Kopin Corporation Price & Performance (KOPN)

Before we get started, I'd like to remind everyone that today's call taking place on 04/17/2025, 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 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 in our most recent annual report on Form 10 ks and other documents filed with the Securities and Exchange Commission. Although the company believes that the assumptions underlying these statements are 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. Kopin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Kopin's progress within the company's strategy.

Following Michael, Kopin's CFO, Richard Snyder, will review the company's fourth quarter and full year 2024 financial results. I would now like to turn the conference call over to Michael Murray. Michael? Thank you, Brian.

Good morning to everyone and welcome to our fourth quarter and full year earnings call. I want to begin by expressing my thanks and gratitude to our shareholders for their patience, as this year's audit took longer than anticipated. But we filed our 10 and we're happy with our new audit firm who took on a significant task with adding Kopin late in the fiscal year. Today, Kopin is reporting an all time record year from both a revenue perspective and for orders since the disposition of our HBT business over a decade ago. The momentum from strong fourth quarter results our existing order book and new contract wins in the first part of twenty twenty five give us confidence that our strategic pivot transformation and focus is gaining real momentum. Before I provide insights into our future, I wanted to highlight some of the positive results from 2024 before turning the call over to Rich.

To go through a detailed analysis of our financial results. I want to highlight a few areas I think are important to keep in mind. In our second year of our transformation plan, we achieved revenue growth of 25% year over year growth in 2024. Fourth quarter revenue increased 71% when compared to 2023. Our quality rates have greatly improved and now are more predictable. The cost structure in fourth quarter twenty twenty four was much closer to a normalized expense level given the lower legal costs and we believe automation in the manufacturing plants can further lever and reduce our cost structure. As a reminder, the $46,000,000 loss includes $24,800,000 in reserve for the Blue Radio's litigation and associated legal costs in 2024. Excluding the reserve, for litigation costs and associated legal expenses, the adjusted loss per share would have been negative $09 We have continued to significantly narrow the loss and gain momentum to become cash flow positive. Under our One Kopin Strategy, we reorganized Kopin Virginia and our European teams which unify our focus, strengths and capabilities reducing redundancies. We also form new business development, program management, and quality teams. Under the FabLite strategy, we brought online new OLED and micro LED vendors to strengthen our source of supply for U. S. DoD applications while keeping our lower cost medical and consumer supply strategy intact.

We rebranded the company launched a new website, and reinvigorated our marketing outreach, customer service and support models. Indeed, I am very proud of our progress in 2024, And as we now look to 2025, and beyond, we remain very optimistic and excited about our future. Despite the delays in defense budgeting processes, geopolitical and supply chain uncertainties, we reaffirm our belief that in 2025, Kopin will continue to grow and generate between 52 to 55 million dollars in revenue. Now, let me discuss everyone's favorite topic, tariffs. On the pricing side of our business, our government contracts allow us to seek price increases if the tariff affects our costs. On the supply side, our raw wafer inventory levels can support our demand in 2025. Further, Kopin began our fab light strategic initiative in 2023, with the goal of reducing our exposure to Asian supply chains. Since then, we've created dual supply chains for OLED on silicon displays specifically. Which are already supporting customer demands. No company will be immune to the effects of tariffs however, we believe Kopin is in a much better position than most due to these decisions. Now, in 2025, we will continue to execute on our one Kopin Strategy as this supports and directs more resources to the rapidly expanding European and Southeast Asian defense markets.

This focus should provide us with a lift in global opportunities and a more balanced pipeline for growth as we continue to witness additional and significant project funding in parts of Europe and Korea specifically. As an early indicator of our progress, we are seeing an influx of new and challenging opportunities which fit our strategic plan, our priorities, and our capabilities, Furthermore, we are actively exploring strategic partnerships, with leading firms in high growth markets and regions to expedite this growth. Coupled with our engineering, production, and program management teams, we must also execute more profitably on our current programs and anticipate a new product introduction growth. Thus, our strategic initiative for 2025 is the implementation of AI assisted factory and process automation, improving manufacturing efficiency increasing automation, and reducing redundancies are critical areas of improvement for our company. Several of these automation projects were funded and began development in early twenty twenty four. We believe these initiatives will be enabling higher factory absorption rates, better data driven decisions, and lead to greater throughput in our current facilities. As we capture more of our opportunity pipeline, our ability to leverage our manufacturing facilities to handle greater demand, improve product quality while reducing overhead costs, is critical for our success.

