Ladies and gentlemen, please stand by. The conference will resume momentarily. Good evening everyone and welcome to the Copen Corporation second quarter 2026 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today and the earnings press release accompanying this conference call was issued earlier today. Before we get started, I'd like to remind everyone that during today's call, 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 assurance that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call. Copen Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Copen's strategic progress and business development during the second quarter and the period that has followed. Following Michael Copen's CFO, Erich Manz, will review the company's second quarter 2026 financial results. I would now like to turn the conference over to Michael Murray. Michael, the floor is yours.

Well, thank you very much, operator, and good afternoon to everyone, and welcome to our second quarter 2026 earnings call. The second quarter and the weeks that followed showed Copen executing on every one of the priorities we laid out at the beginning of this year. We delivered major technical and manufacturing milestones in our U.S. Army Color Micro-LED program. We converted our entry into FPV drone markets into multiple new prototype orders tied to the U.S. government's drone dominance program. And we continue to make disciplined, strategic investments in our U.S. engineering and manufacturing footprint, including a new optics and photonics design center in Dallas, Texas.

Today,

I will walk you through three areas. First, the three major milestones in our color micro LED program under the IBAS initiative and what they mean for domestic manufacturing of micro LED displays and micro LED based transceivers and co-packaged optics. Second, the accelerating momentum for Sentinel FPV as the drone dominance program moves toward Gauntlet 2. Awards. And third, our strategic investments, the Dallas Design Center, our continued on-shoring of OLED manufacturing, and our neural I.O. roadmap with Fabric AI, and how they position Copen for long-term, sustainable, and most importantly, profitable growth. First, let me start with our MicroLED program. In July, we announced three major milestone achievements Our Color Micro-LED Development Program under the U.S. Government Industrial Base Analysis and Sustainment, or IBAS, program. These accomplishments represent significant progress towards establishing a fully U.S.-based micro-LED display manufacturing capability that advances towards next-generation soldier vision systems. First, let's discuss some performance. of single panel full color brightness exceeding the program's threshold target. This is the level of brightness required for daytime readable full color augmented reality in the field and it's an early result. Planned improvements are expected to push this brightness even higher. Second, integration. We made successful early integration progress translating our color micro LED technology into U.S. Army ground soldier vision applications. This brings COPEN closer to enabling full soldier-borne systems such as Soldier-Borne Mission Command, or SBMC, where lightweight, high-brightness, full-color micro LED displays are essential for real-time situational awareness, digital overlays, and mission execution. And third, manufacturing. We received several custom-made tools which we are in the process of installation like our new micro LED bonding equipment at our Westboro headquarters. This advanced system enables the precise attachment of the micro LED array to the digital backplane, an essential step in micro LED production and a foundational requirement for scaling domestic manufacturing. With these milestones achieved, We expect to transition to manufacturing products in mid-2027, positioning Copen as a key U.S. supplier of next-generation micro-LED display technology. Programs like SBMC could enable hundreds of millions of dollars in revenues for Copen over the life of the program, and these milestones are the building blocks of that significant opportunity. I also want to underscore how pleased the U.S. Army is with our progress. We are meeting and in several areas exceeding the milestones laid out under the program and that performance is exactly what positions COPEN to gain access to future programs of record like Soldier Born Mission Command and many others. This is exactly the strategy we laid out when we received the $15.4 million IBAS award in September of 2025. developed the technology, onshore the manufacturing, and convert that capability into long duration U.S. defense programs. We are executing that plan on schedule and our phase one SBIR award for full color, smaller format micro LED displays continues to progress in parallel as well, which is focused on advancing our tactical weapon mounted sites and other weapon and head mounted programs and systems as well. And importantly, everything I've just described is being built in the United States by COPEN employees in facilities we control, a durable competitive advantage in a procurement environment that is increasingly mandating trusted domestic sources for critical components. And I pull for this technology and the pull for this technology extends well beyond the Army program. We are seeing strong demand signals from a number of international customers for our Color Micro LED across other applications, including heads-up displays, weapon sites, and helmet-mounted systems, which reinforces our conviction that Color Micro LED is a platform technology which will reach far beyond any single