PRECISION OPTICS CORPORATION, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• First Quarter Results: Revenue was $4.2 million for the first quarter, compared to $4.3 million in the prior year, impacted by production delays and resource allocation. Gross margin was 27% vs. 34% in the prior year.
• Production Issues: Production issues that impacted Q1 have been substantially resolved, with expectations of stronger revenue and improved bottom-line in Q2 and beyond.
• Single-Use Programs: Announced first production order for a single-use ophthalmic product and a second order for an ophthalmic endoscope. Success is due to partnerships (OmniVision, Lighthouse Imaging) and technology advancements, with improved image quality and cost reductions.
• Product Development Pipeline: Has 11 programs in the pipeline, with 2 transitioning to production and 2-4 expected in the next 3 years. Launch of a new platform solution to enhance competitive advantage.
• Ross Optical: Revenue is flat in fiscal 2025, but market recovery and investments in marketing are expected to drive growth starting fiscal 2026.

Segment Performance

• Product Development/Engineering: Organic growth of ~25% per year, with revenue of $8.3 million in fiscal 2024. Expected to be relatively flat in fiscal 2025 but grow 20%-30% annually in the future.
• Production: Expected strong growth in fiscal 2025, growing from $6.6 million to over $10 million. Single-use programs like the cystoscope and ophthalmic endoscope are key drivers, with a growth rate anticipated at 25%-30% in the future.
• Ross Optical Components: Revenue was flat year-over-year for fiscal 2025, but shows signs of market recovery and is expected to grow 10%-15% annually starting fiscal 2026.

Guidance

• Revenue: Expect Q2 revenue to be at least $5 million, with continued growth into the second half of fiscal year.
• Adjusted EBITDA: Target breakeven quarterly revenue of approximately $5.5 million, expecting to achieve breakeven in the second half of the fiscal year.
• Single-Use Programs: First single-use program ($9 million order) expected to deliver ~$3.6 million in fiscal 2025, with growth in subsequent years. Second program ($340,000 initial order) expects follow-on orders up to $1.5 million in the first year post-launch.

Risks

• Production Delays: Impacted Q1 results, though issues are now resolved.
• Market Volatility: Affects revenue and margin, especially for Ross Optical Components.
• Regulatory Hurdles: FDA approval processes for new products can impact timelines for production and revenue recognition.

Question and Answer

Q: About visibility on the first single-use program's orders and follow-on timelines.

A: ~$3.6 million in fiscal 2025, with potential earlier completion, and follow-on expected mid to end of fiscal 2026.

Q: Visibility on the second single-use program's order flows.

A: Initial $340,000 order for stocking, follow-on expected ~$1.5 million in first year post-launch, with potential transfer to customer's facility.

Q: Quantifying other single-use programs in the pipeline and timelines to production.

A: 2 programs in production now, 1 in 12 months, 1 in 12-30 months, and 3-4 more later; typical 2-3 years to production.

Q: Size of single-use programs vs $1M minimum and staffing priorities.

A: Single-use programs typically start above $1 million, prioritized based on revenue potential, time to production, and customer needs.

Q: Engineering team status and growth.

A: Engineering team updating facilities and tools, supporting platform solution, expected growth starting fiscal 2026.

Q: Fixed vs variable expenses and margin impact.

A: Lower revenues impact margins more due to fixed costs; different margins across business segments.

Q: Intuitive Surgical as a potential customer.

A: POC has history with Intuitive, developed first 3D endoscope for them, and technologies align with their needs, though Intuitive has internal capabilities.