Precision Optics Corporation, Inc. Common Stock 2026 Q4 Earnings Call

Thank you, Nick, and to everyone joining the call today. As the operator mentioned, on today's call, we will discuss Precision Optics' fourth quarter and fiscal year 2026 financial results, and it's for the period ended June 30, 2026. With us on the call representing the company today are Dr. Joe Forkey, Precision Optics' Chief Executive Officer, and Wayne Coll, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question and answer session. If you dialed into the call through the traditional teleconference line, as the operator indicated, please press star then one to ask a question. If you are listening through the webcast portal and would like to ask a question, you can submit your question through the Ask a Question feature in the webcast player.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Precision Optics during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually, or projected.

Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company's filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date on which they are made and are based on management's assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward-looking statements, whether as the result of the receipt of new information, the occurrence of future events, or otherwise. With that said, let me turn the call over to Dr. Joe Forkey, Chief Executive Officer of Precision Optics.

Joe, please proceed. Thank you, Robert, and thank you all for joining the call today.

Fiscal 2026 was a year of transformation for Precision Optics. We began the year with strong production demand and considerable work to prepare for higher volume production with improved manufacturing efficiency. We ended the year with record revenue and two consecutive quarters of positive adjusted EBITDA. The second half demonstrated what the business can accomplish as the investments we have made over the past two years begin to deliver results. The foundations are in place for long-term revenue growth, and we are very excited about recent developments in our growing satellite communications vertical. Much of that progress is directly attributable to Joe Traut and his team. Since Joe joined as Chief Operating Officer in October, we have strengthened operations and engineering leadership, improved execution, addressed production bottlenecks, and helped our people deliver substantially higher volumes more efficiently.

Last month's addition of Peter Thier as Senior Vice President of Sales and Marketing adds urgency to increasing our pipeline to drive higher sales and optimize utilization of the improved operational infrastructure. We enter fiscal 2027 with a stronger organization and a manufacturing business operating at a very different scale compared to just a year ago. The anticipated slowdown we discussed last quarter for our existing satellite customer will affect our results, but we are confident that this is temporary. As a reminder, this reduction in the rate of orders resulted from constrained satellite launch capacity unrelated to the solutions we provide. At the same time, new orders are coming into the development pipeline, programs are transferring from the pipeline to production, and we now have a stronger team to pursue new opportunities. On our call today, I'll focus my comments primarily on four topics. First, our fourth quarter performance.

Second, updates to our sales and marketing approach. Third, our growing understanding of the satellite communications market, and finally, our outlook for fiscal 2027. Fourth quarter fiscal 2026 revenue reached a record $8.8 million, up approximately 42% from a year ago. Gross margin improved to 25.3%, and adjusted EBITDA was positive $355,000. For the full year, revenue increased approximately 65% to $31.5 million, exceeding our most recent guidance. We also finished the year with a smaller adjusted EBITDA loss than we had projected due to the strong fourth quarter performance. The strong Q4 numbers resulted from much higher production volumes along with improved efficiency, demonstrating that we can manufacture profitably at high volume. We have spent considerable time discussing the cost of expanding manufacturing capacity. We are now seeing the benefits of that work.

Benefits that not only improve the profitability of existing production lines, but also other lines starting production now and in the future. Our single-use cystoscope program continued to improve in terms of yield and throughput, with two production lines now operating multiple shifts. We are completing the existing order and expect a follow-on order with no interruption in production. Our existing satellite communications program delivered record quarterly revenue in Q4. The manufacturing processes and alignment capabilities we developed for this customer have allowed us to support a significant increase in volume, even while achieving record yield of 99% for Q4 overall. This program has also given us practical experience that we can bring to other satellite customers, from understanding the optical requirements to establishing repeatable production processes for these types of assemblies. More on that in just a minute.

We are now leveraging the improvements made to our single-use cystoscope line to improve the efficiencies of our single-use ophthalmic line, where production continues to ramp under the previously announced $3.5 million follow-on order. Fourth quarter revenue for this line was $413,000, with overall yield at 90%. Currently, this line is running consistently at 94% yield. Ross Optical also had a strong quarter, with revenue of approximately $1.5 million, up 55% from a year ago. Full-year revenue increased approximately 32% to $4.9 million. As we have discussed before, Ross can support additional volume without a proportional increase in fixed costs, making growth in that part of the business a meaningful contributor to our overall profitability. Looking beyond the quarter, the $1.3 million follow-on order from our large defense customer is another encouraging development.

The order took longer to arrive than originally expected, but our customer has told us that their program has received a multi-year renewal, and we should expect ongoing orders for many years. They have also agreed to work together to establish a manufacturing agreement that supports more continuous production. With the manufacturing organization on a stronger footing, we are putting greater emphasis on the front end of the business. Peter Thier's appointment as SVP of sales and marketing is an important part of that effort. He brings more than 30 years of experience in sales, business development, and commercial leadership, and his experience selling engineering services that lead to manufacturing fits our business model very well. Peter is joining a commercial organization we have been building over the past year. We added a sales development representative in January to research markets and identify prospective customers.

We also expanded our outbound marketing through webinars, a blog, updated websites, and LinkedIn activity. Charlie Metzger, a sales rep focusing on Ross Optical and our micro-optics products, has also returned to the organization, bringing optics experience and relationships in aerospace and defense from his prior work at Ross Optical and elsewhere. The purpose of these investments is straightforward. Our product development pipeline has focused too heavily on a few engagements, leaving engineering resources underutilized when those engagements move to production. While we have utilized some of our engineering capacity to support manufacturing improvements, going forward, we will be more focused on new programs. We will focus our attention and investments on opportunities in the fastest-growing, highest-value markets aligned with our current capabilities. We have already begun to target the satellite communications market, building on the success we have had with our first program in this area.

I'll talk more about the market in general in just a minute, but first, let me comment on the new order in this area that we announced just a couple of weeks ago. The $50,000 order was an initial engineering order from a U.S. space technology development company developing a new satellite constellation. It was structured on a time and materials basis so that work could begin promptly. Since our announcement, we have received a second order for approximately $50,000 for additional engineering work. The scope of both orders supports design and manufacturing planning and is expected to take a few months. We anticipate follow-on engineering and prototype work to finalize designs and establish production lines. The customer's stated goal is to begin production within approximately 6-12 months, with a potential significant impact to our fourth fiscal quarter in fiscal 2027.

This new customer came to us in part because of our reputation in supplying very precise optomechanical assemblies required for satellite communication systems. While our discussion with this customer started with subassemblies similar to what we manufacture for our existing customer, it quickly progressed to include additional higher-level assemblies, some including electro-optics and electronic circuits, along with optics and mechanics. These higher-level assemblies could allow us to provide more content per unit and take on a broader role in this new customer's system as compared to our existing customers. Based on those discussions, we believe the eventual opportunity could be larger than our existing satellite program, although it is too early to quantify. Let me spend a few minutes now explaining why we are so excited about satellite communications.