Precision Optics Corporation, Inc. Q3 FY2025 earnings call

• Operational challenges in Q3: Lower production yields in single-use cystoscope and other programs led to lower revenue, margins, shipments, and negative adjusted EBITDA. Issues included low yield, delivery delays, and resource underutilization.
• Resolving challenges: Identified root cause of low yields in single-use cystoscope, made corrections, restarted production; working on optimal production operations. Aerospace program now running at 95% yield and growing.
• Sales pipeline and Unity program: Strong backlog; positive response to Unity platform launch; active discussions with five potential customers; Unity platform designed to revolutionize endoscopic system development with modular subsystems.
• New Board members: Added Buell Duncan and JJ Pellegrino; Duncan brings executive leadership and strategic expertise; Pellegrino has experience in scaling medical device companies.

For the third quarter, revenue was $4.2 million, compared to $5.2 million in the third quarter of fiscal 2024. Production revenue was $3.2 million (vs $3 million year-ago), and engineering revenue was $924,000 (vs $2.3 million year-ago). Gross margins were 10% for Q3 2025 compared to 35% in the year-ago third quarter. Cash at the end of March was in excess of $2.5 million.

• Expect Q4 revenues to grow significantly from Q3 levels. Confident of reaching $6 million in quarterly revenue in Q4, which would be an inflection point leading to positive adjusted EBITDA. Backlog remains strong, and demand for production programs is high.

• Tariffs impacting business, particularly on Ross Optical business which sources components overseas. Potential for customers to use second suppliers (but not due to Q3 production issues). Process, fixture, or personnel limitations causing low yield, delivery delays, and reduced efficiency.

Q: Are you saying you had engineering clients lined up and you just couldn't collect revenue because you had to use your engineers to fix production issues?

A: That was part of the problem, yes.

Q: About the endoscope program, contractual problems?

A: No contract problems, good relationship with customer. Customer is supportive and gave order to stand up second production line despite production delay.

Q: Impact of tariffs on POC's business?

A: Tariffs impact everyone, but not expected to derail growth plans. Some components sourced overseas, but most value in design and manufacturing. Ross Optical business affected, but communicating with customers and pursuing alternative suppliers.