We are excited to share that we expect a significant milestone achievement in our factory automation plan to be achieved this quarter. As we introduce new AI enabled inspection systems. We are making these improvements to increase our manufacturing capacity, without significant headcount increases to create a cost structure that turns volume into profits, and to have capacity to achieve our goal of at least $75,000,000 in annual revenue in 2027. Our existing pipeline is very strong, with programs that have congressional budget demands throughout 02/1930. Additionally, several of the program contracts we have are IDIQ or demand, indefinite quantity which allows for even greater revenue demands than we currently have on order. Again, considering the recent tariff news and geopolitical tensions, it is important to note that our top three programs are built here in The United States. And much of our active opportunity pipeline will also be built here as well. Whilst our NATO and European demands can be supported through our Scotland facility. All of this to say that we're very excited about the company's prospects, and we believe that in today's geopolitical environment, demand for microdisplays, optics, application specific solutions has increased steadily in defense, medical and industrial markets.

We're also incredibly proud of our expanding customer base, that is equally well positioned to deliver outstanding products and technologies to their end customers. Now, those lines, recent reports surrounding the IVAS version 1.2 program being novated to Andral have generated several questions about Kopin's ability and ambition to capture some or all of these types of opportunities. As a reminder, IVAS is a $22,000,000,000 US Army program aimed at enhancing soldier capabilities through a body worn mix reality system leveraging augmentation and virtual reality for improved situational awareness. Lethality, mobility. In January, it was reported that requests for information were issued regarding a technical update to the program now called Soldier Born Mission Command, or SBMC. Kopin has submitted our responses, to this program along with contributing to several other tier one firms who have also responded We have quoted these firms with our microdisplays, and in several cases, we have included fully integrated modules, which include displays, optics, drive electronics and our neural software in some cases. From the Kopin perspective, these are both positive reports about the overall program and our ability to contribute to it. But more importantly, the soldier worn visual acuity market in defense is maturing and growing at a rapid rate within The US and globally.

While SPMC remains a significant opportunity for Kopin, we continue to focus on developing our own integrated visual acuity system or what we call IVAS now solutions. Which allow warfighters both a daytime and a nighttime solution that works seamlessly with their fielded systems like the current versions of night vision goggles or NVG and popular helmet worn systems. These new products allow Kopin immediate access to significant market potential since there are millions of NVG goggles in use today. Which require additional information sources to be visible through the goggles during operation, IVAS now utilizes currently available information systems and connections and data, through the Android Team Awareness Kit, or ATAC for short, and our DEVAS solution, which is being offered with the Wilcox Fusion Claw system. This new strategy was affirmed recently to be valued as Kopin was awarded a multimillion dollar research and development contract for a new XR off the visor optical prototype for the Army, which we announced recently. Other exciting developments include our work on micro LED, product portfolio, and the progression to our neural display architecture, a highly advanced display that includes embedded sensors to track eye movement, position, gaze while simultaneously processing the tracking data 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. Current demonstrable silicon is an OLED on silicon [indiscernible] we also will offer this technology as a micro LED as well. We believe that this display system will be a great fit for next generation of defense visual augmentation system it is also receiving significant interest from medical and consumer spatial computing manufacturers. As an example, our solution would reduce several internal cameras within the current Apple Vision Pro or Quest headsets. Resulting in reduced size, weight, power consumption, while still offering great image quality, eye, and pupil tracking with dynamic controls. We now have operational prototypes of this innovative hardware and software and expect to announce more details on that very shortly. Now, with respect to our order book so far in 2025, we have announced further contract wins, including a $14,000,000 purchase order for thermal imaging assemblies, which has an additional $5,000,000 for materials procurement. $4,000,000 in orders for pilot helmet augmented reality systems a $2,000,000 follow on order for helmets and rotary and fixed wing pilot applications, and we've been awarded several million dollars in research funding for extended reality prototypes.

