Kopin Corporation

Good morning, everyone, and welcome to the Copin Corporation second quarter 2024 earnings call. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. At this time, I'd like to turn the conference call over to Brian Prunovale, Investor Relations for Copen. Please go ahead.

Thank you, Cindy. Good morning, everyone. Before we get started, I'd like to remind everyone that during today's call, taking place on Thursday, August 8th, 2024, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act 1995. These statements are based on the company's current expectations, projections, beliefs, and estimates, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions, other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate and there can be no assurances that results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call. In addition, references may be made to certain non-generally accepted accounting principles or non-GAAP measures for which you should refer to the appropriate disclaimers and reconciliation in the company's SEC filings and press releases. Copin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Copin's progress within the company's strategy. Following Michael, Copin's CFO, Richard Snyder, will review the company's second quarter 2024 financial results. I would now like to turn the call over to Michael Murray. Michael?

Thank you, Brian. Good morning to everyone and welcome to our second quarter 2024 earnings call. I'm going to spend much of the time on this call updating you on the strong progress we made operationally on our strategic initiatives. I am very proud of the significant progress we are making on our transformation plan. We have received over 55 million in orders for 2024 and beyond, including repeat or follow-on orders from our existing customers and programs and, importantly, orders from new customers within the U.S. and now Europe, which demonstrates that we are actively expanding our revenue and customer base. The second quarter was highlighted by continued sales momentum with 12.3 million in revenue, Notably, our products for defense applications delivered year-over-year growth of 106% to $10.4 million. This progress has been validated and validating our strategy to reset the course within COPEN to focus on defense products that we began last year. Every month in Q2 and in July, incoming inspection rates at our top customers reached 97%, up from 86% the previous quarter, which positively and significantly impacted product gross margins. We now expect Q3 revenues to increase cautiously above analyst guidance, and we are expecting a much stronger second half of 2024 than the first half. During the quarter, we demonstrated combat use, helmet-worn daytime and nighttime readable heads-up displays, or HUDs. These concepts during the Special Operations Forces Week, or SOC Week, in Tampa, Florida. We also expanded the focus of our 3D AOI sales team based in Europe to sell the full breadth of COPM products and capabilities to European and Southeast Asian defense customers. This reorganization has already begun to produce orders and increased opportunities. Now, just to recap our second quarter order activity, five new customers placed development orders, which when completed, we believe, will fuel multimillion-dollar per-year production orders and significant revenue growth. From an international perspective, we received a 1,200-unit production order for OLED micro-displays for the Indian Armed Forces with deliveries taking place over a six-month time span. Now, from a domestic perspective, we received a development contract from a new defense customer to support the integration of our OLED microdisplay with a power-efficient, low-latency digital night vision sensor referred to as PEDB-NBIS for use in next-generation warfighter integrated visual acuity systems, also known as IBAS. Furthermore, The U.S. Army awarded COPEN a phase one SBIR contract to research optical approaches for visual augmentation systems to improve performance and lessen cognitive dissonance and nausea. This is critical research for the military, and we are honored to be able to be trusted to do this work. The U.S. Army also awarded COPEN a contract to develop a high-resolution eyepiece assembly for the new Commander's Launch Assembly, or CLLA, used a next-generation short-range interceptor, or NGSRI, system. The NGSRI system and program was won by Lockheed, and it is expected to replace over 100,000 Stinger missiles and launchers. These new projectiles are expected to be faster, drone-enabled, and have radio frequency jamming capabilities. COPEN has been selected to design, develop, and produce the targeting eyepiece for the new launchers. We believe the program will require just as many launchers as there are missiles. When production starts in 2027, and we estimate this contract, we'll provide COPEN tens of millions of revenues in peak annual production. Now, I would like to remind folks of some of the other notable items that we have been working on in 2024. COVID has developed its integrated visual acuity system, or IVAS, now solution, which allows warfighters both a night and daytime solution today that works with their currently fielded systems, like the current versions of night vision goggles, or pardon me, NVG goggles, and popular helmet-worn systems like those from Wilcox. This allows Copeland immediate access to a significant market potential. There are millions of NVG goggles in use today, which require the additional information sources to be visible through the goggles during operation. Copeland's OLED solutions provide the real-time digital overlay to the analog world in a unique, easy-to-use, lightweight, adaptable, and lesser cost than the high-end systems, which are cost-prohibitive. We've also demonstrated our neural display, a highly advanced OLED bidirectional display that includes embedded sensors to track eye movement, position, and gaze while simultaneously processing the tracking data in Copen's proprietary software integrated within an AI engine that resides in the back plane of the display. The system adjusts the displayed information in real time to optimize user experience and performance in high-stakes use cases. This innovative software platform