program. Furthermore, every advancement that we make into our IBAS and Color Micro LED platforms is directly and uniquely attributable to our neural IO AI infrastructure transceivers, near-packaged optics, and co-packaged optic chipset advancements. In several conversations with prospective customers, it is clear that the lack of advancement in micro LEDs in AI infrastructure applications is due to three critical technology issues which are our competition and our customers who are trying to develop this technology internally are struggling with and they happen to be the issues Copen is uniquely capable of solving and have solved in our past. Firstly, yields. Placing millions to hundreds of thousands of individual micro LEDs is exceptionally difficult to do either in a display or a transceiver configuration. Copen has a device in production which has 16 million individual LEDs in a half inch display. Copen has several years of experience in several ways of increasing yields which makes our technology and capability unique versus our competition in displays and these techniques are transferable to our transceiver portfolio as well. This capability will allow Copen to place the most amount of LEDs into one square millimeter and any other company in the world which will unlock significant bandwidths for the AI GPU, CPU and memory markets. We plan on announcing more about this capability very soon. The second technology hurdle is culminating the light of each pixel so that crosstalk and interference is kept to a minimum. Copen has pioneered several optical solutions in the display market, which are also transferable and valuable in solving issues like dispersion and culmination of light sources. Truly a difficult problem to solve. Lastly, and potentially more importantly, AI factories cannot go down for maintenance or because a transceiver fails. Copen's customers use our technology in the worst possible ways, in the worst possible environments, and expect our technology to work for over a decade of service. When I ask potential customers about their lifetime test data, longevity of supply and the commissioning of optical systems, Copen has years of experience in this area, which our new customers and partners value greatly. Often they value our technology and our answers in these areas. I will add further commentary on our neural IO progress shortly. Now turning to Sentinel FPV, in late June we announced that we received multiple new prototype orders from customers evaluating Sentinel as a core part of their offering for the US government's one-way attack or OWA drone initiative. Many of these customers are active contenders in the Pentagon's Drone Dominance Program or DDP, a major initiative aimed at strengthening domestic leadership in small drone and FPV capabilities. while reducing reliance on foreign-made FPV technologies. As a reminder, first-person viewers are headsets that visually put the drone pilot in the cockpit, if you will, of the drone, enabling full real-time control of the drone as if they were on board. Customers are selecting Sentinel for evaluation because of its unique combination of dual situational awareness, extremely low weight, and U.S.-based production and defense-ready performance. Dual situational awareness remains our clearest differentiator. Unlike traditional FPV goggles that fully block the operator's peripheral view, Sentinel delivers high clarity, low latency drone imagery while preserving the operator's awareness of their proximity and surroundings. A major advantage for both safety and mobility. The scale of this opportunity is quite significant. DDP winners have the potential to require tens of thousands of FPV goggles, and volume orders are expected to begin in late Q4, immediately following the DDP Phase II evaluations and awards, with requirements for immediate delivery as awards are issued. Each of our current prototype engagements represents the potential for significant volume production, and we are preparing our U.S. production capabilities to meet the demand with speed and precision supported by the in-house OLED manufacturing capability we announced in May. We continue to pursue additional strategic partnerships with drone manufacturers and system integrators seeking high performance, US-built, first-person view solutions, and we expect the domestic FPV ecosystem to remain one of the fastest moving opportunities through the balance of 2026. More broadly, we are seeing strong demand signals from drone customers both inside and outside the drone dominance program, a clear indicator of significant growth we expect in this market next year. In fact, we are currently negotiating several large production orders for 2027, and we will update you on those engagements as they convert. Turning to our core defense business, it also remains active throughout the quarter. In May, we showcased our newest advanced soldier vision technologies at SOF Week 2026, generating strong engagement across the Special Operations community. And later that month, we hosted the Minneapolis stop of our 2026 Technology Demo Days Tour, with Boston happening as of today. We continued executing against the awards we announced earlier this year, including the $21.5 million follow-on thermal imaging product and production contract our European helmet mounted display programs, our Darkwave development order with Theon, and other initial Sentinel FPV production orders. To date, we have received over $45 million of orders in 2026. As a reminder, many of our defense programs have congressional budget demands through 2030, and several of our contracts are sole source or