Precision Optics Q4 2023 Earnings Call Transcript

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Provided by Quartr
September 28, 2023

There are 5 speakers on the call.

Operator

Afternoon, and welcome to the Precision Optics 4th Quarter and Fiscal Year 2023 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners.

Operator

Please go ahead.

Speaker 1

Thank you very much, Gary, and thank you to everyone joining us on today's call. As the operator mentioned, we're just here to discuss PrecisionOptics' 4th quarter fiscal year 2023 financial results for the period ending June 30, 2023. With us on the call representing the company today are Doctor. Joe Forkey, Precision Optics' President and Chief Executive Officer and Wayne Cole, the company's Chief Call is also being webcast with the replay capabilities available both through the webcast as well as through dial in instructions. The details of both were included in today's press release.

Speaker 1

Before we open with prepared remarks, we submit for the record the following statements. 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 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 into the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements describe future 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 Materially from those projected in the forward looking statements as a result of various factors and other risks identified in our filings with the Securities and Exchange Commission. All forward looking statements contained during this conference call speak only of the date in which they were made and are based on management's assumptions and estimates as of such date.

Speaker 1

The company does not undertake any obligation to publicly update any forward looking statements, whether the results or receipt of new information, the occurrence of future events or otherwise. With that said, let me turn the call over to Doctor. Joe Forkey, Chief Executive Officer, Precision Optics. Joe, please proceed.

Speaker 2

Thank you, Robert, and thank you all for joining our call today to discuss our Q4 fiscal year 2023 financial results. I'm very happy to be joined for the first time by Wayne Cole, our CFO as of June of this year. I'll provide a few opening comments, then turn it over to Wayne to discuss financials, and then I will provide more color on the business of the Q4 fiscal year. Fiscal year 2023 was a year of tremendous progress for Precision Optics as we continued to leverage our unique technological and We continue the integration of our recent Acquisitions up listed to NASDAQ, strengthened our balance sheet and perhaps most importantly recruited 2 top notch industry veterans fill the positions of Chief Operating Officer and Chief Financial Officer. These achievements position us well to execute on the many new orders we announced during the year and for continued growth in fiscal 2024 and beyond.

Speaker 2

As we look to fiscal 2024, we expect to continue our growth as we execute on a robust pipeline of opportunities and we expect to show continued improvement in the EBITDA margin of the business. While we have grown several fold in recent years, Our business can still be somewhat lumpy and we expect the early part of the year to demonstrate that. But trends should improve as we go through the year with some very specific programs that I'll discuss in greater detail and we expect this to be another year where we grow to new record highs of quarterly revenue and profitability. Before going into more detail, let me turn it over to Wayne to discuss the financials. Thank you, Joe.

Speaker 3

Let me start by saying how excited I am to be part of the Precision Optics team. The technological capabilities we offer Our next question comes from the line of Jefferies. Hi, Jeff. I'm I believe we have a great opportunity ahead of us and I look forward to working with the POC team to build on recent successes. Next, I'd like to review our financial highlights.

Speaker 3

For the fiscal year, total revenue was $21,000,000 an increase of 34% compared $15,700,000 last year. Production revenue was $13,700,000 while engineering revenue was 6,700,000 Production revenue was up 39% year over year, while engineering revenue was up 25%. On a quarterly basis, revenue for the Q4 was approximately $5,000,000 which compares to $4,800,000 in the same quarter a year ago, the increase of approximately 5%. Production revenue was $3,000,000 while engineering revenue was a record 2,000,000 For the year, gross margins came in at 36.8% compared to 31.4% in fiscal 2022, an improvement of over 5%. For the Q4, our gross margin was 38.5% compared to 30.1% The improvement in our processes and procedures coupled with higher absorption of our fixed overhead continue to be key drivers of our gross margin expansion.

