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KOPIN CORP (KOPN)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 revenue grew 18% year over year to $12.3M, driven by a 106% increase in defense product revenues; net loss improved to $(5.9)M or $(0.05) per share as product cost ratios improved on lower rework costs .
  • Product gross cost ratio fell to 79% of product revenue (from 95% YoY), aided by ~$1.3M “catch-up” from lower estimated rework costs; management expects gross margins to continue expanding from this lower-cost base .
  • Management guided qualitatively for Q3 revenue “cautiously above analyst guidance” and a stronger H2; longer-term, they reiterated a path to ~$100M annual revenue “in the next 3 years or so” supported by defense programs (F-35 OLEDoS, thermal weapon sights, NG-SRI) and international demand .
  • Strategic catalysts include accelerating defense order momentum (five new development customers, 1,200-unit India OLED order, F-35 OLEDoS production approval), plus AI-enabled NeuralDisplay progress, offset by BlueRadios legal overhang and heavy legal spend in Q2 ($3.1M) that management expects to drop sharply after Q3 .

What Went Well and What Went Wrong

  • What Went Well

    • Defense strength: Defense product revenue rose to $10.4M (+106% YoY), driving total product revenue up 84% YoY; five new customer development orders expand future production opportunities .
    • Margin progress: Product cost ratio improved to 79% (vs. 95% YoY), aided by sustained quality improvements and lower rework; ~$1.3M margin benefit recognized in Q2 from estimate true-up. CFO expects margins to continue trending up from this adjusted base .
    • Program milestones: Achieved final production qualification milestone for F-35 next-gen OLEDoS and exited alpha for NeuralDisplay software; management highlighted an opportunity pipeline of ~$500M (with ~$350M defense) .
    • Management quotes: “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” .

  • What Went Wrong

    • Legal expense and overhang: SG&A increased to $7.3M (from $6.5M), including $3.1M in BlueRadios-related legal fees; accrual of $24.8M damages remains on the balance sheet from Q1, pushing shareholders’ equity negative in Q2 .
    • R&D revenue decline: Funded R&D revenues fell 70% YoY as certain defense development programs completed and move to LRIP (reducing the high-margin funded mix) .
    • Industrial softness persists: Industrial/Enterprise revenue declined 30% YoY; management cited geopolitical issues impacting 3D AOI demand in China/Korea; any improvement near term expected to be marginal .

Financial Results

  • P&L snapshot vs prior year and prior quarter; cost ratio proxy for margin improvement
MetricQ2 2023Q1 2024Q2 2024
Revenue ($M)$10.46 $10.03 $12.34
Diluted EPS ($)$(0.07) $(0.27) $(0.05)
Net Loss ($M)$(8.18) $(32.55) $(5.92)
Cost of Product Revenues (% of net product rev)95% 95% 79%
SG&A ($M)$6.47 $7.23 $7.27
R&D Expense ($M)$3.13 $2.10 $1.84
  • Segment and revenue-type mix (Three months ended)
Revenue Detail ($M)Q2 2023Q2 2024
Defense$5.1 $10.4
Industrial/Enterprise$0.9 $0.6
Consumer$0.1 $0.0
Funded R&D$3.9 $1.2
License & Royalties$0.5 $0.1
Total$10.5 $12.3
  • Balance sheet highlights (end of Q2 2024): Cash/restricted/marketable securities $18.68M; accrued litigation damages $24.8M; stockholders’ equity $(0.22)M .

Estimates vs Actuals (S&P Global)

  • Q2 2024: Consensus EPS/Revenue unavailable at time of analysis; management indicated Q3 revenue should be “cautiously above analyst guidance.” Wall Street consensus from S&P Global was unavailable for inclusion at this time.
  • Q3 2024: Guidance qualitative only (see Guidance Changes) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth vs 2023FY 2024“Double digit growth in 2024 over 2023” (Q1 release) Reiterated stronger H2; no numeric update Maintained (tone positive)
Quarterly revenueQ3 2024N/A“Q3 revenues [to] increase cautiously above analyst guidance” New qualitative guide (above consensus)
Long-term revenue target2–3 yearsN/A“Aim to achieve and sustain over $100M in yearly revenue in the next 3 years or so” New LT target articulation
Program milestonesMulti-yearWorking toward OLED/OLEDoS transitionFinal production validation for F-35 OLEDoS; moving to qualification/flight testing Positive milestone

