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

Uni-Pixel, Inc. (NASDAQ:UNXL)

Q2 2014 Earnings Conference Call

August 7, 2014 4:30 PM ET

Executives

Jeff Hawthorne – President and CEO

Jeff Tomz – CFO

Analysts

Mike Malouf – Craig-Hallum Capital Group

Amer Tiwana – CRT Capital

Todor Mitev – Dasaudi Capital

Donald Hutchinson – Safe Harbor Financial Management

Operator

Standby as we are about to go live. Good afternoon everyone, and thank you for participating in today’s conference call to discuss Uni-Pixel’s second quarter ended June 30, 2014. Joining us today is the President and Chief Executive Officer of Uni-Pixel, Jeff Hawthorne, and the company’s Chief Financial Officer Jeff Tomz.

(Operator instructions)

Now, I would like to turn the call over to the President and Chief Executive Officer of Uni-Pixel, Mr. Jeff Hawthorne. Sir, please proceed.

Jeff Hawthorne

Thank you. Thank you. Good afternoon everyone, and thank you for joining us today. On today’s call, we are going to talk about the progress we have made during the second quarter of 2014, and particularly about the progress we have made towards finalizing the high volume manufacturing process for our InTouch Sensors.

In June we announced that we had achieved roll-to-roll pilot production of InTouch Sensors. This represents a major milestone for Uni-Pixel. And it has brought us closer to establishing full commercial production. Having achieved the roll-to-roll pilot production capability, we are now focused on ramping overall product yields. This include utilizing the pilot line to scale up hardware processes and manufacturing procedures as well as establishing the product quality criteria appropriate for volume production.

All of these activities together represent the final stage before commercial production. Before I go further, I would like to turn the call over to our CFO Jeff Tomz, to take us briefly through the financial details of the quarter. Jeff.

Jeff Tomz

Thank you, Jeff. Earlier today, we filled our form 10-Q with the Securities and Exchange Commission as well as released our second quarter financial results in a press release. Both of these are available for download from the investor section of our website.

In the second quarter of 2014, we didn’t generate revenues. We focused most of our resources on manufacturing process development for InTouch. Our SG&A expenses totaled $3.1 million in the second quarter of 2014 as compared to $2.2 million in the same year ago quarter. The increase was primarily due to increase in depreciation expense as well as partially driven by increase of the number of employees. The increase in SG&A was partially offset by decreases in legal expense, stock compensation expense and restricted stock expense attributed to SG&A.

Our research and development expenses totaled $3.0 million in the same quarter – I mean, in the second quarter of 2014 as compared to $2.5 million in the same year ago quarter. The increase was primary due to increase lab expenses related to prototype development of products based on a performance engineered films as well as partially driven by increase in the number of employees involved in research and development.

The increases in research and development expenses were partially offset by decreases in stock compensation expense and restricted stock expense related to R&D. Our net loss in the second quarter was $6.1 million or $0.49 per basic and diluted share as compared to a net loss of $4.7 million or $0.40 per basic and diluted share in the same year ago period.

Cash and cash equivalence totaled $30.4 million at June 30, 2014 as compared to $39.4 million at December 31, 2013. Non-cash items for the second quarter included depreciation expense totaling to $1.5 million, restricted stock expense totaling $0.4 million and stock compensation expense of $0.6 million, we believe our existing capital resources are adequate to finance our operations for the foreseeable future as we continue to make prudent use of those resources.

Now with that, I’d like to turn the call back over to Mr. Jeff Hawthorne. Jeff.

Jeff Hawthorne

Thanks, Jeff. The second quarter was a pivotal quarter for us as we transition from lab based single sensor batched plating process to roll-to-roll pilot production. Our now fully functional roll-to-roll pilot production line is comprised of a plating line at the Texas facility with printing, final testing and packaging at the Kodak facility in Rochester, New York.

We continue to work closely with our manufacturing partner Kodak, to transfer the pilot plating technology from the Texas facility to our full production facility in New York. Our joint engineering and process development on a pilot production line continues to advance.

The roll-to-roll pilot production line has begun to produce appreciable quantities of sensor on a weekly basis to support yield ramp activities and sampling for our development customers. Statistical analysis of these process run have directed the focus of our teams on certain areas that enable them to improve overall process yield that may or making measured progress.

Simultaneous with this process development, we have also been advancing end product development. One key feature of our InTouch technology is its scalability to any form factor large or small, from smart watches up to the largest LCD displays. However, in order to reduce development complexity and accelerate time to market for our first InTouch Sensor powered by Kodak product, Uni-Pixel and Kodak technology work streams have been primarily focused on developing a touch screen for the tablet market, and working closely with a certain tablet manufacturer.

One reason tablets are a primary of focus is because according to display search, the tablet sensor segment is growing at a 9% compounded annual growth rate with the number units shipped expected to reach 448 million annually by 2018. This represents a tremendous opportunity for us to sell into.

In July, we achieved another development milestone by delivering a number of roll-to-roll electronically tested sensor samples to our tablet customer for review. Produced on our pilot production line, these samples have now undergone integration and performance evaluation by our customer. And this has provided valuable integration yield data and positive feedback on sensor performance. We will continue to send sample sensors to this development customer on a regular basis, and we’ll incorporate their feedback as we continue our yield ramp process.

Over the last several weeks, we have also met with and shown samples from our roll-to-roll pilot production line to a number of OEM and touch module suppliers in Asia. They have expressed interest in engaging with the company and all have requested InTouch sample.

Now, while tablets are our current priority, we have started to make further progress on our new product and technology development roadmap for InTouch, which after tablets addresses the larger screen form factor needed in the All-in-One PC market. We have begun to run concurrent development projects to support release of a particular All-in-One touch sensor product and we have engaged in All-in-One PC OEM customer and their touch module integrators in this product development process.

In addition to the steady progress we have made on our InTouch product, we have also advanced the development in applications of our Diamond Guard hard coat driven technology. One key breakthrough during the second quarter was a successful trial to coat Diamond Guard onto PET film at a customer’s pilot production coating facility.

In July, we successfully coated PET film with Diamond Guard at another customer’s pilot production coating facility. Our successful coating trials at two different pilot production coating lines, allows us to move to the next step in the commercialization process which is full scale production PET film coating trial over the next several months.

Last month, we also made advancements in the spray application of Diamond Guard. Our process equipment and recent development programs have significantly improved our spray coated film uniformity and film property performance. We recently completed a spray coating trial of mobile phone cases and computer peripheral component samples for two major OEMs.

The initial results are very positive, in terms of coating uniformity, and visual quality, as well as hardness and abrasion resistance. The samples are now undergoing detailed evaluation with the OEMs.

I would like to thank our employees and our manufacturing partner, Kodak, for their efforts. We have made significant advancements in our product development and I remain encouraged by our progress as we drive to meet our goal of commercializing our products in 2014.

Now with that, I would like to open the call up to questions. Operator?

Question-and-Answer Session

Operator

Thank you so much, sir. (Operator instructions) And our first question comes from Mike Malouf with Craig-Hallum Capital Group.

Mike Malouf – Craig-Hallum Capital Group

Great. Thanks, guys, for taking my question. I’m wondering if you could just give us a little bit of color as we progress from pilot to production. What sort of milestones or hurdles are you looking to overcome? Is there a yield number, a throughput number that you can sort of say what production or commercial production – what are you – can you help us just get from where we’re at to where you’re headed? Thanks.

Jeff Hawthorne

Sure. Thanks for the question, Mike. Yes, I mean we do have a specific goal. The yield number is sort of in the mid-range of the overall yield scale. And from that perspective, we feel that we can certainly engage with our development customers.

In terms of where we’re at, in terms of pilot to full production, we’re just – as I said, we’re going through and evaluating an appreciable number of sensors. I think we’re making yield progress on a weekly basis as we go through and run large sample sets. The statistics lead us to areas that require improvement.

At this stage of the game, I don’t see any major showstoppers. It’s typical things that you would run into in a yield ramp on a pilot line. How to control the pilot line over a period of time, how does the chemistry behave day to day and week to week. As an example, are we picking up any issues or how is the web transport working.

So I think it’s those types of issues that we’re running into right now. I would say from a milestone perspective, we’re pretty much where we would hope to be at this stage of the game.

Mike Malouf – Craig-Hallum Capital Group

Okay, great. Thanks for the color on that. And then if you take a look at the progression that you made and it sounds like you’re on track based on your projections, how long do you think it will take to get to a point where we can start seeing production revenue?

Jeff Hawthorne

Well, as we’ve continued to say, we certainly see this occurring in the second half of the year which we’re well into now. And based on the visibility that we have on the development progress to date, I would say I’m feeling very encouraged by that. So again, it’s probably going to be towards the latter part of the year but I think we’re definitely on the right track.

Mike Malouf – Craig-Hallum Capital Group

So fourth quarter production revenue stays [ph] in your graph?

Jeff Hawthorne

I think it’s in that timeframe, definitely.

Mike Malouf – Craig-Hallum Capital Group

Okay, great. And then I’m wondering if you could give us just a sense of pricing when you take a look at – since you’re so close to production within months, can you talk a little bit about how your products are priced maybe on a square – whether it’s a square inch or a tablet, a seven or nine-inch tablet, I mean just talk a little bit about how you are priced relative to the competition.

