KOPIN CORP (KOPN)·Q3 2024 Earnings Summary

Executive Summary

• Q3 revenue rose 26% year over year to $13.3M, with defense product sales up 109% to $10.4M; product gross cost ratio improved to 76% of product revenue (implying ~24% product gross margin) vs 99% a year ago, driven by favorable mix and quality gains . Net loss was ($3.5)M or ($0.03) per share vs ($2.5)M ($0.02) last year .
• Management highlighted record order momentum, projecting over $75M of 2024 orders (potentially the highest in company history), though Q3 book-to-bill was slightly below 1:1; quality acceptance at top customers reached 94% in Q3/October, and gross margin improvement is planned to continue into Q4 .
• Strategic milestones include final production validation of the next‑gen OLEDoS display for the F‑35 HMDS and a $2M follow‑on AMLCD order to support current F‑35 production, positioning Kopin as the sole display supplier across two generations .
• Estimates context: S&P Global consensus data was unavailable at the time of analysis (system limit). One analyst on the call noted revenue was “a bit better than we had expected,” but no quantification was provided .

What Went Well and What Went Wrong

• What Went Well

  • Defense strength and mix: Defense product revenue more than doubled (+109% y/y) to $10.4M; product cost ratio fell to 76% (vs 99%), reflecting favorable mix and improved quality .
  • Program milestones and orders: Completed final production validation of OLEDoS for F‑35 HMDS and received a $2M follow‑on AMLCD order; also secured a $1.3M follow‑on Emerald module order for a major weapon sight .
  • Execution and quality: Incoming inspection acceptance at top customers reached 94% in Q3 and October (up from 86% in the prior quarter), supporting margin expansion; management plans continued margin improvement into Q4 .
  • Quote: “We now project over $75 million in orders for 2024 and beyond, potentially the highest annual order total in our Company's 40-year history.” — Michael Murray, CEO .

• What Went Wrong

  • R&D revenue decline: Funded R&D revenue fell 54% y/y to $2.3M as programs were completed and moved to low‑rate initial production .
  • Operating loss and legal overhang: Net loss widened y/y to ($3.5)M on higher SG&A (legal), including a $1.1M non‑cash impairment; broader year-to-date results include litigation-related accruals earlier in 2024, leaving a legal overhang pending appeals .
  • Book-to-bill in Q3: Q3 book-to-bill was slightly below 1:1, though YTD remains ahead of schedule; international revenue still <5% of FY24 but expected to grow with incremental investment .

Financial Results

Headline financials and operating line items

Segment/category revenue (display revenues by category; $M)

KPIs and balance-sheet indicators

Estimates (consensus) vs actuals

• Consensus (S&P Global) revenue/EPS for Q3 2024 were unavailable at time of analysis due to system limits; no definitive beat/miss quantified. Analyst on the call noted revenue was “a bit better than we had expected,” without providing figures .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We now project over $75 million in orders for 2024 and beyond, potentially the highest annual order total in our Company's 40-year history.” — Michael Murray, CEO .
• “Quality improvements also continue, incoming inspection rates at our top customers reached 94% in Q3 and October as well, up from 86% in the previous quarter, positively impacting product gross margins.” — Michael Murray .
• “We reached the final production qualification milestone for our… OLEDoS display for Collins Aerospace’s F‑35… Recently, we received a $2 million follow-on production order for… AMLCD displays.” — Michael Murray .
• “With the trial portion of the lawsuit behind us… we expect legal fees to normalize at a much lower level… appeals process… estimated [$]500,000 to $600,000… otherwise we run about $150,000 to $200,000 a quarter.” — Richard Sneider, CFO .
• “That's the plan [to continue sequential gross margin improvement into Q4].” — Michael Murray .

Q&A Highlights

• International and sales buildout: International was <5% of 2024 revenue but expected to grow; sales infrastructure not fully built out, incremental investments planned .
• Revenue drivers and 606: Q3 upside vs one analyst’s expectations driven by product mix and ability to produce; ASC 606 percent‑of‑completion and supply chain flow supported revenue recognition .
• Gross margin trajectory: Management intends to continue sequential gross margin improvement into Q4 .
• Supply chain/tariff hedging: Dual‑source deposition partners including a U.S. DoD‑approved provider; better quality observed; fab‑lite provides flexibility against tariff shifts .
• Orders/backlog: Expectation to close ~$20M additional orders in Q4 to reach ~$75M for 2024, focused on thermal weapon sights and helmet programs; timing risks around Israel noted for certain customers .
• Legal expenses: Trial completed; legal costs expected to normalize lower; appeal timing/cost outlined .

Estimates Context

• S&P Global consensus for Q3 2024 revenue and EPS was unavailable at time of analysis due to a system request‑limit error; as a result, we cannot quantify beat/miss vs consensus. An analyst on the call stated revenue was “a bit better than we had expected,” but did not provide numbers .

Key Takeaways for Investors

• Defense-led mix and margin: Product cost ratio improved to 76% (implied ~24% product gross margin), aided by mix and quality; management targets continued improvement into Q4, a key lever for earnings trajectory .
• Program durability: F‑35 display transition from AMLCD to next‑gen OLEDoS with final validation completed, plus fresh follow‑on orders, supports multi‑year revenue visibility .
• Order momentum as catalyst: Management expects >$75M 2024 orders (record potential), with thermal weapon sight and helmet programs as near‑term drivers; closing these orders is a tactical catalyst .
• Legal overhang moderating: With trial behind them, legal fees should normalize to $150–200k/quarter, with a discrete ~$0.5–0.6M appeal cost when it occurs; outcome timing remains uncertain .
• Liquidity improved: Cash and securities rose to $37.3M post‑September capital raise, while accrued litigation damages remain on the balance sheet; equity improved to $22.7M in Q3 .
• Strategic optionality: NeuralDisplay alpha milestone and DoD‑secure supply chain de‑risking broaden opportunities in defense and potentially consumer spatial computing; execution milestones (e.g., demos, design‑ins) could re‑rate the narrative .
• Watchlist: Q4 margin progression, order conversions to backlog, legal developments, and incremental international wins (<5% FY24 starting point) as near‑term stock movers .

Notes:

• All financial figures are from company press releases, 8‑K, and the Q3 2024 earnings call transcript as cited.
• Consensus estimates from S&P Global were not retrievable at the time of analysis; therefore, no beat/miss vs consensus is presented .