Note: No numerical ranges provided for revenue, margins, OpEx, OI&E, or tax rate in Q2 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023)Previous Mentions (Q1 2024)Current Period (Q2 2024)Trend
Defense demand/thermal weapon sightsOrders/backlog strong; preparing fab for ramp; potential to triple 2024 weapon sights vs 2023 Backlog >$55M; $20.5M new weapon sight config; triple 2024 potential; H2 weighted Defense product rev +106% YoY; 5 new dev customers; Q3 expected above consensus Strengthening
OLED/OLEDoS for F-35Transition plan to OLEDoS; NATO-friendly deposition partners Exited development phases for F-35 OLED; expecting production orders Final milestone in production qualification; sole provider through two display generations Milestones achieved
NeuralDisplay (AI)Introduced architecture and roadmap Demonstrated bidirectional OLED eye-tracking; pushing alpha demo goals Software reached alpha; continued demos/pipeline building Advancing
Supply chain/quality/OTIFOTIF improved from 63% to 84% in 2023; materials constraints Ramp underway; quality trending higher; build for H2 Incoming inspection ~97%; margin catch-up benefit; continued improvement Improving
Legal (BlueRadios)Trial timing; several million in Q1 legal cost expected Accrued $24.8M; reviewing options; appeals could be lengthy; monetizing assets $6–12M targeted Q2 SG&A includes $3.1M legal fees; expect expenses to drop sharply post-Q3 Near-term drag easing
Industrial/3D AOIWeakness in China; de-emphasis Continued weakness; cautious Still weak due to geopolitics; new lower-cost product in development Soft
International/NATOGrowth opportunity as NATO spend rises Expanding BD in Europe/Asia; backlog growth New European orders; 1,200-unit India OLED order; expanding int’l pipeline Rising

Management Commentary

  • Strategic focus on defense-led growth: “This progress has validated our strategy to reset the course within Kopin to focus on defense products” .
  • Near-term outlook: “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” .
  • Long-term ambition: “Grow yearly revenues to $100 million or beyond… with… reoccurring revenue scheduled out to 2030 in some programs” .
  • Program pipeline: “Our opportunity pipeline has now extended over $500 million, of which $350 million… resides within the defense market” .

Q&A Highlights

  • Breadth of defense strength: Growth was broad-based across weapon sights, projectile thermal imagers/eyepieces, and rotary/fixed-wing helmets; increasing European interest .
  • Gross margin trajectory: Q2 benefited by ~$1.3M rework estimate true-up; margins should expand from the adjusted base as quality improves .
  • Q3 outlook: Management confirmed Q3 should be up sequentially .
  • IVAS strategy and timing: Partnering with Wilcox and others; expect production in 2025 with “immediate revenue,” while nighttime module targets large installed base of ENVG goggles .
  • Abrams/Armored vehicle PPAP: SEP4 canceled, but Kopin’s weapon sight program continues; >$10,000 per system, 4 systems per vehicle, potential retrofit of 10–20% of >10,000 vehicles .
  • Industrial 3D AOI: Market remains de minimis near term; working on lower-cost offering; some Europe uptick .
  • Legal spend: Q3 expected to be the last “tough” quarter; after motions, expenses should “drop dramatically” .

Estimates Context

  • Q2 2024: S&P Global consensus estimates for EPS and revenue were unavailable for retrieval at the time of analysis. Management guided Q3 revenue to be “cautiously above analyst guidance” but did not provide numeric guidance ranges .
  • Implications: Absent published consensus, estimate models may need to raise H2 revenue assumptions for defense strength and modestly improve gross margin trajectories given sustained quality improvements and lower rework costs .

Key Takeaways for Investors

  • Defense-led inflection: Q2 defense revenue more than doubled YoY; multi-program momentum (thermal weapon sights, F-35 OLEDoS, NG‑SRI) underpins H2 acceleration and a stronger 2025 .
  • Margin repair underway: Product cost ratio fell to 79%; as rework declines and yields rise, management expects continued margin expansion from the adjusted base .
  • Near-term catalyst: Q3 revenue guided qualitatively above consensus and stronger H2; watch order conversion pace, fab throughput, and gross margin ex-true-ups .
  • Long-term thesis: Embedded in multi-year defense programs across U.S. and NATO; management targets ~$100M annual revenue within ~3 years .
  • Risk/overhang: Legal (BlueRadios) drove $3.1M Q2 legal expense and $24.8M accrual, leaving negative equity; management expects legal expenses to drop after Q3 and is pursuing asset monetization .
  • Optionality: NeuralDisplay (AI) and medical/biomedical expansion (SLMs, surgical HMDs) offer non-defense upside; consumer remains de minimis near term .

Appendix: Additional Relevant Q2 Press Releases

  • F-35 OLEDoS production approval milestone (Collins/RTX) .
  • NeuralDisplay software reaches alpha (AI-enabled, bidirectional display) .
  • Army SBIR for novel AR optics to improve soldier systems .
  • Firefighter mask thermal imaging follow-on (~$1.5M) .

All citations:

  • Q2 2024 8-K/press release:
  • Q2 2024 earnings call:
  • Q1 2024 8-K/call:
  • Q4 2023 8-K/call:
  • Other press releases: