Yahoo Finance Precision Optics Corp Inc (POCI) (Q3 2024) Earnings Call Transcript Highlights: Strategic ...
Revenue: Q3 FY2024 total revenue was $5.2 million, a 4% increase from $5 million in Q3 FY2023.
Engineering Revenue: Record $2.3 million, up 62% from $1.4 million in the previous year.
Production Revenue: $3 million, down from $3.6 million in Q3 FY2023.
Gross Margin: Improved to 35.4% from 34.4% year-over-year.
Operating Expenses: Decreased to $2.12 million from $2.23 million in Q3 FY2023.
Operating Loss: Narrowed to $158,000 from $493,000 in Q3 FY2023.
Net Loss: Reduced to $317,000 from $398,000 year-over-year.
Adjusted EBITDA: Positive $52,000, improved from $9,000 in Q3 FY2023.
Cash Balance: $925,000 as of March 31, 2024.
Release Date: May 15, 2024
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 strong financial results for the third quarter of fiscal year 2024, with revenue reaching $5.24 million, close to the all-time quarterly record.
The company announced a record-setting production order worth $9 million to supply a single-use endoscope assembly for a cystoscopy surgery system, indicating strong market demand and growth potential.
Gross margins improved both quarter over quarter and year over year, with adjusted EBITDA turning positive at $52,000, highlighting effective cost management and operational efficiency.
POCI has successfully consolidated production locations and management groups, which is expected to drive further improvements in profitability metrics due to increased utilization of consolidated production resources.
The company is gaining traction in the aerospace and defense market, receiving significant follow-on production orders and leveraging proprietary manufacturing technology for high-precision micro-optics systems.
Negative Points
Despite strong overall revenue, production revenue was $3 million, down from $3.6 million in the same quarter of the previous year, indicating some challenges in this segment.
The company's Ross optics division continues to experience lower business levels compared to peak levels a year or two ago, suggesting potential market or operational challenges.
There are ongoing needs to expand and consolidate production facilities, particularly in Massachusetts, to support growth and improve efficiencies, which could involve significant capital expenditure and operational adjustments.
While the company has a strong engineering pipeline, the transition of these projects from engineering to production and achieving expected revenue levels can be uncertain and may impact future financial performance.
The company's cash balance decreased slightly from $987,000 at the end of December 2023 to $925,000 at the end of March 2024, reflecting ongoing capital expenditures and operational costs.
Q & A Highlights
Q: Given the consolidation of production resources into a single location and the new production order, is there an anticipated need to expand production facilities? A: Joseph Forkey, President & CEO of Precision Optics Corporation, Inc., explained that while there is a need to improve efficiencies as they grow, there is no immediate catastrophic need for new space. They can flexibly adjust the space in Massachusetts in the near term. However, they are exploring options to consolidate into a single building in Massachusetts to enhance long-term efficiencies.
Q: Can you discuss how you charge for development work while maintaining IP rights associated with platform systems? A: Joseph Forkey highlighted the importance of differentiating between IP critical to the customer's business and IP critical to Precision Optics' business. They negotiate to maintain ownership of core technology IP (micro-optics and imaging systems) while allowing customers to own their product-specific IP. This sometimes involves licensing certain IP under specific conditions but generally focuses on retaining control over their essential technology.
Q: What are the contribution margins for new products, and how do they relate to fixed overhead? A: Wayne Coll, CFO, noted that while new single-use products require a lower price point, the increased volume helps absorb fixed overhead costs, thus improving margins. This aligns with their target of moving margins towards 40%.
Q: What is the outlook for the fourth quarter in terms of revenue and production? A: Joseph Forkey anticipates the fourth quarter to be similar to or higher than the third quarter, depending on the ramp-up speed of new and ongoing programs. The exact figures depend on how quickly these programs reach higher volumes.
Q: Can you comment on the potential size of production revenue for projects currently in the engineering phase? A: Joseph Forkey mentioned that new programs typically start with order sizes around $1 million per year, recently trending towards $2-3 million due to larger scale programs and customers. They have three programs nearing production, with two awaiting FDA 510(k) approval and one about to submit for approval.
Q: How are you managing the transition from multiple facilities to potentially a single facility in Massachusetts? A: Joseph Forkey addressed that while they currently operate four facilities in Massachusetts, they are looking into options for consolidating these into a single facility to streamline operations and improve production efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