Jeff Hawthorne

Yes, I mean we’re seeing a pretty dynamic pricing environment certainly in the tablet and probably more so in the smaller tablet form factor. So there’s a pretty wide range of pricing. And it also I think it’s pretty dependent upon what’s the configuration of the touch module, whether it’s OGS or a film-film solution or DTIO stack up.

But from our perspective, we’re seeing sensor prices – or seeing module pricing in about the $35 square foot. That’s pretty consistent across the board. It’s a little higher as you move into the all in one space.

And then the sensor pricing is anywhere between 30% to 50% of the finished module price. And again, we’re seeing that hold pretty steady against more dynamic and the small tablet size. That fits within our pricing models. We’ve reviewed that recently on a customer trip. And I think we’re in the ballpark on that.

Mike Malouf – Craig-Hallum Capital Group

Great. Thanks a lot for the help.

Jeff Hawthorne

You’re welcome. Thanks.

Operator

(Operator instructions) We’ll take our next question from Amer Tiwana from CRT Capital.

Amer Tiwana – CRT Capital

Hi, guys. I have two questions. One, if you can remind us of how much total capacity do you have at the two locations that you have. And second question is, when you’re thinking about competing in this marketplace, are you – is it purely a price-based sort of competition or is your product differentiated in any way? Can you just talk about that a little bit?

Jeff Hawthorne

Sure. I think it’s been previously discussed that we have four plating lines in the Rochester facility and we have three plating lines in the Texas facility. The volume capacity of those lines are going to be pretty dependent on what’s the product mix that we ultimately produce on these lines.

So at this stage, we really haven’t given specific guidance in terms of what’s the number of units on a monthly or annual basis that these lines can produce. Again, it’s – if we were producing all tablet sized, the number of units would be much higher than if they’re all in one. So there’ll be some mix dependent element to the capacity.

And then also where are we at with our yield ramps. So I think as we move through our ramp process and understand our mix, we can hopefully start to at least give some color in terms of what the capacity will be on a unit basis.

In terms of your second question, price is certainly important but we do feel that the low resistivity of the copper metal mesh in particular will give a very distinct advantage in performance in the all in one space. Touch response times are noticeably different for a metal mesh sensor versus a ITO sensor.

The other thing is that you can go to a much simpler module design in terms of the number of SPC cables and the number of controllers that are required for metal mesh versus all in one – or versus ITO and an all in one. So that’s a yield and a potential cost savings for the module integrator.

I do believe that there is a performance difference as well in the tablet. You won’t really notice it. The end user wouldn’t notice it necessarily from a touch response perspective. But I think that, again, the low resistivity of metal mesh will improve the signal – the noise performance of the sensor relative to an ITO sensor.

And so, again, all the noise rejection algorithms and designs that they have to put into controllers, we feel that they may be able to go to simpler controllers, less expensive controllers even on a tablet size. So that’s something that we’re really, as part of this tablet development and integration, is we’re really trying to establish that performance benefit as well.

Amer Tiwana – CRT Capital

Okay, thank you.

Jeff Hawthorne

You’re welcome.

Operator

(Operator instructions) We’ll pause for another moment. And we’ll take our next question from Todor Mitev with Dasaudi Capital.

Todor Mitev – Dasaudi Capital

Hi. I have three questions actually. The first one is how many sensors, how many tablet sensors do you get from a square foot of film?

Jeff Hawthorne

The film is – we’re running in 14-inch or 17-inch wide Web. And we have some variability in terms of how many sensors we can pattern per area. And we will have –

Todor Mitev – Dasaudi Capital

Well, from the samples – from the samples that you have shipped to the tablet manufacturer, how many sensors did you get per square feet?

Jeff Hawthorne

We haven’t disclosed that. It’s really part of our internal manufacturing model.

Todor Mitev – Dasaudi Capital

So how can we estimate the selling price or the cost of a sensor if we don’t know how many sensors do you get from a square foot of film?

Jeff Hawthorne

Well, there’s a lot of variables that go into the cost to good sold of the sensors, besides just the number of sensors per square foot of film.

Todor Mitev – Dasaudi Capital

I see, okay. The second question is related to this. What is the speed of printing right now and the speed of plating in feet per minute?

Jeff Hawthorne

You know, again, that’s just something that is – we feel it’s confidential. It’s part of our cost to good model that we want to keep as confidential from a competitive perspective.

Todor Mitev – Dasaudi Capital

Right, because in the past, the company used to disclose this numbers, that specifically. But I guess right now you don’t feel comfortable talking about these numbers.

