Uni-Pixel's Noteworthy CFO Interview

Summary

• Uni-Pixel’s less than stellar reputation as a company due to the previous leadership is mostly to blame to the current share price.
• The market is only rewarding results and continues to punish potential, which gives shorts an advantage at the moment.
• Uni-Pixel’s CFO defined a formula with just three elements for success when it comes to employment and she believes Uni-Pixel has all three elements for success.
• Uni-Pixel’s Q3 conference call will provide a very important update on the progress of several key initiatives, revenue outlook and possibly a peek into 2016.

Uni-Pixel's (UNXL) less than stellar reputation as a company due to the previous leadership is mostly to blame to the current share price. Additionally, the market is only rewarding results and continues to punish potential, which gives shorts an advantage at the moment.

Uni-Pixel is a speculative Wall Street Forensics pick that can represent 1-2% of your portfolio. Although, I remain upbeat on the long term prospects of the company an uphill battle to deliver cost improvements, new customers and transfer of Uni-Pixel's material science expertise over the next 3-6 months is all that remains to determine the amazing success or possibly the final failure of this well storied company.

If you want to judge the book by the cover (share price) you would assume that Uni-Pixel is dead, but the recent PR activity and CFO interview conducted in June suggest otherwise. The CFO interview was conducted by Samuel Dergel, CFO Search Specialist in late June. At the time of the interview Uni-Pixel's shares were trading around $3.00 versus the current price of around $1.

During the interview Christine Russell, Uni-Pixel's CFO a silicon veteran with over 30 years experience defined a formula with just three elements for success when it comes to employment and she believes Uni-Pixel has all three elements for success.

#1 The company really needs to be serving a large market.

#2 The product needs to be something that's really useful and can be differentiated in the market.

#3 The CEO needs to be a leader - somebody thoughtful, decisive, and with a bias for action.

To me, UniPixel has all of these elements - a multi-billion dollar addressable market in touch screen devices that have both technological and cost advantages and a CEO with a deep background in display and optical and who has run public companies before with great success (DergelCFO).

SD: What are you most excited about in your new role?

Christine Russell: I'm really excited about this being a pivotal time for UniPixel. We just acquired the Atmel touch film technology and the production facility in Colorado Springs. We are combining the best aspects of the UniPixel technology that we worked on with Kodak and the Atmel technology to come up with something that is more than just one plus one. I'm also very excited about the CEO I'm working with. The number of people he knows and who greeted him at a recent information display convention in San Jose was very heartening for me.

I recently visited the newly acquired Colorado Springs facility and the energy level there is amazing. These people are now able to work with a much smaller, more nimble and flexible company rather than being under a small vision of a large company. The energy level there is still like a start-up (DergelCFO).

The Christine Russell full interview provides some color in black and white for investors to digest. Russell is a seasoned veteran with over 30 years of experience and likely could have opted for retirement planning instead of taking a calculated risk working for Uni-Pixel. Her excitement of things to come led her to purchase 10,000 shares of UNXL at $0.94 on August 20th.

Russell also acknowledges that CEO Jeff Hawthorne has tremendous knowledge and contacts in the industry and she witnessed it first hand when Uni-Pixel presented at the Society for Information Display (SID) exhibition held in San Jose June 2-4 2015.

I had an opportunity to meet and talk with Uni-Pixel's CEO Jeff Hawthorne in person back In December 2014 during the analyst day held at the Kodak manufacturing facility. I also spoke with Jeff during the afternoon after Uni-Pixel announced the purchase of Atmel's Xsense sensor business.

I do believe he is the CEO that can finally lead Uni-Pixel to the promised land (revenue ramp, new customers and eventual profitability). However, nothing is certain and Uni-Pixel's Q3 conference call will provide a very important update on the progress of several key initiatives, revenue outlook and possibly a peek into 2016.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I am/we are long UNXL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[bkanwar2]

Matt you have any idea how long usually it takes. as industry standard, for company to get decision from potential buyers after company has submitted a request for quote?

[Matt Margolis]

8116571 - Great question. My experience lends me to believe that very large customers will make decisions 4-5 months in advance of the product launch. As for UniPixel I would expect a decision to be made 6-8 weeks in advance of a product launch since we are dealing with less than 1m units per order.

