Kopin Corporation

Good morning, everyone, and welcome to the Copen Corporation Third Quarter 2025 Earnings Call. Please note that this event is being recorded. At this time, I would like to turn the conference call over to Brian Pernavo, Investor Relations for Copen. Please go ahead.

Thank you, and good morning, everyone. Before we get started, I'd like to remind everyone...

During today's call, taking place on November 12, 2025, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 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, and 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 the 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. Copen Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Copen's progress within the company's strategy. Following Michael, Copen's CFO, Eric Manns, will review the company's third quarter 2025 financial results. I would now like to turn the conference over to Michael Murray. Michael, please go ahead.

Hey, Brian. Good morning to everyone and welcome to our third quarter earnings call. Firstly, thank you to all the men and women of our armed services and those of our allies for your service. We deeply, deeply appreciate it. It's been an exceptionally busy quarter at Copen, and we believe some of the best and most exciting opportunities still lay ahead of us. We're happy to be joined by Eric Manns, our new CFO, who officially started on September 2nd. It's been a baptism by fire for Eric, but we're excited he's on board. Eric joins us from Allegro Microsystems, where he has spent the last 27 years in various financial and accounting and leadership roles. We're excited to have Eric on board, as we believe these are truly transformational times for Copen. I'll let Eric provide more on his background prior to discussing third quarter financials. Copen is in a completely, completely different position today than it was even recently as our second quarter 2025 earnings call. Since that time, we've entered into strategic partnerships with well-known, well-respected, and global organizations like Ondas Holdings, Unusual Machines, and our friends at Theon International. We have won several new multi-million dollar research, development, and production awards, and further solidified our balance sheet also. Theon International is a critical relationship for Copen as they develop and manufacture cutting edge night vision and thermal imaging systems for defense and security applications with a global footprint. Theon started its operations in 1997 and today occupies a leading role in the sector thanks to its international presence. FION's production of night vision and thermal imaging systems aligns perfectly with our micro-display and optical technologies. And I was fortunate enough to be able to speak and introduce COPEN to their investor base in Greece last week. Increased defense budgets and the need for enhanced situational awareness in nighttime and daytime operations, border security, and counterterrorism missions are primary drivers of significant growth expectations, especially in Europe, Southeast Asia, and NATO countries alike. Governments worldwide are investing in modernization efforts and advanced night and daytime vision technologies. Innovations such as thermal imaging, augmented reality, data overlays, digital night vision, and the use of high resolution sensors are improving performance, durability, and cost effectiveness. thus expanding applications, demand, and serviceable available markets. Copen and Theon together can take advantage of those needs. Turning to Unusual Machines, who manufactures and sells drones and components via brands like Fatshark, the leader in first-person viewer drone controls, ultra-low latency video goggles for drone pilots as well. They also retail small acrobatic FPV drones and equipment directly to consumers through their curated Rotor Riot e-commerce store. Through subsidiaries American Robotics, Aerobotics, AperioMotion, ONDOS offers the Optimus system the first U.S. FAA-certified small UAS for automated aerial security and data capture. the Iron Drone Raider, an autonomous counter UAS platform, and Aperio's advanced ground robotics and tethered UAV systems, supported by innovative navigation and communications technologies. Again, our micro-display products and technologies are well aligned to pair with the growing drone UAV market, and their collective strategic investment into Copen brings confidence in our ability to create value for them with them. Just last week, it was reported that the U.S. Army aims to buy at least one million drones in the next two or three years and could acquire anywhere from a half million drones to millions of them annually, compared to approximately 50,000 annually today. It was estimated that Russia and Ukraine each build four million drones annually. China can and will likely produce eight million drones annually. The ratio between drones and first-person viewers is roughly four to one, as we understand it. The first-person drone market is growing very quickly. This was a small niche market just a few years ago. As recently as last year, it was estimated to be a total market of under 300 million. By 2030, it's estimated that the first-person drone market could be as much as 1.2 billion, representing an annual compound annual growth rate of around 31%. Suffice to say, we believe we can begin meaningful acceleration growth over the next several years as the only manufacturer in the world of four different types of micro displays