has now reached the alpha testing stage of development, marking a significant milestone in our neural display development efforts. We believe that this display system will be a great fit for the next generation of defense visual augmentation systems, and it's also receiving significant interest from consumer spatial computing manufacturers due to its ability to reduce size, weight, power consumption while still offering a great image quality, eye and pupil tracking, and dynamic image control. In addition to our efforts, Copen is also benefiting from overall market trends. Our pipeline of opportunities is being fueled by U.S. DoD refreshing its current capabilities, investing in new targeting and next generation of visual acuity systems, and now, NATO pushing member countries to spend the required 2% of GDP required by the membership mandate. Furthermore, consumer, medical, and industrial companies are reevaluating their spatial computing architectures and realizing that not only do customers want a great display, but they're demanding reductions in size, weight, power consumption, and cost. We anticipated these market signals with our patented AI-enabled neural display architecture. As a result of this strategy focus and the reorganizations, we believe our opportunity pipeline has now expanded over $500 million, of which $350 million of the total resides within the defense market and has high probabilities for contractual awards, while the remaining $150 million of new opportunities are in other markets and in the early stages of formation. On the expense side of the ledger, in January, we launched our one COPEN initiative to enhance synergies, expand capabilities, gain efficiencies, decrease costs, and increase accountability across our three sites. As a reminder, that's Westboro, Massachusetts, Reston, Virginia, and Dalgety Bay, Scotland, which previously operated autonomously. We have made substantial progress against our goals, including sharing engineering resources, initiating purchasing efficiencies, and cross-training our sales organizations. Having reviewed our quarterly progress, let me turn to the longer-term and our strategic initiatives, which are the foundation of our future success. Turning to our first strategic initiative, building the backlog, our backlog remains ahead of plan for the year thus far, and we are pleased with the new customer adoption, which will bring a stronger, wider, and deeper foundation for Copen's long-term growth. Based on our current purchase orders, COPEN could potentially ship triple the volume of weapons sites as 2023, within the calendar year of 2024, while our quality rates continue to improve and are stabilizing at the targeted levels. With respect to our fixed and rotary wing aircraft orders, we have recently announced that our OLED display reached the final milestone of production readiness, which is a significant milestone for COPEN and our FAB light strategy. which supports the need for a U.S. DOD-approved deposition source for this technology. This highly customized display will run concurrently with the current AMLCD offering within pilot helmets for several years, potentially doubling our revenue in that application space. Our monochrome microLED product for cockpit heads-up display applications will also enter its next phase of production shortly as well. Now turning to our armored vehicle program, as discussed previously, the SEP 4 upgrade was canceled. However, we reaffirm that our weapons site program will continue as planned and be added to previous upgrade packages and new developments alike. We are pleased to report that part production approval process for PPAP program continues to progress on schedule, and we are now receiving early forecasts for production demands from General Dynamics. We were unable to share these early volume estimates due to the sensitivities of that program. However, the outlook is starting to form to our original expectations. As a reminder, Copen will supply four integrated weapons site systems per vehicle. The system sells for over $10,000 each, and our understanding is that there are over 10,000 vehicles in service today. We expect to retrofit 10% to 20% of these vehicles while also being designed into new versions also making this a significant revenue generation program for many years to come. We've also increased our presence in the medical and biomedical space with design wins at the world's most advanced laboratories, universities, and hospitals, which are using our ferroelectric liquid crystal and silicon displays, as we announced previously. Our CR3 headset also begun to receive interest as we are now supporting production orders for customers who are putting the product through their testing and through their paces. We are hopeful to announce a new strategic partner in this space later on this year, which will greatly accelerate our go-to-market plans and product adoption. Lastly, I spoke about our Stinger Missile Replacement Order, which is significant for COPEN, and there are several other opportunities like it. We understand the U.S. Army will seek to replenish and replace over 100,000 missiles, and we believe that They may also refresh the launching systems for other surface-to-air projectiles, which are active opportunities we are pursuing both in the United States and in NATO countries. Over the long term, we believe COPEN has the technology, products, solutions, customers, and confirmed contracts to grow yearly revenues to $100 million or beyond. We are now deeply embedded within several U.S. and NATO countries' Department of Defense programs, that have multi-year demands of reoccurring revenue scheduled up to 2030 in some programs. We have a strong pipeline of qualified opportunities, newly received research and development orders, and a solid production contract which offers a clear line of sight to increased revenue in 2024 over 2023, while setting the expectation for further double-digit revenue increases in 2025 compared to this year with the aim to achieve and sustain over $100 million in yearly revenue in the next three years or so. I'll now turn the call over to our CFO, Rich Schnatter, to review our results from the second quarter in further detail. Over to you, Rich.