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Precision Optics (PEYE)

Participants
Robert Blum Lytham Partners
Joe Forkey Chief Executive Officer
Dan Habhegger Chief Financial Officer
David Smith Berkeley Street Partners
Call transcript
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Operator

Good day and welcome to the Precision Optics Reports Second Quarter of Fiscal Year 2021 Financial Results. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. ahead. go Please

Robert Blum

XXXX the prepared very today Chief joining being company's the you of Officer. for And release. remarks, Today's you Optics we session. Financial call Officer; of fiscal thank open capabilities webcast available Optics also With today's Executive the XX, Habhegger, both Hi. on Chief webcast, Dr. us today conclusion conference will much, Joe press to the for the through year of both quarter through The us the the At as dial-in call results replay is details Dan question-and-answer ended discuss all included a were December for XXXX. company the Thank representing second today's Cole. which of are, call the Mr. well instructions. Precision as with Precision in financial Forkey,

XXXX. we made amended statements Securities safe of of the the E such the with within and XXXX of as record the submit Exchange provisions harbor are the forward-looking Before the prepared Reform statements during Optics meaning looking and call Precision the we by this may as the course of Act contain Litigation Section Section XXXX of forward A remarks, Act begin made pursuant of the XX amended of Securities conference for Act XX of to Statements management of Securities statement. following team Private

in or anticipates results eventually plans, any statements Exchange company's are assumptions multitude to the risks they not may, could update risk and such date the the projected plan future contained result including whether and that generally in by information, materially are future Executive statements of Listeners Optics. of estimates forward-looking forward-looking events result are as preceded in to of and subscribe actual current company that Dr. expected, statements, Chief Forkey, publicly cautioned Precision future, or the future said, circumstances, those other are management's draft a expectations, date. on will as planned, subject statements speaking words to With Forward-looking otherwise. identified or forward-looking results, statements, to turn Securities uncertainties factors as projected me which filings forward-looking various from of a The Officer were a the let with of call undertake that results projected. such the of any those and Commission. strategies, or the this differ made based proceed. only as statements please and receipt over risks to called or or conference differ Joe may such Joe, and from events, materially of cause in the new All obligation should, does

Joe Forkey

of quarter, a overall context On programs ongoing plans our recent our some sequential Thank of joining discuss as as I we've few into the in status first commercial today fiscal call you, positive of overall quarter of strategic pipeline, our improvements operating through and the continuing revenue we our in the And by Robert. thank we a year from work all adjusted the to our reported our quarter the product today's COVID-XX another to with financial as our you Overall, XXXX all while quarter in discussed projects summary events followed of second, EBITDA, continued start year-over-year growth. trends production results. support key saw for in on impact significant all that quarters. will to the growth the near-term second call, well of

opening income for the statement and our the sheet before items on results recap the both call provide context any financial up to I'll some questions. balance Finally, and

mentioned we quarter, trends increased particularly second of in which onset, I a with the QX, exhibited the with As continuation the slightly which pleased saw quarter-over-quarter. were during I'm performance regard the at to revenues

are impacts certain quarter, production through the products. last the to discussed had continuing and our on negative has short-term we pandemic work projects, otoscopy cardiac, we As defense including

to normal expectation the nice company partnerships developing single clearly However, the in to include our were address a revenues In ramp continued will the the programs once our capabilities more by operations market in have or made XX COVID that and investing property, our capabilities, and sales hope that to in of has intellectual has make to resources done use other strategic progress even of our our major the demonstrate augmenting updating year difficult the positive areas revenue is last impacted production external we months. they revenue for progress the own order keep programs and general, It and which our levels following. our returned plan replacing in our overall investing during own technical were despite pre-COVID. to acquisitions. disruption this and near-term ago, a example, close job in capacity, the Growing skills the via areas pandemic where and

several as was We have growth. QX The major QX. same progress our in predominantly positioned was of these and it programs along the prospective production in COVID we drivers believe of are despite very status made efforts with well future

sales otoscopy effects and products continued the to a inventory cardiac to of be impacted COVID. of due by Our and buildup reductions in

the sales through to the quarters, cardiac As maintained few caused we are We to pre-COVID month. But end levels this last back help inventory June. better we of product the customer discussed production we levels through now our by reduced ramping to align their again the up of levels down pandemic. slowed for those due lower

both otoscopy disruptions, production As we products our variable be work levels to from will continue with to through get COVID for customers and these cardiac quarter-to-quarter.