that can provide sovereign sourced displays for the US and NATO defense requirements. Our technologies and desire to provide application specific optical solutions means we can meaningfully capture more orders and demand for some of the fastest growing industries in defense. And we are partnering with global players in these respective fields. Through the U.S. Department of Defense, we are excited about several opportunities to supply new or existing programs across the military. Our current opportunity pipeline of factored opportunities we are pursuing just surpassed $1 billion. As we continue to supply the current thermal weapon sites, aviation heads-up displays, and advancing our new aftermarket upgrade capabilities with our flight-certified monochrome microLED, which we just announced, we are also dedicating more focus on armored vehicle applications as well, with the advancement of tank and armored vehicle programs as they are now becoming more clearly defined. The largest of these opportunities is clearly the extension of the IVAS program. which is now referred to as Soldier-Born Mission Command, or SBMC. This is the $22 billion Army program that was recently taken over by Andrew. SBMC is an all-encompassing program that has software, hardware, and networking elements. As warfare evolves and increases in complexity, having tools that deliver the right information quickly and intuitively becomes increasingly urgent. The U.S. Army selected two prime contractors to provide early demonstrable hardware in 2026, followed by a second phase of demonstrations and production selection awards in 2027. Along with prime selections, we expect wins for critical technology acquisition areas as well, where COPEN fits into to follow a similar path. As a reminder, COPEN was recently awarded a $15.4 million color micro-LED award through the Industrial-Based Analysis and Sustainment Act, which will allow for COPEN to design, develop, and manufacture a sovereign-built color micro-LED developed by the Army, for the Army, for applications like SBMC, daytime AR applications, and several weapons site platforms, offering COPEN an additional $1 billion serviceable available market just for the United States alone. Furthermore, we have negotiated an $8 million research and development order for a similar product for Theon International and the European markets as part of our strategic investment as well. Given the long-term nature of many of our existing programs and the contract wins so far in 2025, our current pipeline is very strong and our confidence to hit our revenue and profitability goals in 27 and 28 are quite high. As a reminder, several of our programs have congressional budget demands through 2030, and several of the program contracts we have are indefinite demand or indefinite quantity, or IDIQs, which allow for even greater revenue demands than we currently have on order. Geopolitical tensions mean defense spending is unlikely to decrease, and the way wars are fought is evolving. Soldiers in the field are tasked with needing more information, sooner to assess level threats, and how to make the best decisions for themselves and their teams. How our products and technologies can help to make soldiers and the soldiers of our allies safer, meaning more men and women in uniform will make it home. This is our ethos. This is what we focus on. Obviously, we have market tailwinds that can propel us to significant growth over the next several years and maybe even decades. I'm also proud of how we positioned ourselves to take advantage of those trade winds and tailwinds. Copen is almost completely transformed as a company from when I first started just three years ago. We have a clear and focused strategy, a new management team, and board of directors. Quality issues in our manufacturing facility have largely been fixed, and we have some of the highest quality scores in our history and very strong relationships with our current customers, and we are actively attracting new customers as well. Our website and logo have been updated and modernized. Our capital structure today is in far better shape than it was even just three months ago. We have the partnerships and capital to invest aggressively in our people, our technologies, and capabilities to significantly ramp growth and production capacity. Further, we've received a lower than expected final judgment in our legacy lawsuit in Colorado. Recently, we post the cash bond required for our federal appeal of the case, which we continue to believe has the potential to further and significantly reduce that liability even more greatly once the case is heard. There have been some trying times over the last few years, but I'm more excited about our outlook today than I ever have been since I joined. We're a completely different company today, and I would argue a far better and sustainable one that offers significant growth potential, and I believe we're on the cusp of big changes at Copen in the not too distant future. Overall, I'm just incredibly proud of the team for navigating an environment with so much change over a short period of time. Indeed, they have executed on everything I've asked them to do. There have been a lot of distractions as well, but our team have kept focused on controlling what we can control, without letting these distractions impact our company's mission, direction, and potential. I'll now turn the call over to our CFO, Eric Manns, to review our results from the third quarter in further detail.