indefinite delivery, indefinite quantity, or IDIQ. which provides additional upside flexibility above what is currently on order as well as recurring revenue and forecastable sustainable growth for several years. On the operations side, both phases of our optical automation program remain operational and on track to deliver approximately one million in annual operating expense savings while adding to overall production capacity as they reach full utilization. A truly excellent job by our operations team. Now, to our strategic investments. In June, we announced plans to open a new optics and photonics design center in Dallas, Texas, scheduled to open before the end of this year. Dallas is one of the nation's leading hubs for optical data communication, and this facility places Copen at the center of a growing ecosystem of high-performance computing, data transport, and photonics innovation. The center will include new optics and photonics lab space, a dedicated design and engineering center, advanced R&D capabilities focused on neural I.O., and manufacturing capacity for neural I.O., and application specific optical solutions as well. It strengthens our domestic engineering capabilities, deepens our expertise, and accelerates our ability to deliver next generation neural I.O. systems to customers across the AI infrastructure landscape. Stepping back, Copen remains focused on delivering application-specific solutions, displays and optics to our chosen markets with a clear focus on defense, medical, consumer, and AI infrastructure. The addition of AI infrastructure is a natural one for Copen. The industry's growing need for optical transceivers and co-packaged optics sits squarely within our core capabilities, because we have the specialization in silicon optical systems and have done so for several years. It also builds directly on our display expertise. We will continue to design and manufacture micro LED and our patented bi-directional displays, but we are now applying that same expertise to build micro LEDs that transmit data rather than images. This is not a trivial step forward, but it is one Copen is uniquely positioned to take. Given our micro-LED devices already in production, our color micro-LED development, and the IBAS funding that is building the production line to support all of our near-term manufacturing needs, this puts Copen in a very specific and unique advantage in the marketplace. Our collaboration with Fabric AI continues to advance on the roadmap we described last quarter, with a $15 million initial development order funding a demonstrable chiplet that we expect to compete by the end of 2026. As Fabric AI CEO Josh Silverman said in our June announcement, having the advanced optics R&D and manufacturing under one US-based roof lets us move from design to customer deployment far faster. I couldn't agree more. Our Neural I.O. project with Fabric AI is on track. and we expect to demonstrate the capability of the platform at CES in January 2027 with a clear path to production anchored by a 1.6 terabit per second transceiver solution. Turning quickly to commercial engagement which is quickly accelerating alongside this technology. During the period we signed several new non-disclosure agreements and more notably several of them are with current NVIDIA NVLink partners who are interested in working with Copen and Fabric not only on our current chipset but also on our newly formed roadmap of devices. We're also beginning to see new early stage interest from potential quantum computing and semiconductor customers and manufacturers alike. In parallel, COPEN continues to engage with other U.S.-based defense and government agencies on bespoke versions of neural I.O. chipsets tailored to their specific needs, solutions that must be manufactured here in the United States. To help lead this emerging ecosystem, COPEN and Fabric recently released the first of what will be many AI interconnect white papers and formed several new technology developments which we will discuss at later times. On the OLED side specifically, we received several new OLED orders from the international customers this quarter. That incremental demand on top of the OLED requirements generated by our FPV drone programs affirms our decision to bring OLED deposition in-house, and we expect our own OLED deposition line to come online early in 2027. Taken together, these investments reflect the same discipline we have described all year. We are comfortable with our cash position, and we are deploying capital against clearly identified quantifiable customer demand in micro LED, in FPV, in OLED, and in AI infrastructure. To summarize, the second quarter of 2026 showed Copen executing across every growth platform We delivered three major micro LED milestones under our IBAS program and kept our domestic manufacturing roadmap on schedule for mid-2027 production. We converted our recent entry into the FPV drone market into multiple new prototype orders tied to the drone dominance program. We committed to a new optics and photonics design center in Dallas to accelerate our neural IO platform. These new platforms Darkwave, Sentinel FPV, Neural IO, and Color Micro LED are multi-customer products serving global markets, not single customer custom programs. That is what makes our forward-looking recurring revenue more balanced and forecastable. And we did this all while maintaining a strong balance sheet and the discipline that has defined our capital deployment. I'll now turn the call over to our CFO, Erich Manz, to review our second quarter 2026 financial results in further detail. Erich, over to you.

