Kopin Corp 2026 Q2 Earnings Call

Well, thank you very much, operator, and good afternoon to everyone, and welcome to our second quarter 2026 earnings call. The second quarter and the weeks that followed showed Kopin executing on every one of the priorities we laid out at the beginning of this year. We delivered major technical and manufacturing milestones in our U.S. Army Color MicroLED program. We converted our entry into FPV drone markets into multiple new prototype orders tied to the U.S. government's Drone Dominance Program. We continued to make disciplined strategic investments in our U.S. engineering and manufacturing footprint, including a new optics and photonics design center in Dallas, Texas. Today, I will walk you through three areas. First, the three major milestones in our Color MicroLED program under the IBAS initiative and what they mean for domestic manufacturing of MicroLED displays and MicroLED-based transceivers and co-packaged optics.

Second, the accelerating momentum for Sentinel FPV as the Drone Dominance Program moves toward Gauntlet II awards. Third, our strategic investments, the Dallas Design Center, our continued onshoring of OLED manufacturing, and our Neural I/O roadmap with Fabric.AI, and how they position Kopin for long-term, sustainable, and most importantly, profitable growth. First, let me start with our MicroLED program. In July, we announced three major milestone achievements: our Color MicroLED development program under the U.S. Government Industrial Base Analysis and Sustainment, or IBAS program. These accomplishments represent significant progress towards establishing a fully U.S.-based MicroLED display manufacturing capability that advances towards next-generation soldier vision systems. First, let's discuss some performance. We achieved over 150,000 nits of single-panel full-color brightness, exceeding the program's threshold target. This is the level of brightness required for daytime readable, full-color augmented reality in the field, and it's an early result.

Planned improvements are expected to push this brightness even higher. Second, integration. We made successful early integration progress translating our Color MicroLED technology into U.S. Army ground soldier vision applications. This brings Kopin closer to enabling full soldier-borne systems, such as Soldier Borne Mission Command, or SBMC, where lightweight, high-brightness, full-color MicroLED displays are essential for real-time situational awareness, digital overlays, and mission execution. Third, manufacturing. We received several custom-made tools which we are in the process of installation, like our new MicroLED bonding equipment at our Westborough headquarters. This advanced system enables the precise attachment of the MicroLED array to the digital backplane, an essential step in MicroLED production and a foundational requirement for scaling domestic manufacturing. With these milestones achieved, we expect to transition to manufacturing product in mid-2027, positioning Kopin as a key U.S. supplier of next-generation MicroLED display technology.

Programs like SBMC could enable hundreds of millions of dollars in revenues for Kopin over the life of the program, and these milestones are the building blocks of that significant opportunity. I also want to underscore how pleased the U.S. Army is with our progress. We are meeting, and in several areas, exceeding the milestones laid out under the program, and that performance is exactly what positions Kopin to gain access to future programs of record like Soldier Borne Mission Command and many others. This is exactly the strategy we laid out when we received the $15.4 million IBAS award in September of 2025. Develop the technology, onshore the manufacturing, and convert that capability into long-duration U.S. defense programs.

We are executing that plan on schedule, and our phase one SBIR award for full color, smaller format MicroLED displays continues to progress in parallel as well, which is focused on advancing our tactical weapon-mounted sights and other weapon and head-mounted programs and systems as well. Importantly, everything I've just described is being built in the United States by Kopin employees in facilities we control, a durable competitive advantage in a procurement environment that is increasingly mandating trusted domestic sources for critical components. The pull for this technology extends well beyond the Army program. We are seeing strong demand signals from a number of international customers for our Color MicroLED across other applications, including heads-up displays, weapon sights, and helmet-mounted systems, which reinforces our conviction that Color MicroLED is a platform technology which will reach far beyond any single program.

Furthermore, every advancement that we make into our IBAS and Color MicroLED platforms is directly and uniquely attributable to our Neural I/O AI infrastructure transceivers, near-package optics, and co-packaged optic chipset advancements. In several conversations with prospective customers, it is clear that the lack of advancement in MicroLEDs in AI infrastructure applications is due to three critical technology issues, which are our competition and our customers who are trying to develop this technology internally are struggling with. They happen to be the issues Kopin is uniquely capable of solving and have solved in our past. Firstly, yields. Placing millions to hundreds of thousands of individual MicroLEDs is exceptionally difficult to do, either in a display or a transceiver configuration. Kopin has a device in production which has 16 million individual LEDs in a half-inch display.