Eric.

Michael, I want to begin by thanking Copeland's Board of Directors, Michael Murray, and members of our management team for the opportunity to step into this role at such a pivotal time, and for their support in making these first weeks both productive and inspiring. In my short time here, it's been exciting to see how much progress is already underway, confirming the strength of Copen's direction and the solid foundation in place for future growth. It's clear that Copen is advancing on multiple fronts, strategically, operationally, and financially, and I'm excited to contribute to that continued success. We've solidified and stabilized our balance sheet through strong backing of our strategic investors, providing them the financial flexibility and stability to execute our growth plans with confidence. At the same time, we're maintaining a disciplined focus on the P&L, driving top-line growth while continuing to strengthen our path towards profitability. Our new partnership in Europe expands our access to key markets and positions us for continued growth globally. And with recent design wins from the U.S. military, we're strengthening our domestic footprint and reinforcing Copen's reputation as a trusted defense technology partner. Looking ahead, I'm encouraged by the alignment across our teams and our focus on executing the financial and strategic priorities that will drive long-term value for our shareholders. With that, let's turn to our financial results for the quarter. Total revenues from Q3 2025 were $12 million versus $13.3 million for the prior year. Product revenues for the third quarter ended September 27, 2025 were $10.7 million compared to $10.9 million in the third quarter of 2024. The decrease was primarily due to a decrease in revenues from products used in pilot helmets and training and simulation, which was partially offset by an increase in sales from products used in thermal weapon sites. In the third quarter of 2025, funded research and development revenues decreased to $1.2 million from $2.3 million in Q3 2024, primarily due to the timing of completed projects and a focus on programs moved to production. Cost of product revenue for the third quarter of 2025 was $8.4 million, or 79% of net product revenues, compared with $8.3 million, or 76% of net product revenues, for the third quarter of 2024. The increase was due to higher cost to manufacture training and simulation products and 3D AOI products, which are partially offset by improved efficiency in making products for thermal weapon sites. R&D expenses for the third quarter of 2025 were 2.5 million, a decrease of 0.1 million from the same quarter last year. The decrease is probably due to decreased spending on U.S. defense programs and programs previously in development are transitioning into production. SG&A expenses were 1.6 million in the third quarter of 2025, compared to 5.2 million in the third quarter of 2024. SG&A decreased due to a decrease in accrued legal expenses, partially offset by an increase in non-cash stock compensation. Turning to the bottom line, net income for the third quarter of 2025 was $4.1 million, or two cents per share, compared with a net loss of $3.5 million, or three cents per share for the third quarter of 2024. It should be noted that Q3 2025 net income included a $5.1 million add-back for reduction in litigation accruals. Net cash used in operating activities was $7.7 million in the first nine months of 2025. Our balance sheet and cash position is as strong as ever post Q3. We ended the third quarter with $26.5 million in cash, which is not significantly different than the prior quarter. However, subsequent to the quarter end, although we posted a $23 million bond for an appeal of a lawsuit, we were able to raise $41 million with several strategic and institutional investors and completed a $15 million transaction with an individual strategic investor, which significantly improved our overall cash position. As a result, at the end of Q3, with this funding in place, the company was able to remove any significant doubt regarding the ability to operate as a concern. Listeners should review our Form 10-Q for the quarter ended September 27, 2025, for any possible adjustments and additional disclosures. And with that, I'll turn the call back over to Michael for closing remarks, and we'll take your questions.

Thanks very much, Eric. Our products and technology can be applied to a variety of industries across the landscape, but we have chosen to focus on the areas we think will have the highest demand and growth opportunities and provide the clearest path to profitability. With our market-leading strategic partners, we are in a great position to take advantage of their growth and accelerate our own. The geopolitical landscape and increasing tensions mean that more defense departments around the world are looking at their budgets and capabilities and assessing where they need to invest. Much of the time it's pointing towards better vision and data to get to soldiers to make better decisions and safer decisions. COPEN can be a major solution to some of those challenges. We believe we are at an exciting inflection point for the company. There's no doubt that our future is continuously growing and becoming brighter every day. With that, operator, we'll open up the call to any questions.

Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question at any time by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad. We'll take our first question from George Janarikas with Conaccord Genuity. Please go ahead, your line is open.

Hi, good morning, everyone. Thanks for taking my question, and welcome, Eric. I'd like to start maybe on something you didn't talk about this time, is neural display. Maybe any developments there, any progress you've made with that product? Thank you.

Good morning, George. Yes, absolutely. So at AUSA, we demonstrated a first-person viewer, bi-directional, human-in-the-loop micro-display, which we call neural display, that controlled a drone application with your eye. Imagine, if you will, a soldier on the battlefield with a daytime HUD like our DAVAS solution or DarkWave solution being able to still fire their weapon while looking through a daytime or nighttime AR application and controlling a drone and moving that drone just with their eyes and never taking their eyes off the battlefield. And that is a critical technology area for the United States government. Neural display is demonstrable. We will be investing in it over the course of the next few years. And we will have a roadmap that has neural display coming right behind our color micro LED development that we're embarking upon now. Thanks, George.

And maybe just as a follow-up, just some blocking and tackling, just as a follow-up, in terms of just how we should think about your quarterly OPEX, particularly with blue radios seemingly behind you, can you sort of help us understand what the spending should look like over the next several quarters? Thank you.

Well, I don't think the spending is going to be much different than what we've seen. We know we have some headwinds there in the OPEX area. But we will be growing into that.

That's the objective. Thank you.

Thank you.

Our next question comes from Jason Schmidt with Lake Street. Please go ahead. Your line is open.

Hey guys, thanks for taking my questions. Michael, it obviously sounds like you're seeing some really nice momentum and an expanding pipeline. I know you noted a pretty significant number as far as what is in that potential pipeline and acknowledging sort of these IDIQ contracts could make it a little difficult, but how should we think about sort of the kind of one or two year out pipeline or backlog? And can you help us kind of size some of these near-term opportunities?

Sure. Morning, Jason. So as we sit here today, Open has roughly 80% of the backlog required to hit our plan for 2026. We see visibility on our three major programs until 2027 to 2030. And those programs are our thermal weapons site programs, our aviation helmet programs, and one other program that is actually on the medical side. So those three programs, we have very strong visibility, at least for the next two years, Jason. The task for Copen right now is to build upon those programs, also intercept whatever the next generation programs will be. As an example, in our aviation head-worn application, as you know, we have an LCD product, we have an OLED product, and a micro-LED product, I can say that. So We're building upon that foundation. We do think those programs have life until 2027 at least, but we're not resting on them alone. We need more programs like them that will continue for the next decade. And we think there are several like Soldier Born Mission Command, like our Darkwave product, like the DAVAS product, and several of the first-person viewer products that we're developing right now that will carry us through I'd say the next two to three years of growth. So we're very confident in our backlog. We're also very confident in some of the new programs that we're working on. I hope that's helpful.

Yeah, that's really helpful. And then just as a follow-up, curious if you could update us on sort of the COPEN 1 initiatives and automation and where those initiatives are and if kind of Q4 will be sort of the end of all those being implemented.

Great question. I'm remiss in updating you. So Copen 1, I would say, is fully integrated at this point. Everyone is under the Copen umbrella. So that's number one. And our HR team have done a fantastic job with that transition as it is a cultural one. So that would be number one. Number two, just to touch on our Fab Light model, I haven't briefed on that in several quarters. But as you know, we embarked on a fab light strategy, which is sourcing the best wafers and deposition technologies worldwide and focusing on USDOD and NATO applications specifically. And that transition has been a great one. We're almost fully complete, and I expect to be complete by the end of this year. From an automation perspective, we have put in our first wave of automation back in June. It is now operational. It is working. We're seeing efficiencies and quality increases with that. The second phase does go in in December this year and we're hopeful that that will add OpEx savings as well throughout the course of next year and add throughput capability to the fab. So we're not planning on any material changes in headcount. It's the ability for us to have higher throughput of the fab for next year. and we're fairly confident that's going to go well.