We are excited about the tremendous opportunities are in front of Kopin. And believe the next few years will be an exciting time as we continue to our pursuit to save lives. Our technology ultimately to increased safety for our warfighters which means more of our men and women in uniform come home. Surgeons who use our CR3 headset from HMDMD will perform their operations more effectively, efficiently and accurately providing better patient outcomes. And firefighters who use our technology to see through dense smoke will find people in need. We take that work very seriously and have an incredibly dedicated and passionate team that comes to work every day with this mission top of mind. I'll now turn the call over to our CFO, Rich Snyder, to review our results from the fourth quarter and full year of 2024 in further detail. Rich?

Thank you, Michael. Turning to our financial results for the fourth quarter. Total revenues from Q4 were $14,600,000 versus 8,600,000.0 for the prior year. A 71% increase year over year. Product revenues for the fourth quarter ended December 28, '24 were 12,600,000.0 compared to $6,800,000 in the fourth quarter ended December 30. The increase in product revenues was a result of higher defense product revenues which increased by 6,000,000 year over year. Almost a 100% increase. In the fourth quarter of twenty twenty four, funded research and development revenues were 1,700,000.0 a decrease of $60,000 as compared to Q4 twenty twenty three.

Essentially flat. Cost of product revenues for the fourth quarter of twenty twenty four were 10,600,000.0 or 84% of net product revenues, compared to 7,200,000.0 or 106% of net product revenues for the fourth quarter of twenty twenty three. The increase in cost of property as a result of higher volumes which provided fixed cost leverage. R and D expenses for the fourth quarter of twenty twenty four were $3,100,000 compared to $2,200,000 a year ago, This was primarily due to an increase in internal costs of to establish OLED deposition capabilities in Europe and new display development. SG and A expenses were $3,100,000 in the fourth quarter of twenty twenty four, compared to $5,900,000 in the fourth quarter of 'twenty three. The decrease was primarily due to a decrease in professional fees of 2,900,000.0 most of which was legal expense. Turning to the bottom line, the net loss for the fourth quarter of twenty four was $1,900,000 or $01 per share, compared with a net loss attributable to Kopin of $6,500,000 or $06 per share for the fourth quarter of 'twenty three. Turning to the full year results. Total revenues for the year were $50,300,000 compared to $40,400,000 for the year ended 12/30/2023, a 25% year over year increase.

Product revenues for the year ended 12/28/2024 were 43,600,000.0 compared to $25,900,000 for the year ended 12/30/2023. The increase in product revenue was a result of an 82% increase in defense product revenues. R and D revenues were 3% lower again, essentially flat. Product revenues for 2024 were 36,200,000.0 or 83% of net product revenues compared to 24,700,000.0 or 96% of net product revenues in the prior year. Cost of product revenues decreased as a percentage of revenues in 2024 as compared to '23. Primarily due to an increase in unit volume with thermal weapon sites from higher sales in '24 as compared to '23, which resulted in a lower fixed cost overhead cost per unit.

The company also implemented several programs and hired additional resources to improve manufacturing quality and efficiencies. R and D expenses for 2024 were $9,600,000 compared to 10,800,000.0 for 2023. An 11% decrease year over year. Funded R and D for 2024 decreased 3,300,000.0 as compared to 2023, primarily due to the completion of contracts for defense program awarded prior to '24. Internal R and D expenses for 'twenty four increased 2,200,000.0 as compared to the prior year primarily due to an increase in display development costs and in costs incurred to establish European foundry service. Selling, general and administrative expenses $22,800,000 for '24 compared to $21,800,000 for 'twenty three. SG and A expenses for 'twenty four increased as compared '23, primarily due to an increase of 1,400,000.0 in legal and professional fees dollars 2,000,000 in excise taxes, partially offset by $400,000 of lower bad debt expense and $200,000 decrease in non cash stock based compensation. Net loss attributable to Kopin for the year ended 2024 was $43,900,000 or $0.33 per share, compared with a net loss attributable to Kopin of Corporation of 19,700,000.0 or $0.18 per share for the year ended 2023. Excluding the $24,800,000 of litigation accrual, the adjusted net loss attributable to Kopin would have been 19,100,000.0 or $0.14 per share.

Net cash used in operating activities for '24 were approximately 14,200,000.0 Kopin's cash and equivalents and marketable securities were approximately $36,600,000 at the end of the year. Listeners should review our Form 10 ks for the year ended December 28 for all the additional disclosures. And with that, I'll turn it back to Michael.