Thank you, Michael, and good afternoon, everybody. As Michael outlined, the second quarter and the weeks that followed reflect a business that is executing across each of its growth platforms. From my perspective as CFO, the most important theme this quarter is a continued translation of our strategic investments into identifiable program-level demand across our IBAS micro-LED program, Sentinel FPV, and our emerging AI infrastructure opportunity. And to be clear, when we speak about the momentum in front of us, we're not referring to a single product line or a single growth initiative. What we are seeing is progress on multiple fronts. Opportunities we have deliberately prepared for and are ready to execute upon as they scale. This breadth is a key part of why our model is beginning to show operational leverage. As revenue continues to grow across several platforms and we maintain stable operating expenses, our operating profile strengthens in a way consistent with other high-growth technology companies. Before I turn to the numbers, there is one operational point I'm particularly proud of. This quarter marked our fourth consecutive quarter of exemplary on-time in-fold delivery and quality performance, a direct reflection of the maturity and discipline our operations team has built. With that context, I'll now walk through our second quarter 2026 financial results in more detail. Total revenue for the second quarter ended June 27, 2026. were $12.7 million as compared to $8.5 million for the second quarter ended June 28, 2025. A 51% year-over-year increase primarily reflects grant revenue recognized under our U.S. government micro-LED award, collaboration revenue from our development program with Fabric AI, our strategic AR thermal clip-on partnership, and higher research and development revenue on our phase two off the visor heads up display program with the US Army. Product revenue for the second quarter were 7.6 million, slight increase when compared to 7.5 million in the year ago period. Higher defense revenues from thermal weapon site applications and liquid crystal displays were largely offset by lower industrial application revenues. Non-product revenue, were $5.1 million in the second quarter of 2026 as compared to $1 million in the second quarter of 2025. The increase was primarily driven by grant revenue recognized in connection with our government award for the development of ultra-bright, full-color micro-LED displays optimized for ground soldier augmented reality applications. Collaboration revenue from our development program with Fabric AI to develop a commercialized GPU to GPU connectivity technologies together with our strategic partnership to develop a next-generation clip-on with augmented reality and thermal integration capabilities and higher research and development revenue on our Phase II OptiVisor heads-up display program with the U.S. Army. Cost of product revenues for the second quarter of 2026 was $6.6 million or 86% of net product revenues. as it compared to 7.1 million or 94% of net product revenues for the second quarter of 2025. The improvement as a percentage of net product revenues was primarily attributable to product mix. Research and development expenses for the second quarter of 2026 were 4.5 million as compared to 1.9 million for the second quarter of 2025. The increase was primarily driven by higher funded research and development costs in connection with our government award for the development of ultra-bright, full-color micro-LED displays optimized for ground soldier augmented reality applications, partially offset by lower internal research and development spend on fewer labor hours. Selling and general administrative expenses were $5.1 million in the second quarter of 2026 as compared to $4.9 million in the second quarter of 2025. The increase was primarily driven due to higher professional fees and accrued performance-based compensation. Taken together, our internal R&D and SG&A results underscore a theme that we've been committed to for the past several quarters, maintaining operating expenses at a relatively stable level while our revenue base continues to expand. This discipline will continue to move our operating margin trajectory in line with benchmark for high-growth technology companies. We said we would drive leveraged growth, and that commitment is being delivered. As our top line continues to scale through 2026 and beyond, we expect as operating leverage to strengthen further supporting our pathway to sustainable profitability. Loss from operations for the second quarter of 2026 narrowed to 3.5 million as compared to 5.5 million in the second quarter of 2025. Net income attributable to common stockholders was 0.9 million or zero cents per share as compared to a net loss of 5.2 million or a loss of 3 cents per share in the second quarter of 2025. The improvement primarily reflects higher revenue, total revenues, a $1.9 million increase in other income net driven largely by approximately $2.3 million of gains on investments and $2.1 million in income tax benefit recorded in connection with the expiration of a statute of limitations on an uncertain tax position. As of June 2026, We had cash and cash equivalents of $24.3 million with total cash, restricted cash, and marketable securities of $50.3 million, inclusive of $26 million of restricted cash, of which $24.2 million collateralizes the superseded bond posted in connection with the Blue Radio's litigation appeal. With respect to the legacy litigation, we do not expect any further updates on our federal appeal until approximately mid-2027. Turning to our outlook, reflecting the order momentum across the business for 2026, we continue to expect a solid second half, exceeding our prior guidance. Importantly, we expect to begin generating GAAP profitability and positive free cash flow in our fourth quarter of this year. As we look farther ahead, we are increasingly optimistic about our revenue trajectory into 2027, as the growth trends we are seeing in 2026 appear positioned to continue into next year. And with that, I'll turn the call back over to Michael for closing remarks.