Jeff Hawthorne

Well, again, I think it’s all a matter of perspective. But this is competitive –

Todor Mitev – Dasaudi Capital

No, it’s not a matter of perspective because you’re running the machines right now, right –

Jeff Hawthorne

– and from our perspective it’s – we feel like this is – our cost to good sold and our manufacturing process is a competitive advantage for us. And so, we’ve decided that that’s information that we want to hold confidential.

Todor Mitev – Dasaudi Capital

All right, okay. Final question, how many actual samples you have sent to the tablet manufacturer? And how many of those actually have been assembled into modules?

Jeff Hawthorne

We’ve sent tens of samples to them, and we’ll continue to send larger quantity as we progress through this process. And they’ve been working on assembling all of them into modules.

Todor Mitev – Dasaudi Capital

Right. How can you send tens of samples when one roll contains at least 500 sensors? Are you sending like a partial rolls? I mean, how does it work? Because –

Jeff Hawthorne

You’re breaking up, so I didn’t understand your question.

Todor Mitev – Dasaudi Capital

Okay. Your data sheet states that there are always 500 feet. So how can you send only tens of samples? I mean, you should be sending at least 500 –

Jeff Hawthorne

We’re not shipping them – we’re not shipping them finish rolls. They’re not set up to handle a roll-to-roll integration process on their side. So we singulate the sensors and send them singulated sensors.

Todor Mitev – Dasaudi Capital

Understood. Okay. So – but there is no difference between a pilot product and a natural product from their point of view, right? What are they getting right now should be very similar to what they will be getting once the production, the actual production starts?

Jeff Hawthorne

That’s correct. I mean, that’s the goal of a pilot production line. In concept is that it represents what you would get off of a production line.

Todor Mitev – Dasaudi Capital

Right. Right. And are you going to account for these samples like an inventory or cost to good sold? When are you going to see what’s in the inventory line [ph]?

Jeff Hawthorne

It’s part of the development – right now it’s part of the development cost.

Todor Mitev – Dasaudi Capital

Got it. Okay. Thank you.

Jeff Hawthorne

You’re welcome.

Operator

And we’ll take our next question from Donald Hutchinson with Safe Harbor Financial Management.

Donald Hutchinson – Safe Harbor Financial Management

Can you tell us exactly what you’re expectation and whether there has been any developments relative to the SEC investigation?

Jeff Hawthorne

We continue to cooperate with the SEC on their request. And that’s about as much as I can tell you. They have their own timeline and process that they follow and we’re not purview to that [ph].

Donald Hutchinson – Safe Harbor Financial Management

I mean, has there been recent communication or is it just sort of like a deadline?

Jeff Hawthorne

Again, they come back to us on their timeframe for – when they want additional information or discussions with people.

Donald Hutchinson – Safe Harbor Financial Management

Has there been any actual communications either way in the last couple of months?

Jeff Hawthorne

It’s ongoing and active. And so, I’ll let you draw your own conclusion from that.

Donald Hutchinson – Safe Harbor Financial Management

Okay. Thank you.

Jeff Hawthorne

You’re welcome.

Operator

At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Hawthorne. Mr. Hawthorne, please proceed.

Jeff Hawthorne

Thanks everyone for joining us today. We look forward to speaking to you on our next call or for some of you, we hope to see you at the upcoming gateway conference being held in San Francisco on September 4.

Thank you very much.

Operator

Before we conclude today’s call, I would like to take a moment to read the company’s safe-harbor statement. All statements made by management during this call that are not based on the historical fact are forward-looking statements. Within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

Such forward-looking statements include but are not limited to those made by management regarding anticipated demand of touch sensors and Diamond Guard products and solutions, expectations of yield ramp, outlook for a commercial manufacturing timeline and expectations of commercial volume production of shipment of products. While management has based any forward-looking statements made during the call on its current expectations, the information on such expectations where based may change.

These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties and other factors, many of which are outside of the company’s control. That could cause actual results to materially differ from such statements. Such risks, uncertainties and other factors include but are not necessarily limited to those set forth under item 1A risk factors and the company’s annual report on form 10-K for the year ended December 31, 2013.

They operate in a highly competitive and rapidly changing environment, thus new or unforeseen risks may arise. Accordingly, you should not place any reliance on forward-looking statements as prediction of actual results. The company disclaims any attention to and undertakes no obligation to update or revise any forward-looking statements. You are also urged to carefully review and consider the other various disclosures and the company’s annual report on form 10-K for the year ended December 31, 2013 as well as any other public filings with the SEC since such date.

(Operator instructions)

Thank you, ladies and gentlemen for joining us today for our presentation. 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 Q2 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts