Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Precision Optics Corp Inc (POCI, Financial) resolved production issues that impacted Q1, expecting stronger revenue and improved bottom line in Q2 and beyond.
- The company announced its first production order for a single-use ophthalmic product, marking a significant milestone in its strategic investments.
- POCI's partnership with Omnivision has led to advancements in single-use endoscope technology, enhancing image quality and reducing costs.
- The company has a robust product development pipeline with 11 programs, indicating potential for future growth.
- POCI's strategic focus on single-use endoscopes is expected to drive rapid growth in production revenue, with projections of 25-30% annual growth rates.
Negative Points
- Q1 revenue was negatively impacted by delays in production programs, resulting in underutilization of resources and negative adjusted EBITA.
- Gross margins decreased from 34% to 27% due to manufacturing costs and low sales volume.
- Operating expenses increased to $2.4 million, partly due to higher R&D costs and recruitment expenses.
- The Ross Optical components business has experienced a drop in revenue, expected to remain flat for the fiscal year.
- Cash balance at the end of Q1 was relatively low at $636,000, indicating potential liquidity concerns.
Q & A Highlights
Q: What type of visibility does Precision Optics have regarding orders against the initial $9 million order for the first single-use program, and when might follow-on orders be expected?
A: Dr. Joe Forke, CEO, explained that of the $9 million, approximately $3.6 million is expected to be delivered in the current fiscal year, with the remainder spread over fiscal '26 and '27. There is potential for earlier completion, and follow-on orders might be indicated by mid to late fiscal '26. The company anticipates regular updates on forecasts and quarterly purchase orders from the customer, who expects substantial market growth.
Q: Regarding the second single-use program announced today, what visibility and order flow cadence does Precision Optics expect?
A: Dr. Joe Forke noted that the initial $350,000 order is for stocking purposes to prepare for a full launch in June. Discussions for a follow-on order to support the first year post-launch are underway, with expected delivery rates around $1.5 million. The customer may transfer production to their facility, but Precision Optics would receive royalties, maintaining similar bottom-line results.
Q: Can you provide more details on other single-use programs in the pipeline and their timelines for production?
A: Dr. Joe Forke mentioned two programs are in the pipeline, with two or three more in early stages. One program is expected to enter production within 12 months, while another may take 12 to 30 months. Typically, new programs take two to three years to reach production, with the cystoscopy program being an exception at two years.
Q: Are single-use programs generally larger than the $1 million minimum run rate, and how does Precision Optics prioritize these opportunities?
A: Dr. Joe Forke confirmed that single-use programs often start above the $1 million range, typically between $1 to $3 million. Prioritization depends on potential revenue, time to production, and customer timelines, with FDA approval being a significant factor.
Q: Given Precision Optics' position in 3D endoscopes and single-use technologies, is Intuitive Surgical a potential customer?
A: Dr. Joe Forke highlighted Precision Optics' historical relationship with Intuitive Surgical, having designed the first 3D endoscope for them. While Intuitive has its own optical capabilities, Precision Optics' technologies in single-use and 3D endoscopy have broad applications in the robotic endoscopy market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