Thank you very much, Eric. Before we open up for questions, I wanted to leave you with this. The second quarter demonstrated that COPEN strategy is working. Our micro-LED milestones keep us on track for domestic production in mid-2027. Sentinel FPV is converting into real program traction as drone dominance program accelerates. Our new Dallas Design Center expands our capacity to deliver neural IO for AI infrastructure and our core defense franchise continues to provide a durable foundation underneath it all. What sets Copen apart is relatively straightforward. We are the only company in the world manufacturing four types of micro displays, the inventors of bi-directional micro displays, the sole source provider on several Department of War programs of record, with many years of sustained production ahead and our technology platform is now being deployed across some of the fastest growing segments in defense and AI infrastructure. We believe the second half of 2026 will begin to demonstrate the full potential of everything we've built thus far and we're continuing to build on our momentum in all markets as we see continue and continue to execute on our strategic plan. With that, we can open the call to a few questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from the line of Josh Sullivan with Jones Trading.

Hey, good afternoon.

So with the planned demo of NeuralIO at CS in 27, can you just give us a little more color on what we should expect to see or what proof points are going to be on display?

Sure. So in my recent conversations with customers last week in California, what they're looking to see is whether or not we can transmit bits and receive bits in real time. and how fast we can do that. So our demonstrator with Fabric AI is going to demonstrate just that. We'll be sending bits, receiving bits and I won't go into all the details because I don't want to ruin the surprise but we'll be performing that demonstration for a number of potential customers and it will be a full transceiver tile. That tile that we'll be showing will also show how we're going to take that tile and move it down the topology into semiconductor sizes and then achieve the 1.6 terabits per second that the specification requires. So we're really excited about it. It's on track. And the first pull of optical data that we've received is very exciting. We showed it to a number of customers last week, the potential customers, and they're blown away with our current performance already. And that was our first pull of optical data. So super excited.

Yeah, great.

And then I guess, what is inbound interest from potential partners, Ben, since the first AI Interconnect white paper was released? And maybe what questions do those inbound parties have that might be answered in some of the white papers to come? You bet. Great question. So rough order of magnitude, we've received over 200, roughly 200 or more individual downloads of the white paper thus far. What was striking about it, Josh, is the number of companies that I didn't expect to see there. I can't mention them, but they're the belts and suspenders of the AI infrastructure, folks that build the racks, folks that build the backplane, companies that are not necessarily semiconductor companies, but our full OEMs of racks and back planes that go in those racks. So that was really interesting, number one. Number two, we had a lot of downloads of the white paper and requests for further information on our transmit side. What we've learned in the industry is that actually Copen has a fantastic transmit. We're learning about the receive side of the transceiver. and a lot of companies are really struggling with that. So there were some major tier one OEMs that downloaded the white paper and immediately contacted us for meetings, which I was on the West Coast last week meeting with some of the largest companies in the world and what we've learned is we've got a great transmitter. and a great potential component here in our neural IO. So very exciting, very happy with the response on the white paper and you should expect probably four more white papers over the course of the next calendar year.

Perfect. Thank you. I'll get back to you.

Yes, sir. Thank you.

Your next question comes from the line of John Seigman with Stiefel. Please go ahead.

Hey, good afternoon. Thanks for taking my question.

Hey, John.

Hey, just on congratulations on the progress on the IBAS micro LED. Can you maybe just talk about what remaining catalysts we might see for the remaining year? You had earlier talked about potential follow on funding for some capacity and just was seeing if that was still on track. Thank you.

Sure. So we're pleased that the Army is pleased with our progress. We're still working very hard to meet further milestones which we expect to in Q4 of this year. So I think we have another three milestones to finish off this year and that will put us in great position to provide the industry and the government with samples next year of the color micro LED. So those are the next milestones that we have and the team is working very hard to execute on those. We do expect and hope that we'll see further IBAS funding for potentially other devices as well. We're now thinking that micro LED will have its home in other applications, not just soldier-borne mission command type of vision systems or thermal weapon sites or night vision goggles. We're actually seeing some other demand from the Army for other devices, so it's too early to talk about those as potential wins for us just yet. There is active conversation going on for further IBAS funding.

Thank you. And if I could just slip in one for Eric as well. The $45 million in orders year-to-date, that's really helpful, but there has been some changes in what you report in your financials with your remaining performance obligations. I think that was related to the deconsolidation of Europe. Can you just maybe reconcile what those changes were with the numbers you're reporting today? Thank you.