and are have the long-term the while their both based reorder prospects difficult in some requirements procedure couple time raw customers extent At commercial seen positive. have we order lead programs for in both on In our of and recently predict, customers' the product both believe with to recovery. next future to for reduce a to material indications program, defense And these their early timing However, remains and of provide the anticipate essential the months. order we products next recent production guarantee discussions their for pre-purchased already requests the our of substantial supply customer, our order. of

we this introduced of remains giving growth I the our step is multi for final some sector this We us in and exist products hope been good. In mentioned And project. before our with have in scale confidence began number previously, production this the we full defense customer with in colonoscope other As is future customer significant runs initiated. for to by group a opportunities that relationship very pre-commercialization what the projects, camera general. of

Some some work third and will in for quarter. second this quarter done pre-production order completed in be the was the

that us they technical The told go-to-market been successfully has final expect addressed and customer strategy (NYSE:K) FDA receive finalizing Our and clearance order all customer have we their soon. with clearance. the expect is the issues after soon production XXX they full

in all products second revenue quarter, compared production supplied complex products, by our custom our the Optical remained QX. about Finally, million reported our first division to endocouplers, $X.X stable surgery program $X.X from spinal the endoscopes, volumes told quarter. with components in All along during we specialized the of including the traditional Ross of million

we program, we to the uptick offset quarter. an we decline program otoscopy second out in third As our quarter, by compared to see should even cardiac look believe the itself will a in our which when

cardiac ending strong expected year given production in quarter, out transition the ramp anticipate program, levels. continued to and colonoscope commercial program, the production fiscal from with coupled our to revenue of the our fourth with level pipeline we Looking level defense potential program, the the the of increased

strong second the our very quarter segment business. engineering quarter The of was a for

capture technical marketing be to execute surpassed capabilities the identify In fact, through enhance engineering a larger strategic in pipeline XXXX. a simultaneously. to fiscal that couple is to revenue of XXXX projects to months order and projects. first over from result able of This first, of made six clear the our years; the resources fiscal of investments second, pipeline to our sales number we the last increase And and already on all engineering have of has more

future to other. in of to And a optimism move helped opportunities. developed more an increase we the bring associated has regarding in this the high feeds is One the pipeline, production corporate engineering sources portfolio opportunities revenue the strength property of into production have areas a forecast. which of moment, another value to overall long-term leading projects, company in our owned our orders one discuss growth. strategic our intellectual projects more our has also The of in the is technical forward of I'll goals. commonly led with revenue As future our these highly Engineering indicator

of couple pipeline. me projects Let a comment the in on the briefly

First, already, very pipeline our production our expectation to from order to officially it months, final our within as receive that we the move I an will mentioned clearance. close our is camera few program next multi FDA and It colonoscope can projects. we is

into fiscal with relatively prototypes and well. been a In very issues prototype while normal worked quarters aerospace continues with deployed. parts the customer very performed the XXXX, forward. now to effort arise like cannot address for go defense we prototypes, confidentiality, large the prototypes that first And technically move are Second, details indications of project new and due stage all to that are delivered closely during the that discussed, second I engineering last production this that These pipeline quarters company we these initial challenging. to two have the

of to the this customer forward. with We going productivity a we about program and of part and feel believe the good had positioned well tone are continue to interactions really we've be this

orders from before regarding end We this our customer expect year. to fiscal production of hear the

undergoing of earlier have change new are endoscopes by device discussed tip. on designed being are replaced is for with industry use. sensors calls the distal as designs these we being in fundamental a single medical Many the traditional As CMOS

enabling by see continues continue rate product We to medical OmniVision, sensors as image fabrication leader introduction in market sensor the of market increase. the of expand this to rapidly

device have OmniVision, sensors working roadmap, they now devices companies, of higher medical have Scientific a their use shows new endoscopes smaller notably rate surgical which relationship support We introduction device use and product disciplines. the of for more resolution and in and many sustained publicly most couple of which Boston These medical A good us a more use single different have versions their very product years. in allows increasing committed to with performance, related number in new and pursuing medical next endoscopic large applications. shared an for with

single jointly being still in use sales take and pursued market engineering this of active regulatory already. mid to others see significant funnel expansion and the as by we and the program in well moving are use have targeted three our single our advantage Given beginning these as we well to benefits in projects marketing, technical area, nicely, sales we is potential launch filings our XXXX, along teams. recent marketing XXXX. Currently, earlier are this capabilities and This to our targeted ophthalmology investments discussed and early calls. on in that sales have projects and Today pipeline, commercial positioned technical program for a sales is with of two most

this Our last advances of other medical a new others will We two as of have which three how know segment to in and development. program in position pursue has years in us over market. we experience developed the and device patents opportunities well all currently of the pending, corporate led wealth expanding have this IP