Speaker 3

For the fiscal year, operating expenses were $8,400,000 compared to $6,400,000 in fiscal 2022. Part of the increase is due to an additional quarter of operations this year compared to last year from Lighthouse Imaging. Other sources of the increase were increases in sales and marketing expenses as we recovered from pandemic limitation in this area as well as Increased corporate costs associated with our uplisting to NASDAQ. On a quarterly basis, OpEx was 2 $500,000 versus $1,900,000 in last year's Q4 and $2,200,000 in the sequential Q3 of 2023. Included in OpEx is an increase in our reserves for doubtful accounts of $464,000 incurred in the 4th quarter, primarily related to development work that we performed in the 1st and second quarters of fiscal 2023 for a Small publicly traded startup company that ran into funding difficulties when their main investor was unable to honor a funding vehicle they had previously established.

Speaker 3

We still believe that the technology and market for this program remains viable. And this customer is currently pursuing funding and as indicated, they plan to return to us and continue their program once successful. Excluding the bad debt expense, operating expenses would have been lower in Q4 than Q3. I, along with our entire senior management team, have been tasked with keeping our operating expenses relatively stable, while still making targeted investments, particularly in sales and marketing as we continue to scale the business. During the Q4, We had a one time pickup in other income of $572,000 and a total of $715,000 for the year compared to $746,000 in the prior year.

Speaker 3

These amounts primarily pertain to the reversal of contingent earn out liabilities We determined that Lighthouse Imaging would not achieve the metrics required for potential earn out payments. The earn out itself was structured to bridge evaluation and then worked as a tenant therefore worked as intended. As the concern was the uncertainty in near term revenue from Lighthouse programs. So while the earn out criteria was not achieved, The Lighthouse acquisition was strategically and synergistically an ideal addition to the company as evidenced by our improved Competitive position and the new development orders already realized that were specifically made possible only through the combination of technical capabilities that resulted from the acquisition. On the income side, net loss during the fiscal year was 100 and compared to net income of $269,000 in the Q4 a year ago and a net loss of $398,000 in the sequential Q3 of 2023.

Speaker 3

Adjusted EBITDA, which excludes stock based compensation, Interest expense, depreciation, amortization, other income and acquisition expenses was positive $491,000 for fiscal 2023 compared to negative adjusted EBITDA of $242,000 in fiscal 2022. Without the bad debt expense of $464,000 adjusted EBITDA would have been $955,000 for the year. Higher revenue along with an improved gross profit percentage, partially offset by higher operating costs were the key drivers of the increased adjusted EBITDA. On a quarterly basis, Q4 adjusted EBITDA was a negative $412,000 Again, this is impacted by the bad debt expense, without which adjusted EBITDA for the quarter would have been positive at 52,000 Our cash balance at June 30, 2023 was $2,900,000 reflecting the receipt of proceeds from a capital raise and a new term loan both executed in June. This influx of capital along with an expanded line of credit As we move forward, our goal is to drive the gross margin of the business higher during the year.

Speaker 3

The company has historically cited a target of 40% gross margins and we're nearing that level on an annual basis. Our mix of revenues, of course, impacts our gross margin. But in general, we are looking to make improvements in gross margin while managing costs in order to reach an adjusted EBITDA margin that reflects the value of the skills and technology we provide to our customers and also As we look to the Q1 of fiscal 2024, We expect to see strong continued engineering revenue. Our ROTH operations experienced a pullback from Q4 2023 to Q1 of 2024 that will cause overall revenue to be somewhat lower in the Q1. With the expectation of a number of pipeline projects, including certain key projects with significant long term revenue potential Transferring to production, along with continued strong performance from our engineering team, we expect overall revenue growth during fiscal 2024.

Speaker 3

I will now turn the call back over to Joe to comment further on the specific programs that support our optimism for the year.