Thanks very much, Rich. Again, I would just like to thank our audit firm our investors, and the great employees of Kopin for turning in a fantastic result in 2024, and we look forward to a great 2025. And with that operator, we'll open it up for some Perfect. Thank you so much. We'll take our first question from George DeNricas with Canaccord Genuity. Please go ahead.

Good morning, everyone. Thank you for taking my questions.

Like to ask a little bit about [indiscernible] maybe you can outline any technical improvements and how close you are you think we are to commercial deployments and commercial readiness. Thank you.

Neural display right now is demonstrable We are giving it signals, producing signals and taking signals. Which is a huge step We've also been working on our software We look to produce neural display in a headset and demonstrate it this year. So that folks can see the capability actually while they're wearing the displays. So that's the next big milestone is actually putting this new technology into a headset so people can see it, feel it, and use it. And that's the next big milestone, George. And we're hopeful to announce a milestone in that area I'd say this quarter or next.

Thank you. Maybe just as a follow-up just a question on the financials. You've given guidance and revenue for 2025. I'm wondering you just maybe a little bit more detail on what you expect the OpEx development to be? You made a remark about Q4. Being the milestone. So is it about $6,000,000 a quarter we should expect [indiscernible] In 2025? Thank you.

What's your definition of OpEx? [indiscernible] Some folks have cost of sales and some folks don't. I just wanna make sure. Just exclude C and A and R and D? Correct. Correct. Yes. So we should be in the range for SG and A of around 10,000,000 to $12,000,000 and then R and D fluctuates as I said it's around [indiscernible] and a half million for our internal and external The funded R and D piece is always questionable because it's dependent upon the revenues itself. But internal let me put it this way. Our goal for internal R and D is 7% of revenues. All right? That's what we're budgeting. And we run 10 to 12 of SG and A. As I said, FRD and D expense is a little bit more difficult because it depends on the FRD programs revenue. But [indiscernible] And as a reminder, FRD is funded research and development that we receive from customers.

Got it. Okay. Thank you.

And our next question comes from Jason Schmidt with Lake Street. Please go ahead. [indiscernible] curious if you've seen sort of any impact in customer engagements or kind of contract push outs with Doge and kind of the government changes that are going on? And I guess relatedly, it'd be helpful if you could comment on what you saw from an order activity perspective here in Q1.

Sure. So we've not seen any impacts from government budget cuts We do have many requests in for government funding, whether that be through the DPA office, CHIPS Act, or the DIB. So those requests are not in plan, Jason. We're not projecting them to be in plan. But they are significant close to well, well, over $100,000,000 of requests. Actually, but we are not forecasting those to come in until we have a greater view and more interaction. I have spent a tremendous amount of time on Capitol Hill the past few months That's been public. To help pursue those funding requests. Along with our customer, which is great. But we have not seen to be clear any push outs or concerns for cancellations of our backlog or future business at this point in time. Because of Doge. Secondly, we have actually seen an influx of requests for training and simulation opportunities. Training and simulation usually is the first indicator of conflict because you want to train your troops. And we're seeing that globally, more specifically in Europe, and some here in The United States. And then lastly, we're seeing tremendous increases of demand for optical systems for soldier worn systems and also first person viewer drone control requests.

So, that's across the world, Korea to Europe, to The United States. So we have not seen a slowdown at this point.

Okay, that's really helpful. And then just shifting gears to the One Kopin initiatives. What's the timeline for most of those to be fully completed?

So we have a very aggressive schedule, Jason. As I mentioned in my prepared remarks, we're implementing the first optical test solution this quarter. And each quarter we have, phases of new automation that we're adding. To be clear, we're not looking to reduce headcount because of this. Looking to add throughput to the fab to support the volumes that we're currently seeing in backlog, as well as a number of opportunities that we expect to come in Now, I didn't answer the second part of your last question. I apologize. So, we have seen pretty significant orders in Q1 We are expecting to announce several new orders as well. We just couldn't them out before the call. But we have been receiving fairly significant and steady order book activity for 2025 as well as 2026. So look for more of those press releases shortly.

Gotcha. Appreciate all the color. Thanks a lot, guys.

Thanks, Jason. And We'll go next to Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Hi, yes. Thanks for taking the questions.

