Kopin Corporation (KOPN) Earnings

Management highlights

### New Strategic Collaboration in AI Infrastructure - Announced a strategic partnership with Fabric AI to co-develop the Neural IO family of optical interconnect chipsets for AI data center infrastructure, designed to replace copper interconnections with micro LED-based optical transceivers that deliver higher bandwidth, lower power consumption, and lower operational costs - The global AI infrastructure optical transceiver market is projected to reach $69–90 billion by 2030, with the U.S. Department of Defense (DoD) as the second-largest end consumer after hyperscalers - Copen received a $15 million initial prototype order from Fabric AI (expected to complete by end of 2026), owns a 19.9% equity stake in Fabric AI, and is the exclusive manufacturer of Neural IO chipsets; Fabric AI holds responsibility for system design and hyperscaler go-to-market, while Copen serves U.S. government and defense requirements - Copen leverages its existing U.S.-based micro-LED production line (funded via the IBAS government award) to produce Neural IO chipsets, and management notes most competing solutions have not yet achieved volume production, giving Copen a first-mover advantage in yield, quality, and timing ### Defense Business Momentum and New Product Launches - Grew the global defense order book with multiple new awards in Q1 2026 and post-quarter end: a $1 million DarkWave OLED module development order with Beyond International for retrofitting monochrome night vision goggles; $5.6 million in European helicopter helmet-mounted display production orders (pushing total HMD order book above $10 million); a $3.2 million initial order for 40,000 Sentinel FPV drone goggles (with dual peripheral situational awareness, a unique market feature); a $21.5 million post-quarter-end follow-on production contract for thermal imaging eyepieces for man-portable weapon systems; and a new Phase 1 SBIR contract for soldier-borne micro-LED display development - Expanded into the high-growth first-person view (FPV) drone market with the launch of the U.S.-made Sentinel FPV goggle, which preserves peripheral operator awareness to improve pilot survivability and mission effectiveness - Multiple core defense programs have secured congressional funding through 2030, and many contracts are sole-sourced IDIQ awards that provide upside revenue flexibility and long-term forecastability ### Strategic Capital Investment - Purchased a full-scale OLED micro-display deposition system to bring U.S.-based OLED production in-house at the company's Westboro, U.S. headquarters, moving from the prior fab-less model for OLED - The in-house OLED capacity is additive (not a replacement for existing external partnerships: Asian partners continue to serve consumer/medical markets, European partners continue to serve NATO defense programs) and responds to surging demand for U.S.-built OLED micro-displays for defense applications including FPV drones and thermal weapon sites - Copen is now the only U.S. manufacturer of four types of micro-displays (AM LCD, FL COS, micro LED, and OLED) for defense customers, aligning with U.S. government requirements for domestic sourcing of critical components - Completed both phases of the company's optical automation program, which is now fully operational and expected to deliver $1 million in annual operating expense savings and increased production capacity at full utilization

Guidance

- Management reaffirmed the full-year 2026 revenue guidance range of $52 million to $60 million, noting the guidance is conservative and already includes the $15 million initial Fabric AI order, with built-in upside from unannounced new order awards - Management expects the OLED micro-display production line to reach low-rate initial production for the F-35 fixed-wing platform by the end of 2026 or first half of 2027, with new OLED orders for the program expected by end of 2026 - Total capital expenditure for the new OLED production line is projected to be approximately $5 million in 2026, with a similar amount planned for 2027 - Management's internal targets for Neural IO revenue are at least $15 million in 2026, at least $25 million in 2027 (with upside potential to $50 million), and expect the Neural IO business could exceed the size of Copen's entire existing defense business by 2028 - The company's current liquidity position is sufficient to fund all planned operations through at least the end of Q2 2027 and beyond

