• Revenue: $4.5 million for Q2 FY2025, compared to $4.8 million in Q2 FY2024.
• Gross Margin: 24% for Q2 FY2025, down from 30% in Q2 FY2024.
• Net Loss: $910,000 for Q2 FY2025, compared to $704,000 in Q2 FY2024.
• Adjusted EBITDA: Negative $555,000 for Q2 FY2025, compared to negative $269,000 in Q2 FY2024.
• Production Revenue Increase: 42% increase from Q1 to Q2 FY2025.
• SG&A Expenses: $1.7 million for Q2 FY2025, a decrease from $1.9 million in Q2 FY2024.
• R&D Expenses: Increased to $318,000 for Q2 FY2025 from $222,000 in Q2 FY2024.
• Cash Balance: Approximately $200,000 as of December 31, 2024.
• Forecasted Revenue: At least $5 million for Q3 FY2025 and $6 million for Q4 FY2025.

• Warning! GuruFocus has detected 5 Warning Signs with POCI.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Precision Optics Corp Inc (NASDAQ:POCI) reported a 42% increase in production from Q1 to Q2, driven by their single-use cystoscope and defense aerospace programs.
• The company launched its Unity imaging platform, which is expected to accelerate time to market and reduce development risks for endoscopic systems.
• POCI has a strong backlog and expects continued growth in the second half of fiscal 2025, with Q4 projected to reach a record $6 million in revenue.
• The company is well-positioned to benefit from the growing single-use endoscope market, which is estimated to grow at 20% annually.
• POCI is expanding its clean room space and workforce to meet increasing demand, aiming to double output for key programs in the coming months.

Negative Points

• Revenue for the second quarter was $4.5 million, lower than the expected $5 million, due to delays in product development and production ramp-up.
• Gross margins decreased to 24% from 30% in the same quarter last year, impacted by non-billable projects and lower sales volume.
• The company reported a net loss of $910,000 for the quarter, compared to a $704,000 net loss in the previous year.
• Adjusted EBITA was negative $555,000, worse than the negative $269,000 reported last year.
• Capacity constraints have limited revenue growth, requiring significant efforts to expand clean room space and increase workforce.

Q & A Highlights

Q: Can you provide an update on the defense contracts, especially those with specification problems that seemed to have stalled and then started back up? Are there follow-up contracts on any of these? A: Joseph Forkey, CEO: We have two significant defense aerospace programs in production. One has been running steadily at $2 million to $2.5 million annually and is expected to continue indefinitely. The second, newer program faced a temporary halt due to a measurement error but has resumed. We anticipate reaching a $3 million to $4 million run rate by the end of the fiscal year, with expectations for continued reorders.

Q: Can you expand on how the Unity platform works? A: Joseph Forkey, CEO: The Unity platform uses baseline designs categorized by endoscope size, allowing us to deliver initial prototypes quickly. This accelerates the timeline for customer testing and integration. We expect to use 75% to 90% of existing designs, with modifications made using modular elements. This approach reduces regulatory risks and accelerates time to market by 6 to 12 months.

Q: What happened between the mid-November forecast of $5 million in Q2 and the actual results? A: Joseph Forkey, CEO: Two main factors affected results: additional work was needed to launch the Unity platform, and some product development programs were delayed due to customer regulatory and financing issues. Additionally, milestone-based revenue recognition was delayed into Q3. We were also optimistic about ramping up production for certain programs, which took longer than expected.

Q: How do you intend to increase capacity given the largest backlog in recent history? A: Joseph Forkey, CEO: We are expanding clean room capacity, doubling production lines, and increasing workforce by 80% for key programs. The new clean room for the cystoscope program is certified, and the aerospace program's clean room will be certified soon. We expect to double output for the aerospace program by March and for the cystoscope program within 3 to 4 months.

Q: What are the financial expectations for the upcoming quarters? A: Wayne Coll, CFO: We expect revenue levels of at least $5 million for Q3 and $6 million for Q4, leading to adjusted EBITDA break-even. We are confident in achieving these targets due to increased production capacity and resolving previous delays.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.