I'm not surprised that we haven't heard a PR regarding any of the recent bids submitted by UNXL. Certainly as we head into November-December it would make more sense given the hints of late Q4/Early 2016 for revenue related to the combined sensor technology.

~Matt

~Matt

[rogerxavier]

"Ultimately, there is no news and only speculation"
Matt,
That is precisely my point.
Rather than leading with "There are only 2 reasons IMO" wouldn't an objective analyst speculate on more probabilities than just those which support a long bias?

[rogerxavier]

On Friday's PPsS spike.
Why is it that there can't be a third reason other than technical breakout or positive information leak?
Maybe a negative information leak with large shareholders pumping up the share price in order to be able to sell at less of a loss prior to a disastrous 3Q report?

Wouldn't an evenly balanced analyst want to consider all of the available facets of a company's share performance or lack thereof?

[Matt Margolis]

rogerxavier - If you want to throw out your reason why shares popped then go for it. Ultimately, there is no news and only speculation at this point.

Hudson Bay did not accelerate the payment of the convertible note in October, which they did in August and September. Perhaps Hudson Bay is done shorting?

~Matt

[jessenreed]

Where did the huge spike in price come from today

[Matt Margolis]

jessenreed - Great question

There are only 2 reasons IMO

#1 A leak of information within the marketplace that Uni-Pixel has landed a new customer

or

#2 Technical breakout above key levels (1.55 & 1.65) that led to a panic covering from shorts. The stock hasn't seen 1.65 since July 30th.

If the share price can remain where it is it will help considerably as an anti-dilutive action, which will support the price level as a gift that keeps giving.

The next few weeks will be interesting and I'll be watching the volume, price action and news.

[Matt Margolis]

BILLYJIMBOB1 - UniPixel is a "speculative" investment with no more than 1-2% at this point. Certainly home run potential from here but a lot of roadblocks that need to be removed prior.

~Matt

[BILLYJIMBOB1]

Matt,

Hate to be negative I followed you off the cliff with GTAT, This company shares so many hallmarks with GTAT (potential) , Maybe there is a chance but I would rank it less than 5% chance of success.
Good Luck but if you are sizing this I would do it at a 1/10 of 1% position so that you are not harmed. I hope for stockholders that I am wrong but I can't buy enthusiasm on a company without a some history of success.

[tizod]

Matt
Sorry to say I don't get your support for this company. There is no reason for it. You call this "early stage"? How many years is early stage? All of this has 10 years of history. Crummy history. The technology (which R.Roe addresses and he is spot on) is an issue. This is not just business management issues....the managers have had to dance as the product doesn't work. Same for Atmel's product: it HAD a small market but is headed to obsolescence. You talk of cost reductions, but your comments have no basis - just because something comes in house does not make it cheaper (outsourcing is done by many manufacturers as a COST REDUCTION).

Kodak went bankrupt. Kodak was a heck of a lot better off than UNXL. I'm at a loss for your support - you don't believe they bit off more than they can chew? What's that mean??? Give me any indication that says they have a plan to address any issue. It still the most vaporware biz I can think of. Plug Power is better than this.

[Matt Margolis]

tizod - Kodak ignored the market and focused on a product and technology that nobody wanted and sold off every profitable outfit they had until they finally declared bankruptcy.

I am largely ignoring the past with Killion and the rest and focusing on new management in place and now a manufacturing operation that is mature and can make products for customers. The line at the Kodak facility couldn't get off the ground and even if they did the split margin arrangement with Kodak would have prevented Uni-Pixel from being profitable no matter what they did.

The new operations in Colorado Springs gives them a chance to be successful Instead of fighting for their lives to tweak a production line to get yields into the mid 80s they are now running a mature line with Tier 1 customers.

The possible turnaround story is interesting to me and the revenue and customer base needed to make them successful is not far off. The real concerns I have is on margin improvements and expanding existing customer relationships and landing a new customer or two.

~Matt

[Matt Margolis]

Richard X Roe - Early stage companies produce products at a loss until critical mass is reached. Not surprising since the plant utilization has been extremely low resulting in negative gross margins. Uni-Pixel will need to reduce input costs and improve utilization to move margins into positive territory.