Kopin has several years of experience and several ways of increasing yields, which makes our technology and capability unique versus our competition in displays, and these techniques are transferable to our transceiver portfolio as well. This capability will allow Kopin to place the most amount of LEDs into one square millimeter than any other company in the world, which will unlock significant bandwidths for the AI GPU, CPU, and memory markets. We plan on announcing more about this capability very soon. The second technology hurdle is collimating the light of each pixel so that crosstalk and interference is kept to a minimum. Kopin has pioneered several optical solutions in the display market, which are also transferable and valuable in solving issues like dispersion and collimation of light sources. Truly a difficult problem to solve.

Lastly, and potentially more importantly, AI factories cannot go down for maintenance or because a transceiver fails. Kopin's customers use our technology in the worst possible ways, in the worst possible environments, and expect our technology to work for over a decade of service. When I ask potential customers about their lifetime test data, longevity of supply, and the commissioning of optical systems, Kopin has years of experience in this area, which our new customers and partners value greatly. Often, they value our technology and our answers in these areas. I will add further commentary on our Neural I/O progress shortly. Now, turning to Sentinel FPV. In late June, we announced that we received multiple new prototype orders from customers evaluating Sentinel as a core part of their offering for the U.S. government's one-way attack, or OWA, drone initiative.

Many of these customers are active contenders in the Pentagon's Drone Dominance Program, or DDP, a major initiative aimed at strengthening domestic leadership in small drone and FPV capabilities while reducing reliance on foreign-made FPV technologies. As a reminder, first-person viewers are headsets that visually put the drone pilot in the cockpit, if you will, of the drone, enabling full real-time control of the drone as if they were on board. Customers are selecting Sentinel for evaluation because of its unique combination of dual situational awareness, extremely low weight, and U.S.-based production and defense-ready performance. Dual situational awareness remains our clearest differentiator. Unlike traditional FPV goggles that fully block the operator's peripheral view, Sentinel delivers high clarity, low latency drone imagery while preserving the operator's awareness of their proximity and surroundings, a major advantage for both safety and mobility. The scale of this opportunity is quite significant.

DDP winners have the potential to require tens of thousands of FPV goggles, and volume orders are expected to begin in late Q4, immediately following the DDP Phase 2 evaluations and awards, with requirements for immediate delivery as awards are issued. Each of our current prototype engagements represents the potential for significant volume production, and we are preparing our U.S. production capabilities to meet the demand with speed and precision, supported by the in-house OLED manufacturing capability we announced in May. We continue to pursue additional strategic partnerships with drone manufacturers and system integrators seeking high-performance, U.S.-built, first-person view solutions, and we expect the domestic FPV ecosystem to remain one of the fastest-moving opportunities through the balance of 2026.

More broadly, we are seeing strong demand signals from drone customers both inside and outside the Drone Dominance Program, a clear indicator of significant growth we expect in this market next year. In fact, we are currently negotiating several large production orders for 2027, and we will update you on those engagements as they convert. Turning to our core defense business, it also remains active throughout the quarter. In May, we showcased our newest advanced soldier vision technologies at SOF Week 2026, generating strong engagement across the special operations community. Later that month, we hosted the Minneapolis stop of our 2026 Technology Demo Days tour, with Boston happening as of today. We continued executing against the awards we announced earlier this year, including the $21.5 million follow-on thermal imaging product and production contract.

Our European helmet-mounted display programs, our DarkWAVE development order with Theon, and other initial Sentinel FPV production orders. To date, we have received over $45 million of orders in 2026. As a reminder, many of our defense programs have Congressional budget demands through 2030, and several of our contracts are sole source or indefinite delivery, indefinite quantity, or IDIQ, which provides additional upside flexibility above what is currently on order, as well as recurring revenue and forecastable, sustainable growth for several years. On the operations side, both phases of our optical automation program remain operational and on track to deliver approximately $1 million in annual operating expense savings while adding to overall production capacity as they reach full utilization. A truly excellent job by our operations team. Now, to our strategic investments.