with in of past, area quarter, to our by than All continues completed, ago time our told, additional early sales an XXXX. production and a that pursue come projects otoscopy both of the customers in one team the number us on the engineering of two prospect starting in recent into about with strategic the on long-term projects on projects pipeline executing the which great busy for opportunities. again is accelerated a who any urological had with team, work today to production would These in other During with continue our put expand we and be engineering to reasons timeframe. engineering job already various notified the Consistent projects, and back greater year were doing we engineering is plans, our second the move them hold surgery, as extremely to possible. robotic space partially as quickly pipeline moving to active pipeline

investments balance summarizing statement strategic for and the All the of confidence this I'll us future activity recent elements our in growth. validates now sheet. and and on a spend income some few gives commenting key prospects of minutes

was of last quarter had million, quarter second On and quarter, the which during X.X the to production compared $X.X in during The record million a to revenues. fiscal from the QX of a million $X.X $X.X top year's line, million ago. and previous revenue slight breakdown quarter revenue second in the which flat was year quarter, increase first the relatively sequential XXXX, compared second

primary for pre-commercialization Engineering previous orders here during mentioned driver improvements was a the initial offset program. quarter quarter, Services programs, and orders revenue defense XX% cardiac, a in XX% was second otoscopy our colonoscope ago. increase to the already, $XXX,XXX a increase was the I As the from production in which for compared decrease the second sequentially and the year quarter by

revenue relates recognition, previous timing to this we calls. of of Some on which discussed have

our to larger consistent is overall. majority higher due services vast a for level of the pipeline and demand However, engineering

XX% compared second year Included this to the revenue. and that with in from costs, Clearly, leading area. in a use was of for of absorb programs have goods better been IP, Without overhead such a to the reduction cost and room is increase also investment, would our quarter strategic growth budgeted, margin utilization still but XX%. Our approximately quarter, costs to Consistent quarter XX% gross associated property in this certain with to development corporate for much goal quarter manufacturing second were related was come engineering in second closely margins intellectual these gross a in improvement, of which will previous were through the production originally rebound sold pipeline were gross there we our than in greater margin. the XX% single ago.

year-over-year $X.X quarter and second continues the ago, quarter during to compared gross to down $XXX,XXX the to goal near-term fiscal first were sales management and of due was from up travel quarter costs, timing come year XX% approximately in recent to million expenses. fiscal of be compared quarter-over-quarter slight as during almost continues margin particularly of million XXXX. to second compensation careful increase the as to The reduction limitations certain the Our as X.X in get COVID-XX. in back of entirely well to Operating plus XXXX, the most operating $XXX,XXX operating all overall activities, stock-based expenses certain a area range. marketing The to of approximately expenses due

even ago. EBITDA our second in adjusted pandemic, adjusted improvement net was to reducing midst our EBITDA a depreciation, to during next couple $XX,XXX an to quarters. the on including a stock-based level be loss relatively compensation loss revenue for consistent $XXX,XXX We income reported of of year and a the compared as net All expect as expenses interest to due second of the told for operating significantly GAAP the ability loss of quarter simultaneously This stock-based the maintain the $XXX,XXX quarter was $XXX,XXX levels quarter, in just while the well compensation. line we amortization the expenses. as operating of of Backing of out the

$XXX,XXX $XXX,XXX, of main capital accompanied balance was working cash inventory, compared December the decrease here in our accrued at compensation, a by reduction customer $XXX,XXX September. of decrease by balance our was to in to change end XX, in of approximately now decrease cash $XXX,XXX XXXX decrease a $XX,XXX which The about advances. $XX,XXX. at in and was Turning offset This sheet, a in

on That labeled which $XXX,XXX received for PPP entry XXXX. show liability is to the of we continue the payable in note loan to We May bank. a balance to sheet, relates

our until the will as the up it criteria cash We We a believe to be continue liability. of based forgiven is expect to necessary. to of loan are on program, take but our as will execute it But that the balance on the to position to if end prepared quarter expenses show continues us we steps plan. reduce always, the well second at

COVID-XX take surgical I recap not programs Before some procedures our pressure briefly. questions, let impact. production of on put me have escaped has and

and expected expanded our for addressing our is portfolio indicators the fundamentally significantly, well that future the markets engineering business However, steady, significant and remained from our strong our growth to fact rates. are revenue has pandemic be overall, positive The growth. are should has with are investors emerge we that positioned to

volumes. progress return beginning significantly we levels occurs, when a that to to when see signs new higher and expect revenue And We are at surgical to of toward programs be normal historical combine.

