PRECISION OPTICS CORPORATION, INC. Q2 FY2025 earnings call

• Production ramp is in process with a 42% sequential increase in Q2.
• Launched Unity imaging platform, which has received positive response at conferences like Photonics West and MD&M West.
• Strong backlogs in single-use cystoscope and defense aerospace programs, with customers supporting expansion of clean room space and hiring.
• R&D expenses increased due to efforts to finalize the Unity platform design.
• Expect an increase in product development revenue in Q3 and Q4 as Unity launch-related efforts subside and customer delays resolve.

For the second quarter of fiscal year 2025, revenue was $4.5 million compared to $4.8 million in the second quarter of fiscal 2024. Manufacturing revenue increased by 42% quarter-over-quarter. The Ross Optical components business has leveled out at a rate of $1 million per quarter. Production revenue in Q2 was up substantially, driven by the single-use cystoscope and defense aerospace programs, both of which have multimillion-dollar backlogs. Revenue contribution: Manufacturing revenue saw a significant increase due to the ramp in production programs, while product development revenue was impacted by efforts related to the Unity platform launch.

• Expect continued growth in Q3 and Q4 with revenue expected to reach at least $5 million in Q3 and $6 million in Q4.
• Adjusted EBITDA break-even quarterly revenue levels are estimated to be approximately $5.5 million.
• Plans to expand facilities to support growth, with details to be announced in coming weeks and months.

• Potential delays in development programs due to customer waiting for regulatory clearance or financing events.
• Measurement errors in defense contracts affecting production ramp.
• Capacity constraints impacting ability to meet production demand as backlogs increase.

Q: Can you provide an update on the defense contracts, especially the ones with some specification problems that seemed to have stalled?

A: There were measurement errors with inspection equipment in a defense aerospace program, but production restarted, and the customer has given more orders, with plans to reach a $3 million to $4 million run rate by end of fiscal year.

Q: Expand on how the Unity platform works?

A: Unity has baseline designs split by endoscope size. Engaging with customers starts with identifying requirements, using baseline designs to accelerate prototyping, with 75%-90% of design elements reusable, reducing development risk and time to market.

Q: What happened between mid-November and end of quarter leading to lower than expected revenue?

A: Product development revenue was lower due to work on Unity platform and customer events causing delays, and production ramp was slower than anticipated in ramping up resources for backlogged programs.

Q: How intend to increase capacity?

A: Expanding clean room space, increasing lines from single to multiple, and significantly increasing workforce, with plans to double output for defense aerospace by end of March and cystoscope in a few months.