Speaker 2

Thank you, Wayne. As we've discussed before, our business model is based on developing and maximizing the value of our In incorporating our technology into their new product designs, we create a strong likelihood that we will continue to be their partner for the long term manufacturer of their product. As we transfer more programs into production, we anticipate an ever increasing number of products in production and a corresponding increase in revenue. Our financial results for fiscal year 2023 demonstrate the effectiveness of this model as we recorded both record production revenue of $13,700,000 and simultaneously maintained strong engineering revenue of $6,700,000 As I have stated in the past, our engineering pipeline is the source of future production programs and therefore the best indicator of long term growth potential. Our 4th quarter engineering revenue of $2,000,000 was a new quarterly record as we ramped up work on a number of key programs that we expect to be contributors to growth in fiscal 2024 and beyond.

Speaker 2

Our pipeline is strong based on several metrics, including aggregate size, average deal size and quality of customers. Today, we are dealing with more established better capitalized companies than at any other time in our history. Our success is largely attributable to the strength of our team and a highlight of fiscal 2023 with the addition of Mahesh Lowande as Chief Operating Officer and Wayne as Chief Financial Officer, both hired in the Q4. They both have many years of experience managing high-tech medical device organizations through process development in periods of significant growth. In recent years, our business has grown in terms of revenues, but also in terms of complexity and some stresses.

Speaker 2

These two critical additions to our team give us the management bandwidth to keep the operations running smoothly, reduce risk and drive cost efficiency. They also free up more of my time to be spent with customers in thinking more about emerging technologies. We finished fiscal 2023 with a number of steps taken to address our growing working capital needs through a combination of 3 actions. First, a new $750,000 term loan with Main Street Bank. 2nd, the expansion of our line of credit facility to $1,250,000 from $500,000 and finally, the completion of a $2,500,000 private placement with a number of high quality institutional and accredited investors.

Speaker 2

All three of these moves allow us to better manage the working capital requirements necessary to continue scaling our business. I'd like to spend a few minutes now on some program specifics starting with production. For the year, production revenue was a record $13,700,000 while the 4th quarter was approximately $3,000,000 As we always mention, we expect some turnover in production programs from quarter to quarter as some pull back due to redesigns or excess inventory, while others transfer from our development pipeline to production or grow due to successful market adoption. So at our size and scale, our growth of production revenue is not linear and smooth even though the overall trend is positive. In fiscal 2023, there were 5 key programs that drove production revenue.

Speaker 2

Our defense program that started production prior to the pandemic and slowed down during the pandemic is now back in full swing with deliveries against In the Q4, we delivered approximately $477,000 against this order. Our customer is very happy with our performance and has indicated that reorders are likely to be issued on an ongoing basis. We also are seeing the reinitiation of the otoscopy program, which was on hold during the pandemic. During the Q4, we delivered approximately $327,000 against the $2,300,000 order that we announced in January and we expect these deliveries to continue at comparable levels for the next few quarters and then potentially ramp even higher towards the end of the fiscal year. We also continue to deliver against our order from Cardio Focus for the ongoing manufacture of a microendoscope used to help treat cardiac atrial fibrillation.

Speaker 2

During the Q4, We delivered approximately $100,000 worth of product. During fiscal 2023, We ramped up production against our $2,400,000 order from a large medical device company for a spinal surgery application. After a number of strong quarters, we had minimal 4th quarter revenue as we have nearly completed the current orders. As expected, our customer will take some time to deliver their now replenished inventory to the end user market, but we have worked with this customer for more than 10 years and fully expect follow on orders in the future. Our newer Defense Aerospace program Contributed revenue during the Q4 of about $269,000 as we completed the current orders from this customer.

Speaker 2

As I mentioned last quarter, this customer has been working on a next generation redesign. The redesign came back with a very substantial change in product specifications and ultimately require the use of a manufacturing technology that falls outside of PrecisionOptics' specialized Expertise. Because of this, we do not expect a reorder of the same magnitude as previous orders. But the customer was very pleased with the work we did and remains engaged with us now that we are on their approved supplier list to explore possibilities for us to work on more limited aspects of this program and the potential for our involvement in other programs. Even as this defense aerospace program is transitioning away from a design that utilizes our technology, Another new customer in the same space is moving forward with significant prototype orders.