expanding done pipeline, a disruptions. in of We COVID great even of and job our have key advancing projects the midst

and any the We have in in believe pre-commercialization the of partnerships is invest invest are is to strategy out and marketing, portfolio, a at to explore continue in and in the larger number grow laid pipeline what advancements, strategic beginning company's than IP we of projects history. recent stages we final manufacturing engineering our in transactions benefits. and our yield believe sales point invest that I and to

long COVID-XX. overcome, being are business While with near well to available upcoming to still to terms. relating at the April and made Investor March final particularly in which and I the impacts on Spring Lytham the pleased one-on-one note, held for Conference, progress there meetings virtual will Partners be again X. be the once challenges both be One am I from XXXX the XX position us in will

take contact please usual, additional Blum happy I'd information. now for be As any to questions. And Robert

Operator

will [ph]. come will ahead. first from question Taylor We Instructions] question-and-answer today Please [Operator begin Rick the session. Our go now

Unidentified Analyst

has drones curious stand Ross just don't that autonomous know of of the I'm had what in get a Yeah. before. Are Optical possible military Hi, blog, website. late relatively this gotten for you And one how just little question. things. or in that lot products its technicalities a for publicity, involvement looking Joe. optics any their I helping month I'm had you manage on have was LIDAR never to just in other would - earlier but And the So - vehicles that. that's that and article extent where you've and - in you I the of LIDAR, that? work for the over they they industry? certainly LIDAR. applications that proprietary, they market in into And this would automotive, wondering do

Joe Forkey

question, that's a Rick. great Yeah,

we think do one sure still be small the to focus as we on of that So I of company things things our to here, we that as that a make is have best. careful the very maintain

where se And in be and end And we medical resources very one we technical for we entire first, Ross automotive your reason per to of that and want supply products say do said, efficiently focused don't like as projects of I the that benefits in area we like comes question terms devices, so of that would for and because maybe resources want of they both to sales pipeline see taking the we an do from is to what very as is develop is division the Optical we have in limited That general terms marketing advance having our nature. the our using been and are that as possible. defense. the

services supplying limited user will companies they the to specializing in sub-assemblies the you can we can supplying industry we of take without devices, to market and and build industry and that of will still things automotive of them LIDAR for then optics optics space. components some to participate that - take automotive in assemblies engineering you some even the still of need the the the of growth and the end that the that in that so the industry entire build the use And or by the growth by in some

become be broad a we where experts. plans see So of LIDAR used. LIDAR to components sub-assemblies I applicability across industries say do is the don't is, I many that can have we any But to would and have place some summarize, what guess

Optical a And area Ross see potential division. so growth that for we as the

Unidentified Analyst

I No, you. just Thank about was good. that. Okay, curious

Joe Forkey

Yeah, sure.

Operator

next Street Our will Berkeley Partners. come from with go question Please David ahead. Smith

David Smith

Hi, for Joe. Thanks the today. call

Joe Forkey

Hi, Dave.

David Smith

rev working margin the timing the then in few say rec? new improve terms points to revenue know To two the I quarters then revenue the mentioned it of So thing the of on the the next be you gross on on the that ongoing margin margin hope for how - you're of might the impact an margin? So the an would might investment. the would gross projects? questions, and But about questions, how projects how you'd start recognized it also recognition be And basis gross spend investment? XXX the terms gross impact that in quarterly on

Joe Forkey

Yeah.

So those underneath there's questions. a lot

let in fairly see summarize a if So me can succinct I way.

This of a was So on work. take program arrangement. that because one the really went quoted first required the the programs. And in arose And a direction additional a, first. gross question, an price investment some engineering margin we'll in off pipeline our second fixed in it we had this one

down the And it so IP long-term that and us for of that the associated because continue sense to it program. Again, with made potential path. was the for

our have is One of projects materials on of try those quote things we basis. to the pipeline kinds to avoid and surprises, engineering and of done more time a

that So that single in every do we that mean case. doesn't will

moving in these basis, part to these ownership of a in engineering approach kinds up a get ability the can tied programs, we And we than our less ways, that time with materials programs. the get with business of programs. in some But little in production structure caught is of somewhat we're predictable a doing a of - with Our on projects negotiate don't that programs. so terms critical to things our the customers, which of more model reasonable a way that generally, sort direction are IP and

couple to the The do indefinitely. go a is more to we're So particular short that quarters. answer expect program margin on of that working question not gross your we continue will