Yeah, sure. We continue to lose the consolidation for the time being. It's not a significant revenue loss to us right now, but when we remeasure, we end up with a deconsolidation on a forecasted number for Copen Europe, and that resulted in approximately $1.4 million worth of a loss this quarter.

But on the backlog specifically, what Your backlog was down in Q1 versus Q4. You got that large targeting order after the quarter.

I was just wondering how to reconcile some of these backlog numbers.

I'm not sure about the reconciliation of the backlog, John.

We'll follow up afterwards. Thank you. Yeah, sure.

Your next question comes from the line of Alex Furman with Lucid Capital Market. Please go ahead.

Hey guys, thanks very much for taking my questions. Can you tell me about what investments need to be made in order to scale production of Sentinel, FPV, and how long those investments will take? And then any sense on when you might know how many units could be associated with the drone dominance program?

Sure. Thanks, Alex. So the major investment was actually purchasing the OLED deposition tool, which we did this year. We've talked about that that's under a $10 million number, and those payments are spread out over a number of quarters. That's the major investment in capital and volume capacity. The rest of the eyepieces that we need to manufacture were well within our current CAPEX and OPEX to do so. And that's the big reason why we moved to buying our own deposition is it's just going to be more profitable to do so. And lastly, the second part of your question, we expect to see more orders by the end of this year. Gauntlet 2 goes off shortly and we've been seeing the Pentagon actually place orders relatively quickly but then there's a translation between them placing orders and our customers placing orders on us so by the end of Q4 we should have a very good order book around our Sentinel FPV for 2026 and certainly we'll still be taking orders in the early part of 2027 as well.

Okay thanks Michael that's really helpful and then you know on Sentinel it's really interesting that You're one of the only FPV goggles that enables peripheral vision. It seems like that would be a really important feature on the battlefield. How is it that you're able to accomplish that when others can't? Is that primarily a matter of the level of brightness on the display, or are there other factors that contribute to that?

Great question. It boils down to what I talk about all the time, which is application-specific optical solutions. And in that specific application, we chose to have a non-occluded version, meaning we don't fully cover the pilot's eyes or the warfighter's eyes, because we believe that he or she will want to see their feet and keep their eyes on the rifle and eyes on the horizon for any threats. And that's really to make sure that the drone team, which is usually a team of four, one pilot, one gunner, and two kind of security personnel, We want to be able to reduce that level of personnel and create a better and safer environment for the pilot themselves. So that was the insight that we put into the program. But many of the goggles are coming from more consumer type of applications where you can sit in a chair and fly your drone. So that's where the headsets are coming from today, but that's not where they're going to be coming from in the future.

Okay, that's really helpful. Thank you very much.

Your next question comes from the line of Austin Moeller with Canaccord Genuity. Please go ahead. Hi, good afternoon.

So just my first question here, how should we be thinking about the market or the TAM opportunity for the micro LED transmitter component within the AI data center infrastructure space versus the receiver side.

Great question. Thanks, Austin. Good seeing you today. So when I think about the market for our AI infrastructure platform, I think about it in three chunks or three different markets. The first market is our transceiver portfolio, which we would consider near package optics. These transceivers will sit likely between two other chips, as an example in the data path, or between two boards, as an example in the data path. The second part of the market that we consider is a co-packaged optic. This is where our micro LED structures will sit with inside some other semiconductor company's product. That is a very different type of architecture. And in some cases, what we're learning is customers really, really like our transmit, which is a micro LED. And they have an abundance of receiver technologies that they have at their fingertips. The receivers themselves come from things like photo diodes, from cameras where there's been trillions of dollars of investment in camera technology. Meanwhile, the transmit side on the micro LEDs, not that much investment, very hard to do, but very important in a transceiver. So what we're hearing from the major semiconductor companies is focus on your transmit side for co-package optics. We'll still provide a transceiver, which means transmit and receive in co-package optics, but we're very strong on the transmit side. So that's the second part of the market. The third part of the market that actually is emerging for Copen It's because we'll have our own production line of micro LEDs by the end of this year. Many companies are asking us, and some of them are competitors, by the way, or people we would consider a competitor, if Copen would be their fab, would be their fabrication partner to build their micro LEDs for their solutions, because they know that we're very good at it. So those are the three parts of the market that I think about segmenting the market. And if we think about the total addressable market, it's $63 billion just in the United States in the $20 to $30 billion market by 2035. And we think we're very well positioned to capture a little bit of that, which would go a long way.