Speaker 2

We are engaged with this new customer to build an assembly that is higher on the value chain and that utilizes a more unique aspect of our technology. We believe, therefore, that we are in a strong competitive position and we are optimistic that this program could be even larger than the previous one. Again, the timing of one program winding down and the other starting may result in some reduction in defense aerospace revenue for a quarter or 2. But overall, we see this new market as a target for long term growth. To better address the defense aerospace market, We are pursuing investigations in two directions.

Speaker 2

First, we are ramping up our efforts to communicate with major players in this market to better understand market segmentation in critical technologies required. 2nd, we are exploring various approaches to utilizing our existing technology to address these market requirements. A good example of the benefits of these efforts is the recognition that the technology we have developed for micro optics can readily be extended to high precision active alignment of larger optics. The main point here is that micro optics by virtue of their very small size naturally require very high precision alignment. As we explore the defense aerospace market, we have discovered a number of opportunities where we can utilize this high precision alignment capability even when working with slightly larger optics.

Speaker 2

We have several programs transitioning from our engineering pipeline to production in the first half of the year, giving us confidence that our annual production revenue will grow in fiscal 2024 and that we will exit the year running at a higher and sustainable level As we have already mentioned, the 4th quarter engineering revenue was the highest in the company's history coming in at about $2,000,000 The increase is a result of the recognition by customers of the breadth and depth of our technical capabilities following the acquisition of Lighthouse Imaging. Engineering talent is very hard to recruit these days, but we continue to be successful in selectively adding to our engineering team in order to increase the revenue generating capacity in engineering. A key highlight to this area has been our development program for a next generation single use urology product for which we have received 2 product development orders This customer is moving very aggressively with a goal of starting production before the end of POC's for the SEC's fiscal 2024. This program is also important from an overall business strategy standpoint as it is the 2nd single use program that is predicated on POC receiving either production revenue or royalties on production revenue, a novel approach that we believe will allow us to continue to attract profitable business in the single use medical device space.

Speaker 2

During the Q4 of fiscal 2023, we also advanced development work on our original single use program for an ophthalmic endoscope. During the Q4, we recognized development revenue, which is independent of future royalties of approximately $300,000 from this program. This program is currently transitioning to production, which is expected to officially start in Q2 or Q3 of fiscal 2024. Another key development program is for our next generation urological endoscope for which we announced a development contract totaling approximately $1,300,000 from an established medical device company for whom we provided an individual component for a previous product for many years. This new program highlights our expanding role as a value added solutions provider.

Speaker 2

The initial development agreement is While there are a number of other development programs that our engineering team is working on, I want to highlight one final That we are developing for ear, nose and throat applications and that we again believe could also launch before the end of fiscal 2024. The overall product is based on our customers' proprietary approach to combining endoscopic visualization with unique surgical tool design. For this program, we are designing and ultimately will manufacture the entire endoscope imaging system, including a wireless display. In summary, whereas in years past, our largest development programs ran in the 100 of 1,000 of dollars, We are now consistently attracting programs with sizes in the 1,000,000 of dollars. This is due in part to the size of the customers we are attracting, but it is also due to the fact that we are able to design and manufacture more of the overall product, so each program has a much higher revenue potential both during development and during production.

Speaker 2

I have mentioned several programs with credible revenue expectations that could drive growth for years to come. I hope to be able to provide more details soon, but suffice it to say based on discussions with customers, We are optimistic the production phase of these programs will materialize. Of course, we recognize that our success is dependent on our customers' success selling their products in the market, but we believe the demand for the products we expect to produce is very high. Our Ross Optical division tracked strongly in the Q4 and finished out the fiscal year with record revenue for the 4th year in a row. Ross Optical revenue has consistently grown since our acquisition with revenue increases even during the pandemic.

