Kopin Corporation (KOPN) Earnings

Management highlights

### Micro-LED Program (U.S. Army IBAS Initiative) - Achieved three major Q2 2026 milestones, keeping on track for mid-2027 domestic production: single-panel full-color brightness exceeded program threshold targets, successful early integration into U.S. Army ground soldier vision applications, and delivery of custom manufacturing equipment (including new micro-LED bonding tools) currently being installed at the company's Westboro headquarters. - IBAS program progress has met and exceeded Army milestones, positioning Copen for future programs of record including Soldier-Borne Mission Command (SBMC), which could generate hundreds of millions of dollars in revenue over the program's life. - All development and manufacturing is U.S.-based, a durable competitive advantage given government requirements for trusted domestic critical components, and strong international demand exists for color micro-LED across additional defense applications. - Copen's micro-LED manufacturing experience (with 16 million individual LEDs in production half-inch displays) solves three key industry pain points for AI infrastructure applications: high yield manufacturing, minimal crosstalk/interference via patented optical solutions, and proven long-term reliability in harsh operating environments. ### Sentinel FPV Drone Program - Converted market entry into multiple new prototype orders from participants in the U.S. Department of Defense Drone Dominance Program (DDP) Gauntlet 2 one-way attack drone initiative. - Sentinel's key differentiator is dual situational awareness: it delivers low-latency drone imagery while preserving the operator's peripheral vision of their surroundings, a critical safety and operational advantage for battlefield use lacking in consumer-derived competing FPV goggles. - DDP volume orders are expected to begin in late Q4 2026 immediately following Phase II evaluations and awards, with the potential to require tens of thousands of units. Copen is currently negotiating large 2027 production orders and preparing U.S. production capacity to meet demand. ### Neural IO for AI Infrastructure - Announced a new optics and photonics design center in Dallas, Texas, opening by the end of 2026 to position Copen within the U.S. optical data communication and high-performance computing ecosystem, accelerating Neural IO R&D and manufacturing. - The $15 million initial development program with Fabric AI is on track to deliver a demonstrable 1.6 terabit per second transceiver chiplet by the end of 2026, with a public demonstration planned for CES 2027 in January. - Copen has signed multiple new non-disclosure agreements, including with current NVIDIA NVLink partners, and is seeing early interest from quantum computing and semiconductor manufacturers, as well as U.S. defense agencies seeking bespoke domestic-produced Neural IO chipsets. Over 200 downloads of the company's first AI interconnect white paper have been recorded to date. ### Core Business & Operational Highlights - Core defense business remains active: over $45 million in orders have been received year-to-date 2026, most programs have congressional funding through 2030, and many are sole-source or IDIQ contracts providing upside flexibility and recurring sustainable growth. - Marked the fourth consecutive quarter of exemplary on-time delivery and quality performance. Both phases of the optical automation program are on track to deliver $1 million in annual operating expense savings while increasing production capacity. - The in-house OLED deposition line is on track to come online in early 2027, supported by a $10 million capital investment, and has already attracted incremental new international customer orders on top of FPV drone program requirements. - Copen maintained a strong balance sheet, with $24.3 million in cash and cash equivalents and $50.3 million in total cash, restricted cash, and marketable securities as of June 2026.

Guidance

- Management expects full year 2026 revenue to exceed prior guidance of $52-60 million, with a stronger-than-anticipated second half of 2026. - Copen reaffirms that it expects to achieve GAAP profitability and positive free cash flow in Q4 2026. - Management is increasingly optimistic about the 2027 revenue trajectory, with growth trends from 2026 expected to continue into next year. Management identifies substantial revenue growth potential in 2027, with $100 million in annual revenue within sight for 2028. - Sentinel FPV is expected to generate tens of millions of dollars in new 2027 revenue, with upside potential to double that figure depending on DDP award outcomes. - The IBAS color micro-LED program is expected to generate awards and low-rate initial production revenue in 2027, with full-scale production slated for 2028. - Neural IO is expected to generate development and R&D order revenue in 2027, with production revenue not expected until 2028 at the earliest. Management is evaluating accelerating monolithic IC development based on stronger-than-expected customer demand.