Curious, maybe Rich, the gross margin. It had been going sequentially going up for a couple of quarters that ticked down this quarter. Can you just give me some dynamics of what the difference is there? And then your best estimate for how we should think about it for next [indiscernible] we, as part of the the One Kopin initiative, the markets we focused on we took I wouldn't say aggressive, positions, but we really looked at what we thought the business was going to be in 2025. And took some reserves on inventories in markets that we just didn't think we were going to really pursue. Going forward. Basically, of the products are getting older, but that's probably the only real anomaly in the quarter. Otherwise, it's just a lot of volume There's some inefficiencies when we're trying to create that much volume. Which is why the automation is so critical for us. To date, when we try to scale, we're hiring people. Because there's still a lot of touch labor. And so that's why for us to leverage really get the margins moving in the right direction automation is the key. So good news is we've got a lot of volume.

We just gotta be able to make it a little cheaper. To expand the margins. And we do expect margin expansion throughout 2025.

So what of what the middle of the year look like? Is that what you think is we'll get to we'll be in that range or a little beyond that with with automation or Yeah. I mean, so Yeah. I guess I guess in, like, queue queue the high you were like 24% product or so. Is that feel like the range you want to be in or is that Yes.

Yes. That's exactly right.

Glenn, this is Michael.

There was also a bit of mix in Q4. We had several smaller programs that came back into revenue. In Q4, actually, we were not expecting in some cases. That were lower margin than expected. So, we think that Q3 of twenty twenty four is the model in terms of margins. And we think with these inspection systems and automation systems that we're adding to the fab, will improve that margin as we increase our revenue we want to hold our headcount firm and not add headcount, but add automation so that we can produce more with what we have and create those margin capture opportunities. Thanks. That's helpful. And I give you the opportunity to discuss if there's any update or do you have any guesstimate on when there'll be an update on the lawsuit? No, I have no update at this point. We have not heard from the courts in Colorado. We have been actively putting in motions throughout Q4 around the case with in Massachusetts actually that Blue Radios is involved with. And we entered those motions in Q4 to highlight the summary judgment in Massachusetts. As well as some inconsistencies that we saw in testimonies and some contradictions that we see between the cases.

So, those motions went in in Q4. They're available online. I believe you can look at them for your own edification on pacer.org. So but we have not heard any judgments on those motions. There's no hearing scheduled, and we have not heard from the Colorado court as at this point in time.

Yeah, just for clarification for folks who may not be aware, not only did Blue Radio sue us, they sued our law firm. And that lawsuit against our law firm was thrown out on summary judgment. With no validity.

It's fair to say that blue radios, we believe has or will put in their appeal on that case in Massachusetts.

To be clear.

Amazing. It's been almost a year or close to a year since that really come out. There's no way to force the judge's hand in terms of speeding up the process I guess. Then also while you're answering that, there much expectation for further legal expense this year as this thing winds down or if there's any appeals or anything like that? Thanks.

Sure.

So right now you're correct. It's one full calendar year since the jury verdict. That's number one. Number two, I think we don't foresee any further major expense with the exception of the appeal of whatever judgment final judgment we receive in Colorado. If it's adverse. But I'm becoming more confident in our ability to reduce the damages, number one. Number two, I'm more very much more confident in our ability to appeal any judgment in Colorado based on what's happening in Massachusetts, as well as some of the motions that our law firm has put in in Q4. So I would say that we look forward to moving this forward And, you know, the battle has just begun. It's not over. I think we're very much focused on our appeal but that appeal, Glenn, is not a forever type of cost. It is founded by the document that you put into the appellate court and we don't foresee it being significant in terms of the cost structure to appeal this judgment if and when we receive it. So we think we'll get a normalized cost structure here in Q1 and Q2 and the appeal we believe will be sub a million dollars of cost.

Sorry. Did you say several or seven? I didn't hear what you said there. Sub $1,000,000. So below 1,000,000 And that yeah. And that's a onetime cost. That's not a recurring cost. It's a one time cost to [indiscernible] put the appeal in place Okay.

Thanks for the color guys. Good luck.

Thanks, Quinn. Thank you. We have no further questions in the So I'll turn the call back over to Michael Murray for any closing remarks.

Wonderful. Thank you, operator. Again, thank you very much to our shareholders our employees and our customers for their patience. With filing our 10 ks. We're excited about this year and the future. And we look forward to talking to you very shortly on our 1Q twenty five. Very much, folks.

Thank you. And ladies and gentlemen, that does conclude today's program. We thank you for your participation. You may disconnect at any time.