Speaker 2

Recently, however, we have seen a substantial pullback from a number of customers consistent with the general reduction in activity in component market across the board. Some of this has been caused by overly aggressive purchasing after the pandemic that led to excess inventory. While customer retention remains high, a number of our customers have asked to delay deliveries for some months as opposed to outright cancellation of orders. We believe this pullback could be as significant as $500,000 per quarter over the next couple of quarters, but we are confident the business will return as excess inventory in the industry is absorbed. This does not appear to be an execution based issue at Ross.

Speaker 2

It seems to be a timing issue That will pass. Let me just wrap things up by saying how excited I am with the progress we have made at Precision Optics. We are not yet at a scale where our revenue growth will be smooth quarter to quarter and we expect revenue in the first half of fiscal twenty twenty four to bounce around the current level as we digest some puts and takes in customer programs and transfer new programs to production. There are, however, programs in our portfolio that have significant potential to drive substantial long term revenue growth. Because of this, I believe the future of Precision Optics is extremely bright and I want to thank all of you for your continued support.

Speaker 2

With that, we'd be happy to take any questions.

Operator

We will now begin the question and answer session. From Chris Puchowski, a Private Investor. Please go ahead.

Speaker 4

Hello and My question my first question is about the next year. You said that Even though the current quarter seems to be a little lower, you're confident that the year will be higher than this past year. And it makes sense that when you have higher engineering revenues, the eventually turning to production. I just wanted to Maybe kind of checking 2 levels of confidence, those kind of like soft deals already made Or do you hope to make deals for production? Have your clients indicated that they'll be ordering production devices and so on?

Speaker 2

Yes. Thanks, Chris. It's a great question. So the programs that We expect to go into production to help drive revenue, particularly in the latter half of the fiscal year, are all based on programs that are currently in the development phase and are currently moving through what we call the transfer phase. So these are programs where the design for the product has already been finalized.

Speaker 2

The customer has verified the design. So they've done their testing with their key opinion leaders and such. And we're in the transfer phase where we're going through some of the design validation and then we're standing up the production line. So these programs are very far advanced from the standpoint of the engineering development work. And to answer your specific question about contracts with customers, We don't yet have the contracts for the production because those wouldn't be issued until after the transfer work was completed.

Speaker 2

But all indications are that the customers are ready to give us the production orders as soon as we complete the work Through the transfer phase that we're working on with them now.

Speaker 4

That is good to hear. And just to be clear, You're not are you subject to your customers winning any design wins or design awards? Or do you Are you working with end customers that are sure that those devices will be made?

Speaker 2

Yes. So in The cases that we're talking about, these programs that are in the transfer phase, the customers of ours are The ones that control the entire design for the system and ultimately are selling to the end user. So there's no intermediate phase there. The one to be completely thorough in the answer, the one other piece that has to Some of the work that we're doing now is collecting the data that they need to bring to the FDA for instance in order to be able to do that. In the case of the programs that we're talking about, the well, I would never say That regulatory clearance from the FDA is a foregone conclusion.

Speaker 2

There are different levels of risk when you go for that kind of regulatory approval and regulatory clearance, I should say. In all four of these cases, our customers are quite mature in terms of the way that they approach The risks related to regulatory clearance and so they've already done substantial work to Have a high degree of confidence that they'll be able to get through the regulatory clearance.

Speaker 4

Yes. It would make sense that in optical, It wouldn't be subject to the uncertainty of drugs and pharmaceuticals, right? Yes. That's

Speaker 2

exactly right.

Speaker 4

And also I wanted to ask you, is there are we on the cusp of some kind of a change In production of medical devices where things are going much more towards disposable devices and you might see Kind of a step function in revenues?

Speaker 2

So the short answer is yes. There is a significant change that's happening in the medical device Industry as a whole, we've talked about this on some of the earlier earnings calls when we were just getting started with What I call our original single use program that we've been working on for a number of years now. There are major benefits single use, the most obvious of which is that it virtually eliminates the possibility of cross contamination for the patient. But there are also benefits To the way that the product is inventoried at the hospital, it's much easier to inventory a single use item than it is An endoscope that has to sometimes be sent out for repair and asked to go to a different part of the hospital to be sterilized, etcetera, etcetera. And there's benefits to the doctor because every time they open one of these single use devices, the image quality is brand new image quality.

