Optex Systems Holdings, INC 2026 Q3 Earnings Call

Thank you, Paul. Hello. My name is Danny Schoening, and I am the Chairman and CEO of Optex Systems. I would like to begin by introducing Karen Hawkins, our CFO, who will walk you through the financials, and then I will come back to talk a little more about the business.

Karen? Thank you, Danny. Hi, this is Karen Hawkins, and before we begin, I would first like to briefly discuss the use of forward-looking statements during this call.

Statements made during today's call and our responses during Q&A may include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the statements made. Factors that could cause actual results to differ are described in our annual filings with the SEC, including the Risk Factors section of our annual report on Form 10-K filed with the SEC. Now that the legalese is out of the way, we will move on to discuss the financial information. On our balance sheet, we ended June 29, 2025, with a strong cash balance of $4.9 million, up from $1.0 million as of the year ended September 29, 2024.

Our accounts receivable increased $0.4 million to $4.1 million from $3.8 million as of September year-end on higher revenue. Accounts payable increased $0.6 million to $1.8 million from $1.2 million as of September year-end on material purchases in support of increased revenue. Our accrued loss reserves for contracts increased $0.4 million in June from $0.3 million as of September year-end, primarily due to additional orders against our legacy IDIQ multi-year contracts, combined with the higher direct labor hours than anticipated in our original estimate. We expect these programs to wind down within the next fiscal year. During the nine months, we paid $1 million against the line of credit, bringing the balance to zero from the September year-end $1.0 million balance. The $3 million line of credit was renewed on May 21, 2025, for an additional 24 months through May 2026.

Our total working capital was $19.4 million as compared to September year-end balance of $15.1 million with the increased cash. For the cash flow, our operating cash flow for the nine months was $5.4 million compared to $1.0 million in the prior year nine months, driven primarily by higher net income and other changes in working capital. During the nine months, our capital spending was $0.5 million compared to $1.5 million in the prior year period, which included the $1 million for the acquisition of the Speedtracker product line. For the nine months, we paid $1 million in taxes comparable with the prior year period. On stockholders' equity, our ending outstanding share balance was 6,912,919 shares as of June 29th, 2025, as compared to 6,896,738 as of March 30th, 2025, excuse me, and 6,873,938 as of September 29th, 2024.

During the three months, we issued 16,181 shares to employees, net of the taxes withheld for 23,000 shares of vested restricted stock units against our stock compensation plan. During the nine months, we issued 38,981 shares, which included an additional 22,800 restricted shares issued to three independent board members, vesting on January 1st, 2026. Moving to the statement of operations. For the three months ended June 29th, 2025, our total revenue increased by $2.1 million or 22.6% compared to the prior year period. For the nine months ended June 29th, 2025, our total revenue increased by $5.5 million or 22.3% compared to the prior year period. The increase in revenue was primarily driven by higher periscope production levels at the Optex Richardson segment, combined with increased customer demand across both the Optex Richardson and the Applied Optics operating segments.

Revenue for the Optex Richardson segment increased 46.3% and 34.3% for the three and nine months as compared to the prior year periods. Revenue for the Applied Optics Center decreased 2.6% for the three month and increased 10.3% for the nine-month period as compared to the prior year. During the nine months, our periscope revenue levels at the Optex Richardson segment have increased 76% or $6 million, and the Applied Optics Center segment has seen a 32% increase or $2.3 million in military laser filter demand over the corresponding period in the fiscal year 2024. These increases are somewhat offset by lower demand for other military products at Optex Richardson and commercial optical assemblies at the Applied Optics Center segments.

For gross profits, consolidated gross profit for the three months ended June 29th, 2025, increased by $0.3 million or 10% to $3.2 million compared to the prior year period of $2.9 million. Consolidated gross profit for the nine months ended June 29th, 2025, increased $1.5 million or 21.6% to $8.7 million compared to the prior year period of $7.1 million. The increase in the most recent three and nine-month period gross profit was primarily attributable to increased revenue and changes in product mix. Our nine-month gross margin was 28% as compared to 29% in the prior year period, with shifts between segments and product lines. We've held our general and administrative spending consistent with the prior year at $1.3 million for the three month and $3.6 million for the nine-month periods.

Our operating income for the three months ended June 29, 2025 increased by $2.3 million or 18.3% to $1.9 million compared to the prior year period of $1.6 million. Our operating income for the nine months ended June 29, 2025 increased by $1.5 million or 43.8% to $5.1 million compared to the prior year period of $3.5 million. The increase in operating income was primarily driven by higher revenue and gross profit with no increase in general administrative costs. Net income and EBITDA. Our net income increased by $0.2 million to $1.5 million for the three months ended June 29, 2025 as compared to the net income of $1.3 million for the prior year period. Our adjusted EBITDA increased by $0.3 million to $2.1 million for the three months ended June 29, 2025 as compared to adjusted EBITDA of $1.8 million for the prior year period.

Our net income increased by $1.3 million to $4.1 million for the nine months ended June 29, 2025 compared to a net income of $2.8 million for the prior year period. Our adjusted EBITDA increased by $1.5 million to $5.7 million for the nine months ended June 29, 2025 as compared to adjusted EBITDA of $4.2 million for the prior year period. The increase in net income and adjusted EBITDA for the most recent three and nine-month periods compared to the prior year periods is primarily driven by the increased revenue and gross profit. We currently do not anticipate any material adverse effects on our business from the recent tariff uncertainties or China's export restrictions on rare earth metals. Our defense products are primarily sourced domestically, but those which are imported are generally not subject to tariffs or duties.

We produce some commercial optical assemblies with selective components sourced from Taiwan. However, our current customer backlog is covered with existing material and inventory. We anticipate any future orders for these commercial products will be subject to revised pricing inclusive of any potential tariff impact. On the backlog. The backlog as of June 29, 2025 was $38.3 million compared to a backlog of $45.6 million as of June 30, 2024, representing a decrease of $7.3 million or 16% from the prior year June period. We believe this decrease in backlog is primarily due to the timing of awards rather than any new trend.

Subsequent to the period ended June 29, 2025, the company announced several new awards, including a $2.8 million order for the XM30 program, a $10.2 million five-year requirement type contract award for optical sighting systems, and a $1.6 million order for laser filters, bringing our total backlog to $45 million as of August 5, 2025. I would also like to highlight the subsequent events occurring after the June 29, 2025 period, which include changes to the company's bylaws to create a new chief executive officer and president, allowing for the positions to be held by different individuals. In addition, effective on August 11, Chad George has assumed the position of president, reporting to Danny Schoening, where he will continue to serve as chief executive officer. In connection with his appointment to president, the company entered into an employment agreement with Mr. George through July 1, 2028.

Mr. George was granted 10,000 shares of restricted stock as a part of his employment package, which will vest on January 1, 2026. Last, the board of directors approved amendments to the charters of nominating and corporate governance committees, audit committees, and compensation committees. These events and corresponding documents have been filed on the 8-Ks and the updated committee charters have been published to our company website located at www.optexsys.com. That concludes the financial portion of this call. I will now turn the perch over to Danny Schoening for his comments on the period performance.