Gotcha. Thanks a lot, guys. Thanks, Jason.

Thank you.

Our next question comes from Glenn Madsen with Leidenberg Thelman. Please go ahead. Your line is open.

Yeah, hi. Thanks for taking the questions. Congrats on the results. Can you just dive into the pilot, the aviation heads-up display? issue that came up this quarter? Just the one-time timing thing or just a little background on that?

I'm not sure. Glenn, can you explain that a little bit more?

There was no issue.

Yeah. In the press release, I think you guys highlighted that the pilot headsets was one of the reasons why military was down year over year.

So I'm just curious about... Oh, I see. Yep. I see. I see the question. So, no, that was just a... a manufacturing-to-demand push from this quarter to next. Just a timing issue. Demand. Okay.

Yep. And I'm not sure. You kind of touched on the SG&A, but it was down significantly sequentially. I know the lawsuit expenses came out. Is this the run rate, or was there some one-time items that caused it to be lower this quarter? No.

Yeah, no, thank you. No, that was not going to be the new run rate. The cost there from an SG&A perspective will go back to a more normalized trend. There were one-time events, the litigation move of $5.1 million, and we had other legal fee expenses. The accruals for those came down as well fairly significantly.

One other thing on OPEX, I think this goes to potentially George's question. But from an appeal standpoint, we are not expecting a run rate like we've seen on legal expenses. This is a one-time and I stress one-time expense, which we're already incurring, which we expect to be around $500,000 of expense to appeal the judgment in Colorado. So we expect our SG&A to hold at a more normalized level throughout 2026. um, where you're kind of seeing it now, um, in that range. So I hope that provides better color.

Uh, yeah, thanks. And then, uh, Michael, curious, I think this is the, uh, well, maybe you've said it before, but just this, you know, being medical, being such a big aspect of your kind of confidence for the next two years out, can you, is that HD, uh, HDM, HD medical, uh, partnership or is there something else going on there that you could help explain?

Yeah, so first things first, HMDMD is growing. They are creating more of a pipeline of their own. It's now public knowledge that they have signed an agreement with Carl Zeiss, who I understand is one of the world's leaders in that specific field of advanced surgical vision systems. And we're also working with HMDMD on potential other products in the medical market, which we're not talking about just yet. But we do believe that there's more of a portfolio of medical products. And one of the other things, just from a growth standpoint, Glenn, we do see, and I mentioned this in my prepared remarks, we do see increased inbound requests for armored vehicle weapon sites and armored vehicle head-mounted systems across the globe. And we're working on several projects globally in armored vehicle projects, which we're also excited to see have come back into focus.

Okay, great. Thanks, and congrats again.

Thanks, Glenn.

Thank you. We will move next with Jonathan Sigman with Stifel. Please go ahead.

Hey, good morning. Thanks for taking my question. Good morning, John. So a lot of good news you announced in Europe. As investors, we're going to have a view of revenues that you disaggregate from Europe, as well as I presume a new equity, a minority interest line. Can you just maybe talk, level set, how we should think about the pace of improvement? Just what is the capacity in Europe or just anything about how the improvement there will develop would be great.

Absolutely it's exciting- and great question thanks John- we have zero revenue roughly speaking in Europe in defense today. And we already have agreements for eight million dollars of development with the on- for the color micro LED for Europe Southeast Asia and NATO. One two we expect orders for our dark wave strategy- in Europe. We've been competing on several bids together with Theon, and we're hopeful for a research and development contract for Darkwave to be developed with Theon for their end markets, which they enjoy a significant market share in Europe and specifically with NATO countries. So we think we're going to expand our European business exceptionally quickly in 2026. But the real revenue growth rate starts in twenty seven and twenty eight where you'll see tens of millions of revenue in twenty twenty seven and twenty twenty eight in Europe. So starting from zero will be in the single you know high millions for next year of revenue from research and development and production followed by tens of millions of revenue in twenty seven and twenty eight.