Speaker 2

Whereas when you have a reusable device, they get used over and over and over again and eventually the image quality degrades over time until someone decides that it's not good enough. So For all the stakeholders in the process of using and inventorying the products, single use has substantial benefits. The challenge that the industry had over many decades, because there have been attempts at single use as far back as the late '90s. The challenge was getting the price points to a place where single use could be supported by the economics of The systems. And so the thing that changed that dramatically was the advent of CMOS sensors and so called chip on tip Endoscopes which we have particular expertise in and which we enhance that expertise by acquiring Lighthouse Imaging.

Speaker 2

So The entire market really is moving in that direction. We just recently commissioned a market study To be able to understand the segmentation of the medical device market into various different sizes, so we can target the parts of the market that are particularly relevant for the micro optics capability that we have. And in that market study, we confirm things that we had seen sort of in the public domain That indicate that the compound annual growth rate over the next 10 years for single use products is Expected to be 2 to 3 times larger than that for reusable devices. So all of the things you hear us talking about when we're talking about The excitement over having not only one single use product, but a second single use product that uses the same kind of economics and same kind of business model is really because we think that we can get access to the single use medical device marketplace, which as I say and as you implied It's growing in a much faster rate than it was any time in the past.

Speaker 4

Well, thank you. Thank you for repeating that for I'm new to your company. Thanks. You've been very helpful and good luck.

Speaker 2

Great. Thanks a lot, Chris. Thanks for the questions.

Speaker 1

Hey, Joe. This is Robert Blum here. Just while we wait to see if anyone else does jump in the queue, I just had one maybe topic I wanted to touch It's sort of on the aerospace defense side. You've had a couple of programs. You mentioned sort of one that's It's a possibility, I guess, here going forward.

Speaker 1

When you think about how you're approaching this from a sales and marketing standpoint, you've talked in the past about going to a number of the sort of industry conferences primarily on the medical device side of the equation. Is defense something now that you're taking maybe a more proactive view in as opposed to I think maybe in the past it was almost kind of it fell into your lap, we'll call it. So maybe just expand a little bit more on how you're sort of approaching the aerospace defense market going forward?

Speaker 2

Yes. Thanks for that question, Robert. So, the way you described it is exactly right. I want to start by saying that, For many years and anyone who's been with the company for very long has probably heard me say this to the point where they're sick of hearing it. But Part of our strategy, when we started with this sort of business approach of engaging with customers With our unique technology in the development phase all the way through to the production phase, one of the key points that we decided on was to be very strategic And very focused in both the technology that we developed and in the markets that we used our limited sales and marketing resources for, because we were a very, very small company.

Speaker 2

We're still a small company, but 5, 6, 7 years ago, we were a very, very small company. So we were very focused in how we use our resources and in particular on sales and marketing. We only did active marketing, to the medical device space Because we felt that was the place that had the best opportunities for our very specific technologies. As you point out, there are a couple of programs that So there's one in particular that I've talked about many times. We call it our longer term or historic defense aerospace program that's now turned into a couple of $1,000,000 a year.

Speaker 2

They basically came to us, saw what we were doing, asked us if we would consider doing some work with them. They're a great big company whose name everyone would recognize and of course we said we'd be happy But we were not proactively going out and looking at the defense aerospace market. More recently, as We've built up our sales and marketing team and we have some more resources. We've identified the defense aerospace market as one that we want to be looking at more deliberately. Now Having said that, the program that we talked about that went into production last year and now has gone through a redesign.