Segment performance

Total revenue for Q1 2026 (ending March 28, 2026) was $10.6 million, a slight year-over-year increase from $10.5 million in Q1 2025. Product revenue was $5.4 million (50.9% of total revenue), down from $9.2 million (87.6% of total revenue) in the year-ago quarter, primarily due to lower shipments of thermal weapons site products and liquid crystal displays. Non-product revenue was $5.1 million (49.1% of total revenue), up from $1.3 million (12.4% of total revenue) in Q1 2025, driven by government award revenue for micro-LED development and collaboration revenue from a strategic AR thermal clip-on partnership. Cost of product revenue was $5.6 million (103% of product revenue) in Q1 2026, up from 83% of product revenue in Q1 2025 due to reduced production efficiency on a lower product revenue base. Research and development expenses were $4.9 million, up from $2.1 million in Q1 2025, primarily due to the government micro-LED development award. Selling, general, and administrative expenses were $6 million, up from $4.7 million in Q1 2025 due to higher professional fees and performance-based compensation. As of quarter end, the company held $59.5 million in total cash, restricted cash, and marketable securities.

Risks & headwinds

- All forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially, including fluctuations in product demand, global market conditions, operating conditions at subsidiaries, and other factors disclosed in the company's annual Form 10-K - Lower product shipment volumes in Q1 2026 reduced production efficiency, pushed cost of product revenue above 100% of product revenue for the quarter, and underutilization of existing manufacturing facilities has historically weighed on the company's cost structure - The company carries $25.3 million in restricted cash collateralized against the appeal of the Blue Radios litigation - Market adoption of Neural IO technology is dependent on customer validation of prototypes, which will not be completed until the end of 2026, and large-scale adoption depends on displacing existing copper and fiber optic interconnect solutions that are well-established in the data center market - The company has not yet established go-to-market partnerships for Neural IO outside of the U.S. and NATO markets, leaving international upside contingent on future partnership development

Analyst Q&A

• Q: Does the reiterated 2026 revenue guidance include the initial $15 million Fabric AI order, and can you provide an update on OLED demand for the F-35 platform?

  A: The guidance does include the Fabric AI order and is intentionally conservative to account for current and new order commitments. For the F-35 platform, Copen's existing LCD business is seeing modest growth this year, and the company expects in-house OLED production to reach low-rate initial production by the end of 2026 or first half of 2027, with new OLED orders for the platform expected by the end of 2026, with a larger forecasted opportunity than initially projected.

• Q: Is the 2026 guidance accounting for any expected delays or headwinds, and what is the projected 2026 capital expenditure for the new in-house OLED production line?

  A: There are no expected delays or pullbacks embedded in the guidance; the conservative outlook stems from residual caution after 2025 Q3/Q4 government shutdowns, and the guidance has clear embedded upside from recently announced defense awards. Total OLED line CapEx for 2026 is projected at roughly $5 million, with another ~$5 million planned for 2027, as the line can leverage existing back-end equipment from the IBAS award, keeping total costs lower than expected.

• Q: Is the long-term revenue opportunity for Sentinel FPV goggles as large as market size projections suggest, and what competitive advantage does Copen hold for Neural IO micro LED interconnects?

  A: The opportunity assessment is correct: U.S. government budgets call for 1 million drones in 2026 (30% FPV) and 3 million drones in 2027–2028 (30% FPV), all requiring U.S.-sourced components, and Copen can capture revenue via displays, optics, or full goggles. Copen already produces micro LEDs at scale for defense applications, with years of yield and manufacturing expertise that most competitors (startups and established incumbent firms) lack, and DoD funding is already supporting a high-volume U.S. micro LED production line that positions Copen as an early market leader.

• Q: What are the key gating factors for large-scale Neural IO adoption, and what milestones can we expect over the next 12–18 months?

  A: Gating factors include successful demonstration of performance against existing copper and fiber solutions. Copen and Fabric AI will demonstrate working Neural IO prototype systems in 2026, and Copen is actively pursuing multiple multi-billion dollar U.S. government funding lines (NIST BAA, CHIPS Act) for AI infrastructure development. A key competitive advantage is Copen's programmable micro LED design, which supports retrofitting existing brownfield data center infrastructure without full rip-and-replacement, accelerating adoption potential.