That's great. And we'll see orders from Europe, or is that going to be not needle movers in 2026?

We will definitely see orders from Europe potentially in Q4 of this year.

I have a high degree of confidence in that. Good luck with the rest of the year. Thanks, John. Appreciate it. And welcome.

Thank you.

And as a reminder, that is star and one on your telephone keypad if you would like to join the queue. We will move next with Christian Schwab with Greg Hallam. Please go ahead. Your line is open.

Great. Thanks for taking my questions. Good morning. I just wanted to follow up on the U.S. Army, you know, SBMC program. It wasn't crystal clear on what I heard, sorry, but I think you talked about seeing a $1 billion opportunity, SAM, with the U.S. Army alone. Is that program coupled with the new expanded number of drone opportunities or units that the U.S. Army wants to procure on a yearly basis? That seems significantly bigger than I guess we were previously thinking. Can you expand upon when material revenue from both of those initiatives would begin to hit? I know you kind of talked about the end of 26, maybe program awards and ramps and revenue in 27 and 28, but it's a substantial number. I'm just wondering when we should be thinking that could move to revenue. Sure.

So let me take the first part. The pipeline of opportunities we have currently, 40% of it, roughly speaking, is Soldier Born Mission Command and programs around Soldier Born Mission Command. I can't go into too much detail around that, but that would be the production Soldier Born Mission Command opportunity level. It's about 40% of that billion dollars. The rest of the billion-dollar opportunity pipeline that we have is a combination of armored vehicle programs, advanced night vision goggle programs, as well as thermal weapons site programs or next-generation thermal weapons site programs. So that's the mix of that billion dollars. Of course, there's medical in there, too, but it's much smaller. So I hope that gives you a sense of the scale of opportunities that we're looking at. With regard to Soldier Born Mission Command specifically, to remind folks, there are two prime contractors competing. One is Anduril Meta. The other is Rivet, which is a Palantir-based, or not based, but funded company. And below that, there were two selections for critical technology acquisition areas. Copen was one of those selections to develop a sovereign-based, color micro led technology here in the united states for programs like soldier born mission command next generation thermal weapons sites and goggles and that technology development is the 15.4 million dollar contract award that we've received already we're expecting to receive further investment from the u.s army to develop this technology in 2026. I've already mentioned that would be in several tens of thousands or probably several tens of millions of dollars of investment in 2026 for production in 2027. And our goal is to have our device be designed into Soldier Born Mission Command applications for production in 2027. But our goal And our task is to create a demonstrable color micro LED for that to happen. And yes, there is another competitor, as I've mentioned previously, that also received an award. They have not gone public, so we're not going to mention them. But that's how we get to production in Soldier Born Mission Command. And that production color micro LED is being designed by the Army with COPEN for the Army, specifically in Soldier Born Mission Command type applications. I hope that clarifies things for you.

That's crystal clear. Thank you. No other questions.

And again, welcome, Christian. I do want to take a point to welcome John at Stiefel and Christian at Craig Hallam. Welcome to our analyst team.

Thank you.

Thank you.

And this will conclude our Q&A session. I will now turn the call over to CEO Michael Murray for closing remarks.

Thank you, Operator. I hope you all leave the call today with the impression that this is a new day, a new COPEN, and a new opportunity for the company. Whether the application is a thermal weapons site, a HUD-mounted display, or a high refresh display in armored vehicles, the goal is the same. to provide our allies and our troops the ability to see their adversary before they are seen. If we're able to do that, our troops will come home first and safely. Providing the same technology to surgeons worldwide will also save lives. And this is a responsibility that we take very seriously for those reasons. And we have partnered with tier one defense and medical contractors. And that's why we are the sole source provider of micro displays for several programs of record within the Department of Defense and worldwide leading medical device manufacturers as well. Again, thank you for your time today, and thank you for your investment in Copen. Have a great day.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.