Speaker 2

And the other one that is just coming online that's in the same space. Both of those really came to us again. Now the fact that there are 2 companies that came to us with fairly similar products, is indicative of the fact that our technology can be used for particular segments of the defense aerospace market. So our intent going forward is to spend more time Proactively understanding the various segments of the defense aerospace market and using more at this point of our senior level Sales and marketing team and of my time frankly, now that we have Wayne and Mahesh onboard and we have more bandwidth in the senior management group, My intent is to work with our VP, our SVP of Sales and Marketing and myself to really dig in and understand the different segments of the defense Aerospace market in the places where our technology can be used and to some extent, how we continue to push our technology forward So that it continues to be competitive for markets that we see significant opportunities in, one of those being defense So I think the best way to say it is that our intent is to move forward in a more proactive way, in a more deliberate way to hunt out those opportunities As opposed to simply waiting for those opportunities opportunistically to come to us, which is how we found the programs that we're working on now.

Speaker 1

All right, perfect. I think that's helpful for everyone. One final question here. On the engineering side of the equation, I think as the previous Sort of talk about the outlook for that. You've been bringing in sort of new engineers.

Speaker 1

Is sort of the Are you able to keep up with sort of demand from the engineering side of the equation, sort of a capacity? Just talk a little bit more about what you're seeing out there, I'll say sort of your pipeline into your pipeline.

Speaker 2

Yes, sure. Thanks. So let me just back up a little bit and say, We have been working on growing the technical capability, the engineering team at the company for the last 3 or 4 years for exactly the reason that we've talked about many times, which is that the engineering team is really the pump That drives the growth of the company because the programs come through the engineering team in order to go into production. We continue to push more programs into production and that So to grow revenue in the long run. 3 or 4 years ago, we hired a really great top notch Vice President of Engineering to take over management of the engineering team and he's done a spectacular job, not only of managing the team Pretty independently of my involvement, but also in growing that engineering team and maturing that engineering team, I would say, because he came from a number of very large companies.

Speaker 2

He had worked at small companies. So we've been building that team even for the last 3 or 4 years. The acquisition of Lighthouse, of course, was a significant increase in our technical capability. That grew our technical team from something like 6 or 8 people up to as many as 15 or 20 people. But Even with that large that growth in the engineering team, we still find that the engineering team is pretty much fully saturated And that we have as many opportunities as we can respond to.

Speaker 2

So We are continuing to expand the engineering team. We hired 2 junior engineers about a year ago, I think both fresh out of college. We added 2 more engineers over the last 3 months. I think it was more senior engineers. We still have 2 or 3 Requisitions that are open for some additional engineering staff.

Speaker 2

And so while it is true that it is It's a challenging environment to hire people at any level, particularly challenging to find really top notch Good engineers because we won't just hire anyone. We need engineers that can satisfy the cutting edge technology that we work on. It's a challenge, but it's one that we have been Able to overcome and we have successfully grown the engineering team by bringing more people on and it's something that I expect we will continue to do for the indefinite future.

Speaker 1

All right, perfect. Thank you, Joe. Gary, I'll turn it back over to you at this point.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Joseph Forkey for any closing remarks.

Speaker 2

Thank you, Gary, and thank you everyone for joining us call.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Precision Optics delivered 34% revenue growth in FY2023 to $21 M, with production revenue up 39% to $13.7 M and engineering revenue up 25% to $6.7 M, achieving a 36.8% gross margin (vs. 31.4% last year) and positive adjusted EBITDA of $491 K.
  • The company successfully uplisted to NASDAQ, integrated the Lighthouse Imaging acquisition and strengthened its leadership by hiring industry veterans as COO and CFO to support scaling operations and financial management.
  • Q4 engineering revenue reached a record $2 M as multiple development programs advance toward production, and management expects several of these to transition to manufacturing in FY2024, driving new quarterly revenue and margin highs.
  • Precision Optics is capitalizing on the shift to single-use medical devices with major development programs in single-use urology and ophthalmic endoscopes, leveraging its CMOS chip-on-tip technology to address a market growing 2–3× faster than reusable instruments.
  • The company is proactively expanding in the defense/aerospace sector by applying its micro-optics high-precision alignment capabilities to new programs and engaging major industry players after initial customer-driven projects.
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Earnings Conference Call
Precision Optics Q4 2023
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