OK. As far as the manufacturing facility, you're going to initially be building these micro LEDs for the AI infrastructure market on that Soldier Board Mission Command production line. Obviously, it sounds like you have a lot more demand out there than you have production capacity right now. At what point might you start looking at building out additional capacity? What kind of customer signals have to be sent first? and could they provide some of that customer-funded CapEx or R&D to make that happen?

Absolutely, and that's starting to form up right now. To be clear, our priority is the IBAS award in Soldier Born Mission Command. That is critical for our future and funding a lot of our learning and development. Secondly, The government is actually quite happy that we're going to provide them with lower costs because of our utilization of their power production line will go up because we'll be shipping AI infrastructure micro LEDs. It actually benefits the government. So when we told them, they were quite happy with that. And then lastly, and interestingly, the more we produce in our production line, the quicker, better, faster our yields will become. At that point in time, once we have a clear yield number, we'll be able to understand how many wafers we're going to have to start and what our yields will be and therefore how many devices will come off our production line. For displays, we have a very good understanding of that. For this co-packaged optic, near-packaged optic, as well as potentially other foundry services that we're engaged in negotiations on, TBD. We're learning as we go. And there are several companies that are willing to support us in helping us grow that capacity. Moreover, the government is also willing to work with us to grow that capacity because they too need US-based optics for co-packaged and near-packaged optic. Last week, there was, I guess, an edict. I'm not quite sure if it was legal or not. But the U.S. government has now required AI infrastructure companies to no longer buy Chinese-made optical interconnects. And that trend is going to continue. So we think the government will be there to support us with volumes if we need it. And we think industry will be there to support us with more volume if we need it. But I don't think we'll make that decision until about this time next year.

Excellent, exciting time, so I'll pass it back. Thanks, Austin.

Your next question comes from the line of Jason Schmidt with Lake Street Capital Markets. Please go ahead.

Yes, thanks for taking my questions. Michael, just want to follow up on your comments on the strong international demand, and I guess specifically, can you update us on how things are progressing with FION and how your European business is tracking?

You bet. Thanks, Jason. Firstly, with Theon, things are going well. Specifically here in the United States, we're making progress with them. We're also making progress with them in Europe with Darkwave. We just completed the million dollar order that they gave us to adapt the connector for Darkwave to connect to Theon's night vision goggle. So that's just been completed. They're in testing now. I expect that testing to go well and hopefully we'll move to production rather quickly. But they just got their new prototypes, I believe, and are testing them now. Secondly, we're working with Theon on a number of different opportunities, mainly around displays. So that activity is ongoing and the two companies are working well together. In fact, I was with Theon about a month ago in Greece for a few weeks and We're definitely seeing new opportunities that I don't think we would have seen before, Jason. In fact, I know we would not have seen them before. And this relationship is opening those doors specifically in NATO. I hope that answered your question.

No, that's helpful. And then just as a follow-up, I know there's a lot of moving parts with sort of the revenue mix, but how should we think about gross margin trending for the rest of this year?

Yeah, I think the gross margin story is going to be good when we progress through the rest of this year and into next. We certainly see improvement in this quarter and we're expecting that to continue. We look at it from the perspective of our fixed cost profile and absorption of those costs, which is exactly what we've been saying right along. Our fixed costs are not moving. The volume in the business is what's actually driving the margins to be improved.

Okay, perfect. Thanks, guys.

Your next question is from Christian Swab with Craig Hallam Capital Group. Please go ahead.

Eric, you talked about exceeding previous guidance in the second half of the year. I think your guidance last quarter for the year was 52 to 60 million. Do you have a bracket of guidance that you're anticipating for the year now?

We're looking at exceeding the numbers that we last announced. We're not providing anything today as far as an official guidance number or range, but we're looking at at least exceeding what we had put out before.

Okay, that's fair. And then as we think about some of the bigger opportunities, Michael, do you anticipate, can you give us a range You know, the Sentinel-1, the first person view drone opportunity seems like it could be very strong in 27. Can you give us some color of the range of opportunities that could represent in 2027? I will try my best.

Christian, thanks for the question. It's exciting. It's definitely tens of millions of dollars in new customer orders and deliveries that we would expect in 2027. The scale could double that, quite frankly. Depending on who wins the most in the drone dominance gauntlets provides us a different mix. what I mean by that is there are some companies that we're partnered with that may not win the next round of Gauntlet or get a certain amount of volume so our challenge is to get as many as we can and play the spread so we know that we've achieved several of the top five so far they're using Sentinel as we speak and they're getting awards so we're really dependent upon them So that's the scale that we're seeing. It's in the tens of millions of dollars next year, and it really is dependent on who wins.

Yeah, that's fair. And then as we look at IBAS and FBMC and the lines being ready, would you expect to, or would you be disappointed if you did get, would you expect revenue in calendar 2027 from either or combined?

We do. I think we're well on track. My confidence is growing daily. I think the Army's confidence is growing daily. And I think once we have our sample of color micro-LED in front of the major primes, I think their confidence will also be exceptionally high. And at the very least, we'll see awards next year. We'll likely see some volume or at least low-rate initial production. in 2027, but the main production for the program is still slated for 2028.

Great. And then lastly, just on the NERO-IL platform, would you anticipate that from the numerous different opportunities that you highlighted that you would have production orders and revenue from the Nero IO platform in 2027?

I don't think production in 2027 will happen in terms of revenue. I think we're considering moving to monolithic IC development sooner than we had planned because we're getting... a significant amount of confidence and customer interest to do so. My tentativeness and Fabric AI's tentativeness initially was can we build this? Is this something that we can build? And I think the answer is coming back is clearly yes. And is this something that our customers would want? And that demand signal is clearly yes. So the consideration right now is do we moved more quickly to a monolithic IC development and tape out sooner than we had originally planned. And that's a conversation that we need to have with Fabric AI very soon here. But in terms of production revenue for 2027, I doubt it. It would likely be 2028. But we would see development revenue and R&D orders or development orders in 2027. We expect that to be in the, you know,

20 million to 30 million dollar type of range for a chip like that So if I just sum those three up plus a little bit more 666 with Neon Weapons and Collins and Darkwave and Healthcare we're on the cusp of substantial revenue growth in 27 is that fair? Yep

It's fair. We're really excited about it, Christian. I've got the team preparing for SOX compliance, and we do have $100 million in sight for 2028, for sure. It is a potential for 2027, albeit a small potential, but we're having the team prepare for SOX compliance in 2027, just in case.

Great. No other questions. Thank you.

Your last question comes from the line of Martin Yang with Oppenheimer and Company. Please go ahead.

Hi. Thank you for taking my question. Quick question on OLED. Once you have your in-house tools ready online for 27, how do you think that could impact your profitability?

Yeah, great question and thanks, Martin.

Good to hear your voice. I think definitely because we're vertically integrated, Martin, we use our own OLEDs and our own devices like Darkwave and the medical headset, et cetera. We'll just be cannibalizing our own devices that we currently have deposition in Europe with and reducing that margin stacking that we're paying for right now. So whenever we deposit OLED in our European partners, we're paying them margin, which we will enjoy moving forward with our own OLED deposition. So we think we'll see at least 15 points of gross margin improvement next year by depositing our own OLED. In fact, I think that's a low number. If it's that low, I'll be disappointed, but I think that's a good bottom level of savings or increased gross margin for next year.

Got it. I will follow up, if I may. Can you maybe briefly talk about the capacity we'll bring online? Once fully wrapped, do you have the capacity to go fully in-house, or do you still need some portion of outsourcing capabilities?

For OLED, Martin?

Yes.

No, we'll be fine internal. The system that we have will be able to produce, at least for the foreseeable future, the demand that we have for first-person viewer drones and several other programs. Yeah, we'll be fine on OLED deposition capacity. At least for 2027 and 2028. Got it. Thanks. One last thing, Martin. To add capacity... To add capacity to our OLED production line, it's actually quite easy and not that expensive. We would just add another node to our reactor, which increases our throughput. I think it's by about 10%. It's a very flexible system, one that we can expand and grow our volumes without spending a lot of capex.

Thank you. This now concludes our question and answer session. I would like to turn the floor back over to CEO Michael Murray for closing comments.

Thank you, operator, and thank you to everyone for joining us today. And a big thank you to the employees of Copen and our operations team for delivering a great quarter and four quarters in a row of excellent quality. Thank you for doing everything I've asked you to do. Take care, everyone.

ladies and gentlemen thank you for your participation this does conclude today's teleconference you may disconnect your lines and have a wonderful day