Segment performance

For Q2 2026 ended June 27, 2026, Copen reported total revenue of $12.7 million, a 51% year-over-year increase from $8.5 million in Q2 2025. Product revenue reached $7.6 million, a slight increase from $7.5 million in the year-ago period, accounting for 60% of total Q2 2026 revenue. Higher defense product revenue from thermal weapon sight applications and liquid crystal displays was largely offset by lower revenue from industrial applications. Non-product revenue hit $5.1 million in Q2 2026, up from $1 million in Q2 2025, accounting for 40% of total Q2 2026 revenue. The increase was driven by grant revenue from the U.S. government IBAS micro-LED award, collaboration revenue from the Fabric AI Neural IO development program, and higher R&D revenue from the U.S. Army Phase II OptiVisor heads-up display program. Cost of product revenue was $6.6 million (86% of product revenue) in Q2 2026, down from $7.1 million (94% of product revenue) in Q2 2025, with the improvement driven by favorable product mix. R&D expenses were $4.5 million, up from $1.9 million year-over-year, due to higher funded R&D costs for the IBAS program. Selling, general and administrative expenses were $5.1 million, a slight increase from $4.9 million year-over-year. Operating loss narrowed to $3.5 million from $5.5 million in Q2 2025, and net income attributable to common stockholders was $0.9 million, compared to a net loss of $5.2 million in Q2 2025.

Risks & headwinds

- There is a legacy Blue Radio litigation appeal outstanding, with no further updates on the federal appeal expected until mid-2027. $24.2 million in restricted cash is currently collateralizing the appeal bond. - Revenue from Sentinel FPV in 2027 is dependent on which DDP participants win program awards, as Copen supplies multiple competing participants, creating volume uncertainty. - Additional micro-LED production capacity expansion for AI infrastructure will not be decided until mid-2027, as the company waits for clearer yield data and confirmed customer demand signals, creating near-term capacity constraints. - Forward-looking results are subject to general risks including product demand fluctuations, subsidiary operating results, and general market conditions that could cause actual outcomes to differ materially from management projections.

Analyst Q&A

• Q: What remaining 2026 catalysts should investors expect for the IBAS micro-LED program, and is follow-on capacity funding still on track? /

  A: Copen has three remaining milestones to complete in Q4 2026, which will position the company to provide customer samples in 2027. Management confirms there are active discussions for additional IBAS funding for new micro-LED applications beyond existing soldier vision programs, though it is too early to confirm new awards. The Army has expressed satisfaction with current progress, putting Copen in a strong position for future funding.

• Q: What capital investments are needed to scale Sentinel FPV production, and when will volume order visibility be clear? /

  A: The primary required investment was the $10 million OLED deposition tool purchased in 2026, with payments spread across multiple quarters, and all other manufacturing needs are covered by existing capacity. Copen expects to have a clear Sentinel FPV order book for 2027 by the end of Q4 2026, immediately following the conclusion of the DDP Gauntlet 2 evaluations.

• Q: How does Copen segment the TAM for Neural IO micro-LED components, and what is Copen's competitive position? /

  A: Management splits the market into three segments: near-package optics transceivers, co-packaged optics for semiconductor integration, and third-party micro-LED foundry manufacturing services. Copen's key competitive advantage is its strength in the transmit side of micro-LED transceivers, an area where the industry has had limited investment and faces major technical challenges, while most customers already have mature receiver technology. The U.S. TAM for this market is estimated at $63 billion by 2035.

• Q: How will in-house OLED deposition impact Copen's profitability when it comes online in 2027? /

  A: Bringing OLED deposition in-house will eliminate third-party margin costs that Copen currently pays for European-sourced OLED panels. Management expects at least a 15 percentage point improvement in gross margin from this change, and notes that this is a conservative lower bound estimate. The installed OLED line has sufficient capacity for 2027 and 2028 demand, and can be expanded incrementally at low additional cost by adding new processing nodes to increase throughput.