you’ve lined up a development partner, does that mean the potential customer that would buy (indiscernible) ready?

Jeff Hawthorne

Yes, that’s what we mean by that.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

Okay. And then your Ecosystem Partner, is that still in talks?

Jeff Hawthorne

We don’t comment on the Ecosystem Partner.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

I thought that was already on the public domain. Okay, one more question. Could you give us any when you say you have some developmental milestones that you are focused on for the second quarter here that we are in right now?

Jeff Hawthorne

Yes.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

Could you – and you said you’re going to report on those.

Jeff Hawthorne

Correct.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

So we didn’t hear anything that means nothing great happened.

Jeff Hawthorne

John, look, we said we’re going to report on development milestones in the second quarter, so we are.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

Okay.

Jeff Hawthorne

Yes.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

And then there were talks previously or may be being able to go out and see that Kodak facility. Is there any chance that that might happen in future?

Jeff Hawthorne

Yes. We certainly are intending to make that happen. As I said, we have development milestones in place for the project that we are working on and at the appropriate time along those development milestones, we will certainly want to have people come in and look at the Kodak facility. So we’ll give people plenty of lead time in terms of when that event would happen.

Jon R. Hickman – Ladenburg Thalmann & Co., Inc.

Okay. Thank you.

Jeff Hawthorne

You’re welcome.

Operator

(Operator Instructions) Our next question comes from the line of (indiscernible) with Garden State Securities. Please go ahead.

Unidentified Analyst

Yes. Hi, good noon. Can you hear me?

Jeff Hawthorne

We can hear you, yes.

Unidentified Analyst

Oh, great. Okay. I got a question. I was listening to the Kodak call the other day and they mentioned on Kodak relationship with Uni-Pixel and that the second half of this year they are expecting to derive x amount dollars of revenue. So I gather from that possibly you’re going to get ready to ramp up soon, and not to generate revenue from what I understand anyway. I was just wondering can you paint a clearer picture for me.

Jeff Hawthorne

Yes, of course. So I think Kodak is referring to not only Uni-Pixel but another touch sensor technology that they are working on, which is not part of the program that lead out with them. Kodak is aware of our development milestones. I don’t have information regarding their other technology development status, but that’s how they formulated those comments, it’s going to be based on what we are dealing plus what the other technology is dealing.

Unidentified Analyst

Okay, then it’s just a matter of time to really picked the engineering goods that you are experiencing now, and then you will be able to start to produce, is that correct or?

Jeff Hawthorne

As I said in my statements, I think we understand a number of the issues that teams are – they have the right focus now, and so we have the clear development program, with milestones we are working thorough them and I think it’s really – it’s time as I said right now, roll-to-roll plating is probably the biggest constrain.

Unidentified Analyst

I understand. All right, thank you so – very much best wishes and good luck to new position, and one other thing, is that I hope everybody has a wonderful happy mother’s day. Okay take care and thank you.

Jeff Hawthorne

Thanks very much.

Operator

Thank you. Our next question comes from the line of (indiscernible) with New England Securities. Please go ahead.

Unidentified Analyst

Good afternoon.

Jeff Hawthorne

Good afternoon.

Unidentified Analyst

My question really concerns about the SEC investigation that was on ongoing, what is the status of that?

Jeff Hawthorne

We are working fully and cooperating fully with the SEC, but beyond they are moving at their own timeline. We have no visibility into that.

Unidentified Analyst

Thank you.

Jeff Hawthorne

You are welcome.

Operator

(Operator Instructions) Our next question comes from the line of (indiscernible). Please go ahead.

Unidentified Analyst

Hi, maybe three questions; first of all, who is going to assemble the module for the tablet that you are working on?

Jeff Hawthorne

I’m sorry, could you repeat the question?

Unidentified Analyst

Yes, so you are not going to produce the module the touch module, you are only producing the sensor, is this correct?

Jeff Hawthorne

That’s correct.

Unidentified Analyst

So who is going to assemble the sensor into a module?

Jeff Hawthorne

So we were working with – we have worked with a variety of touch sensor module integrators the development customer that we have right now, they have their own integrator that they work with, so that’s who we are working with this the integrator.

Unidentified Analyst

Okay and how confidence you are that you would able to achieve selling prices, let’s say $11 for 7-inch tablets?

Jeff Tomz

Well, we don’t comment on pricing directly, so the $11 you are referring to is probably for the completed sensor module.

Unidentified Analyst

That’s correct.

Jeff Tomz

Yes, so where our component that goes into that we don’t have to pay for the entire building materials.

Unidentified Analyst

Right because the previous management used to say that your cost competitive related to IPO, but it doesn’t suit that way at this point, so I just want to confirmation that you still think that you will be cost competitive?

Jeff Hawthorne

Yes, when you look at the sensor only part of it we are still, we believe we are still very cost competitive.

Unidentified Analyst

Okay, I miss the part of the call, did you provide any guidance for the year in terms of revenue.

Jeff Tomz

No, we did not.

Unidentified Analyst

Okay. And so in the 10-Q I saw a statement about what get on today’s material, what happens if there is material breach of the license agreement with Intel, so can you please explain what the material breach may look like?

Jeff Tomz

This is Jeff Tomz speaking. Can you repeat the question because I don’t think we said anything about material breach with Intel?

Unidentified Analyst

So we’re not the Ecosystem Partner because we disclosed I think 10-K when we filed with them a couple of months ago. But in 10-Q it says that if the company becomes subject to bankruptcy liquidation to commit the material breach of the license agreement certain improvement of the company with an original cost of approximately $10 million will be assigned to the customer.

Jeff Tomz

Correct.

Unidentified Analyst

So what would constitute the material breach of the license agreement?

Jeff Hawthorne

The material breach of license would be now – if we go into liquidation or bankruptcy that’s the only two component

Unidentified Analyst

There is no other basically.

Jeff Tomz

That’s correct. There is no other basically.

Jeff Hawthorne

Bankruptcy or liquidation

Unidentified Analyst

Understood. Okay, that’s all from me. Thank you.

Jeff Hawthorne

Thank you.

Operator

Thank you. (Operator Instructions) There is no further questions in the queue, please proceed.

Jeff Hawthorne

Thank you, operator. I would like to thank the continued support of our staff, partners, and shareholders. We look forward to speaking to you on the next call. Thank you very much.

Operator

Ladies and gentlemen, this concludes the Uni-Pixel Incorporated first quarter 2014 conference call. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Uni-Pixel's (UNXL) CEO Jeff Hawthorne on Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts