Release Date: September 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Precision Optics Corp Inc (POCI, Financial) reported final revenue numbers of $19.1 million for the fiscal year, slightly above the preannounced range.
- The company successfully rebuilt its revenue base despite losing significant programs, with new programs moving from product development to production.
- Record-breaking $9 million production order announced in May, with expectations of increased revenue from this order in fiscal 2025.
- Product development revenue grew by nearly 24% year over year, indicating strong market demand.
- The company has strengthened its team and invested in operational infrastructure, including a new ERP system and additional engineering talent.
Negative Points
- Revenue for fiscal 2024 was down 6.6% compared to fiscal 2023, excluding one-time technology license revenue.
- Gross margins decreased to 30% for the year, compared to 38% last year, due to lower revenue and less absorption of fixed costs.
- The company faced specific delays in key programs, impacting fourth-quarter revenue by approximately $500,000 to $600,000.
- Net loss for fiscal 2024 was $3 million, significantly higher than the $145,000 loss last year.
- Adjusted EBITDA was negative $1.6 million for fiscal 2024, compared to a positive adjusted EBITDA of $491,000 last year.
Q & A Highlights
Q: On previous calls, you mentioned completing a $1.2 million defense order by August '24 and follow-on orders were expected. Was it completed, and have we seen any follow-up discussion or orders?
A: (Joseph Forkey, CEO) The defense aerospace program was put on hold by the customer for almost a couple of months, which delayed the completion of the orders. The good news is that the customer has allowed us to restart shipping, and we expect this program to contribute significantly to Q2 and beyond. We have also received new follow-on orders from the customer.
Q: Can you walk through what you believe your contribution margin is on the various programs? Is there a target contribution margin you look for?
A: (Wayne Coll, CFO) Margins vary by line of business. Defense aerospace work in the micro-optics lab has margins in excess of 50%. Manufacturing margins, particularly for single-use products, are around 30%. Ross Optical business margins are nearly 50% at full utilization. Product development margins are in the low to mid-40% range.
Q: For the aerospace defense program that was put on hold but is now back up and running, can you expand on what some of the factors were that forced the hold? Was any of this related to POC or was this unrelated?
A: (Joseph Forkey, CEO) The hold was due to measurement discrepancies between our facility and the customer's facility. The measurements are highly sensitive, and the issue was ultimately determined to be a measurement technique problem, not a product issue. We have resolved this with the customer and have restarted production.
Q: For the single-use program, you mentioned revenue expectations have increased. Can you provide any commentary on the dynamics leading to the increase?
A: (Joseph Forkey, CEO) The single-use product recently received FDA clearance and is replacing an existing product in the market. The market risk is low as it is cannibalizing its own market. Positive feedback from surgeons has led to increased demand from our customer, which in turn increases our production rate.
Q: Will the new platform product you are researching and offering change the model of the company by increasing R&D expenses and increasing gross margins? How will this affect profitability?
A: (Joseph Forkey, CEO) The platform product leverages our existing IP and core design elements from previous projects. While there is some initial R&D expense, it does not change our overall business model. It allows us to offer a higher-level base design quickly, reducing time to market and development risk for customers. This should improve gross margins slightly and maintain our competitive advantage.
Q: How does the platform product allow companies to transition from entry-level stage to a more established pipeline customer?
A: (Joseph Forkey, CEO) The platform product provides a baseline design that can be quickly customized for each customer, accelerating their time to market. This approach reduces development risk and costs, making it easier for customers to move from initial engagement to full product development and production.
Q: What are the expected revenue levels for Q1 and Q2 of fiscal 2025?
A: (Joseph Forkey, CEO) We expect Q1 revenue to be between $4.2 million and $4.4 million due to some ongoing ramp-up challenges. However, we anticipate a significant increase in revenue starting in Q2, with record quarterly revenues expected before the end of fiscal 2025.
Q: Can you provide more details on the $9 million production order for the single-use endoscopic imaging assembly?
A: (Joseph Forkey, CEO) We initially anticipated $2.2 million in fiscal 2025 revenue from this order. However, due to increased demand from our customer, we are now delivering at a rate of approximately $600,000 per quarter and expect to achieve $3.6 million in revenue for fiscal 2025. The strong market dynamics suggest that demand could continue to grow.
Q: What are the plans for the Ross Optical division given the industry-wide slowdown in optical component sales?
A: (Joseph Forkey, CEO) We are beginning to see some customers who delayed deliveries starting to accept products and place follow-on orders. We are increasing our marketing budget for Ross Optical to accelerate and magnify its rebound in fiscal 2025.
Q: What are the key factors that will drive growth and profitability in fiscal 2025?
A: (Joseph Forkey, CEO) We expect growth from our single-use endoscope program, the re-ramp of our defense aerospace program, and other growing programs. We also anticipate continued strong performance from our product development pipeline and a rebound in the Ross Optical division. These factors should lead to higher revenues and improved profitability due to the leverage of fixed costs in our business model.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