~Matt

[goodybob]

Thank you very much Matt for the REAL outlook & story on UNXL and TOUCHing its' great potential (while being conservative at that)! Good job. With the new Asian office & hiring the best man for the job, & and a fitting CFO, my optimism is enhanced after the hurdles they have overcome.

The relentless short/attackers have much to worry about.

Time & hard work will tell all.

[Matt Margolis]

goodybob - Thanks -

The company has everything going against it including shorts and the company's very own DNA as a habitual failure.

That being said the plant in Colorado Springs has no historical or prior UNXL DNA in it nor does the COO running the facility. UNXL now has a product, manufacturing line and product yield that can be sold to new customers and expand on existing customer product offerings.

It's really comes down to do you trust the current team in place or not?

Did they bite off more than they can chew? I don't believe they did.

Is it a slam dunk that the company will succeed? Definitely, not but odds are closer to 50/50 than 90% failure/10% success being priced into the market.

~Matt

[Richard X Roe]

Matt Margolis: Well, Colorado Springs started selling commercially in 2013 under the leadership of the current COO, at negative gross margins that have worsened each and every year. Which DNA is better - no sales or sales at negative gross margins?

[tizod]

Matt...we will see. This has been hashed out many times. UNXL had nothing after years of work. UNXL cannot scale what they had...it's dead. They bought a declining production business with no future that got spun off. If UNXL can figure out how to grow it, R&D it and develop a new opportunity, great. I bank that they cannot because the technology they bought into is in obsolescence. Atmel has some existing older clients that will stay for awhile, but that cannot support UNXL + Atmel without major cuts. I bet the UNXL people will not be let go. Atmel could not support Atmel as Atmel, and now Atmel has more people, more overhead, YoY declining revenue. Please tell me one thing that adds up. UNXL bought this out of desperation because after 15 years of no product they had to do something.
Anyway...it's not worth hashing out again. Good Luck.

[Matt Margolis]

tizod - Atmel approached Uni-Pixel to keep this project alive. Atmel had specific corporate targets that needed to be met and this "pet project" from the CEO was not a fit for the product portfolio. The technology they bought is one that can offer a differentiated product versus alternatives. I don't expect mass adoption but Intel, Dell and HP adopt new techs to help sell products.

The major cut that should be happening is within R&D staff between Atmel and Uni-Pixel staff.

I would say at the end of the day Uni-Pixel bought Atmel assets because it gave them a significantly higher chance of being successful in the long run versus sticking with Kodak. Atmel was in a similar boat with CIT and the divorce for both companies Atmel and Uni-Pixel from their partners was the best option.

Uni-Pixel is attempting to build a superior product with reduced costs by combining their ability to produce the catalytic film (versus Atmel buying at CIT significantly above in-house cost). Additionally, Uni-Pixel believes their material science know-how can increase production capacity by 10 fold within the existing facility without additional capital expenditures when its all said and done.

~Matt

[Richard X Roe]

Matt Margolis: Your story about how UniPixel came to acquire Atmel's written-off assets is very amusing. Say, what were XSense gross margins when UniPixel made the acquisition?

For the catalytic film, isn't UniPixel "planning" to use the exact same Emerson & Renwick reverse gravure coating machine used by CIT and already installed at Atmel's premises in 2013 (but never put into operation, because it would have significantly worsened Atmel's already very negative gross margins)?

As far as UniPixel's material science "know-how" is concerned, UniPixel's level of understanding of material science is below that of a high-school student. Are you aware that, according to a recent UniPixel press release, ITO is a chemical element? I can't find such a chemical element in the periodic table. Can you?

As far as the capacity is concerned, Atmel/CIT's touch sensor capacity was already targeted to $100 million in revenues in late 2013, according to public statements. No need for any new know-how, I guess.

[Matt Margolis]

Richard X Roe - Capacity is 5m units and could jump to 50m units annually with the changes made to the line by Uni-Pixel.

I can't speak to what machine Uni-Pixel will be using to produce the catalytic film, but I can tell you Atmel was very much held "negative margin hostage" by their supply agreement with CIT.

