Precision Optics Corp Q4 2026 Earnings Call: Complete Transcript

Precision Optics Corp (NASDAQ: POCI ) released fourth-quarter financial results and hosted an earnings call on Monday. Read the complete transcript below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary Full Transcript Robert (Moderator) Joe Forke, Chief Executive Officer of Precision Optics Corp.

Joe, please proceed. Joe Forke, Chief Executive Officer Thank you, Robert, and thank you all for joining the call today. Fiscal 2026 was a year of transformation for Precision Optics Corp. 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 Trout 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. 8 million, up approximately 42% from a year ago.

3% and adjusted EBITDA was positive $355,000. 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 a 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.

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. 5 million, up 55% from a year ago.

9 million. As we've 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. 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 and 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've 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 weeks ago. 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 six to 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 sub-assemblies 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 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 it. Let me spend a few minutes now explaining why we are so excited about satellite communications. Everyone has heard of SpaceX's Starlink system, which was the first to provide Internet access through the use of a satellite constellation since Starlink service was launched six years ago.

The potential for commercial and military applications has become widely recognized with multiple private and government networks now in orbit and many more being deployed. Virtually all of these low Earth orbit systems utilize laser communications between satellites, which require very precise design and assembly of electro-optomechanical systems embedded in so-called laser or optical communication terminals. These systems are ideally suited to Precision Optics Corp's proprietary design and manufacturing techniques.

As these communication protocols become more standardized and as applications become more widespread, the market for laser communication terminals will expand beyond satellite constellation builders to include many systems that link to these constellations. This is anticipated to initially include other satellites and eventually commercial and military aircraft, ships, and potentially ground-based users as well. Today, Precision Optics Corp's business in this area is supported by two large constellation programs, each with plans for thousands of satellites with four to five communication terminals in each satellite.

Because low Earth orbit satellites have a limited lifetime of three to five years, the work we are doing now to support constellation buildout will continue indefinitely as one third to one fifth of each steady-state constellation is replaced each year. Sending a narrow laser beam between moving satellites hundreds or thousands of miles apart requires exceptional optical precision. Some of our assemblies in this area require alignment precision as tight as 5 microns. That's one-tenth the width of a human hair, and the assembly needs to survive the stresses and vibrations associated with rocket launch as well as the complex thermal and vacuum environments in space.

We believe the sub-assemblies we build, which are part of the communication terminals, are critical and challenging to source. When Rocket Lab acquired Minarec in April of this year, Peter Beck, Rocket Lab's CEO, commented, laser communication is a key enabler for satellite constellations, but it has long been a supply chain pain point for commercial and government constellation operators. High-performing and cost-effective products simply have not been available in high volumes. 9 billion through that period.

That's the market for complete terminals and likely does not include the ongoing revenue for replacement systems required due to limited satellite lifetime. Today, our sub-assembly products address a few percent of the overall terminal market, but as we begin to supply higher-level sub-assemblies, our addressable market will grow quickly. With the market for these systems expanding, with a shortage of suppliers, and with Precision Optics Corp's demonstrated capability to design and manufacture critical subsystems, it's an ideal time for us to continue and expand our presence in this market.

Turning to fiscal 2027, our outlook reflects both progress across the business and the anticipated temporary reduction in production for our existing satellite customer. We continue to believe in the long-term opportunity with this customer despite an anticipated 40% reduction in revenue in the first quarter of fiscal 2027 and an additional reduction in the second quarter. While the timing and extent of the recovery remains uncertain, the most recent communications indicate a recovery by the end of fiscal 2027.

We expect the impact of this to be most pronounced in the first half of the fiscal year with a stronger second half supported by growth in single-use medical devices, renewed defense production, additional programs moving into production, and new engineering engagements. The product mix also matters. The existing satellite program is a higher-margin contributor, so replacing its revenue with other business does not immediately replace the same amount of profit. For fiscal 2027, we expect revenue of $30 to $33 million.

7 million, an improvement from fiscal 2026, with quarterly losses early in the year before a return to quarterly profitability by the end of the year, we expect the new satellite relationship will contribute near-term product development revenues and a long-term production opportunity. We are encouraged by the broader set of opportunities taking shape and our focus is on converting them into orders and executing them successfully. Over the long term, our opportunities for growth and profitability are as great as ever. With that, let me turn the call over to Wayne to review the financial results.

Thank you, Joe. Wayne Let me expand on the financial results covering both the fourth quarter and full year. 7 million in a sequential third quarter. 1 million last year, an increase of approximately 65%.

As Joe mentioned, full year revenue surpassed the increased guidance we provided earlier. 0 million for the quarter, up approximately 57%. 2 million. 9 million in the prior year.

6% in the third quarter. 2 million compared to approximately $800,000 a year ago. 8%. The annual margin reflects the cost of ramp and reduction in the first half followed by substantial improvement in the second half.

IEEPA tariff refunds impacted the quarterly results. Net tariff billings and customer refunds reduced our reported revenue by approximately $558,000. Separately, tariff refunds retained by the company reduced COGS by approximately $707,000, together equating to a roughly 3 percentage point increase in quarterly margin. These benefits should be distinguished from the ongoing manufacturing improvements Joe discussed.

2 million a year ago. 0 million in the prior year. 2 million. The broader point is that we supported a significant increase in annual revenue while keeping total operating expenses at the prior year's level.

Our R&D investment supports product improvements, new technologies, and approaches we can apply across customer programs. We continue to manage operating expenses while supporting the engineering capabilities and commercial initiatives that are important to future growth. 4 million a year ago and a net loss of approximately $108,000 in the third quarter. 85 per share.

Adjusted EBITDA was positive $355,000 in the fourth quarter compared to negative $857,000 a year ago. Together with a positive third quarter, this produced over $600,000 of positive adjusted EBITDA for the second half of our fiscal year. 7 million. 7 million at March 31.

Our March public offering substantially strengthened the balance sheet. 3 million at year end with no borrowings on the revolving line of credit. As Joe outlined, fiscal 2027 reflects a lower contribution from our existing satellite customer with other programs expected to support a stronger second half. Our focus is on managing working capital and expenses while supporting those opportunities.

I will now turn the call back over to Joe for some final comments. Joe Forke, Chief Executive Officer Thank you, Wayne. Before we take questions, I want to come back to what changed in fiscal 2026.