You can't argue against the fact that UNXL would be able to produce the film in house cheaper even if they used the same machine then it would be to buy it from CIT and may a markup?

~Matt

[tizod]

Matt you have got to be kidding me. UNXL has nothing the market needs or has needed. You can say the old managers were bad. But they were bad because the market and product did not perform. That has not changed with new managers. UNXL has NOTHING that the market demands, and they have NOTHING in the way of PROVEN innovative technology. Your argument of only needing a small % of the pie has been going on since they first pitched me a mgmt investment thesis back in 2006!
She purchased 10K in stock...what is that as a % of her pay and possible bonuses...nothing significant. It's embarrassing. How about the CEO and other insiders...are they buying loads of stock? The old options are worthless...

[Matt Margolis]

tizod - The past issue that impacted the business was the inability to scale production and get it off the ground. Uni-Pixel is running a mature high yield production environment now. It's a lot easier to sell something that you can produce in yield versus a product that can't make it out of the R&D lab and be replicated in the production line.

Someone is buying close to $10m of product from them in 2015...must be someone wants it?

Interested parties were also disappointed that Atmel was closing up shop before Uni-Pixel bought the assets...must be someone wants it?

~Matt

[BILLYJIMBOB1]

Matt,
Re: manager/ CEO it is great that they now have an executive with a vision. I look at this company and do not know why it exists. What does it sell and to who. It is a company in search of a reason to exist. For Me It appears to be nearing an end.
I agree with other Roger Xavier that in 6 months it should be over for this product less enterprise.
Formerly long

[Matt Margolis]

BILLYJIMBOB1 -

They sell to 2 customers including a Tier-1 OEM based in the US.

~Matt

[Aristides Capital]

you meant to say "peek" into 2016. the "peak" already happened.

[Just Myself]

Has technology passed UNXL by now that we are seeing 'force' touch controls?

While it is good to see the CFO buy, a <$10,000 purchase is not much of a risk........unless she also holds many more shares and there is much more insider buying.

But, it does seem the technology is moving on and UNXL is stuck with few customers. Besides the 'force' touch controls, you are seeing integration of various IC's now with display drivers being integrated with touch controllers.

I'll have to look a bit more closely here.......but I used to follow UNXL and just don't see how their technology is that relevant today although I don't know what they got from Atmel.

Finally, it seems that companies need a Chinese partner these days to get much Chinese business. Does UNXL have one?

[Matt Margolis]

haschultz - The UNXL tech is flexible and this is a direction that more and more devices should be headed towards. The performance is better than existing options. Again they don't need a large % of the pie and only a few % point share to move the needle the grow the business. If UNXL can build a relationship with just 3 to 5 customers it would be enough to grow the business and scale production into 2016.

I'm not aware of a Chinese partner.

~Matt

[rogerxavier]

"#1 The company really needs to be serving a large market.

#2 The product needs to be something that's really useful and can be differentiated in the market.

#3 The CEO needs to be a leader - somebody thoughtful, decisive, and with a bias for action."

#1 'Serving' as opposed to being in "a large market". UnXL is NOT serving any portion of the touch screen market. How can they be said to be impacted or have an impact on a market when they have no customers in that market?

#2 The yet to be produced XTouch has NO use at this time nor apparently in the future and does not stand out in any meaningful way (other than being produced at negative margins) when compared to its competition.

#3 The most thoughtful and decisive action the CEO has taken is to reduce his commute by moving the company to a higher tax less business friendly state in order to reduce his commute. The other decisive decision, helping Atmel off load their losing division was probably not given as much thought as how the move to California would allow the CEO to conduct his personal life away from Backwater, Texas.

UnXL has failed to meet any of its own CFO's metrics for a successful business.

The one positive in your recent offering is that you are coming to grips with the high probability of total UnXL failure within the next six months.

[goodybob]

Not all of that is correct "Mr. Xavier" as you must agree, & with blockage of reality. As per PR's/CC's, it appears that UNXL has met their objective to provide a lower priced & much better product/bezel/plus, with Diamond Guard enhancing the handling process & more - achieving the results that they intended in their well thought out opportunity acquisition of the ATML Co. Springs division,
& then some.
Let's see if they get the ink with payments before cash flow is a concern.