I in long basis, reduce But in there be time impact. to and that a think the bit up will help things So run, and of may little a down. quoting materials

not pieces engineering sure pipeline, standpoint some answer helps there both of can little that the because them. you the two get revenue you From bumps rely In bit revenue from doing the recognize can recognition which at, engineering here. of question, but the that to invoice we're getting you're more programs again, in milestones the and terms of before time that recognition smooth are out of I'll and revenue. really a increase on materials, with I'm

If you're you quarter, basis, and a you in as spent on doing can things there. invoice hours long a the particular time as materials

the smooth So and smooth the we think out engineering with that we some to the growing because in will of engineering is sort from so level will revenue the engineering. issues out bumps of recognition think revenue help of that recognition significantly,

terms production of In of my production of programs are comments, on production. going ongoing the is the the impact the the into revenue that timing difficult our is programs programs Predicting production in specific the impact the to talked predict. procedures really of because resumption about, tricky the now I existing pandemic ongoing as very where of

will across of one the defense impacted that generally sort there's that they're But to coming still There but smoothly. going some COVID. more were be are down. be production COVID. slowly of think lumpiness we've going business of the programs ramp the all or production, think than defense The of on two they about, once more more side are in, industry think they smoothly. new in So They I things is board those in COVID I into and slowed with would may and by programs impact I to sort those, going ramp government speaking, start has outside have going to programs, if ramp they not talked

receiving been that will once medical get But the continue slower those anticipated. has orders a device the from those than we we to the of orders, of lumpiness timing little expect grow So we things. side those without

David Smith

Okay.

multiplayer that question. about Sorry

Joe Forkey

No, that's I answer it? Did okay. I did

David Smith

about there. Yeah, You production about lot to started revenue when didn't realize recognition. the was that - did helpful. I and that a especially was quite there quite ask I

Joe Forkey

No, it's Yeah. good a question.

David Smith

in other was expected have it capabilities? though, million, couple million $X I it to that used Payroll liquidity forgiveness, pretty that revolver good, on you the And of a maybe have the had, think? The was a on or Plan, time still do $X question and you that terms million Protection what's

Joe Forkey

- don't credit, we line time, a for We have of not don't and no, revolving have no. some

David Smith

terms of Okay, maybe in the product.

Joe Forkey

the looking I'm of it. let because at Dan that been he's answer PPP, question terms to In going

Dan Habhegger

on PPP of terms the in put so were Yeah, applications hold. some forgiveness of

second I four submitting round the banks that. focused bank. new the went weeks. came from be on that understand I I to from application XX, our the out, to what today As actually, There's within expect six application the were of on next, would that's on more coming funding a say,

be in processing term. that we'll near So the

David Smith

Okay, thank you you. you revolver a And given point, then don't the position, this your at maybe assumption? cash that need is correct feel

Joe Forkey

the I a about we're talking it. don't is we longer The need answer So of is answer folks short think putting with in line credit place.

in to the We place. line have all performance given who are of financial in and right like our coming orders what orders to a are look of coming credit the timing would and at get the is, given that from sorts those We things.

a it's we need something right to have. now. But essentially not think thing useful I it's that

David Smith

you. thank Okay,

Operator

come question Our [Operator Scott ahead. Instructions] Please next from go [ph]. will Brewster

Unidentified Analyst

it Hey, and on how's terrific quarter. going a congratulations

Joe Forkey

Scott. Hi,

Unidentified Analyst

continuing just It's to tough have the that testament to definitely you guys is think management business. win and way navigated engineering I contracts the of good the - pandemic

Joe Forkey

very much. Thanks

Unidentified Analyst

around consumables towards medical and and sure the use. appreciate - is single I shifting how comments definitely industry see I your Yeah, device

I you think it's definitely guys just questions. where bullish positioned. for two are have quick I

at in is prior exchange of list to first just not or point, kind answered calls, that's new ambitions to apologies fund on and Optics kind of is Precision. a has The primary whether our some if around Precision

Joe Forkey

thing be will think want the is to yes, do so. and to to do very but But last is then we and and exchanges is at careful we It's time. to to do other the simple this their and Yes. we're one criteria The think straightforward. of that add answer And the up every that The right so very in have answer scramble on one be meet to single short not and going to sure make we try that Yeah, it's not of list I it. that we it deliberate rush at doing important very I want the get to time. right

Unidentified Analyst

a just It's having Got But for end understand color. of for where at looking the seems our a of Precision or out follow Is out kind grow as of of It to I production. on us these trying I'm guys. just model you're end is analysts what future? value how to more contracts. or Ross Is replicate? flows looking bit by into you And that of trouble well some transparency Thanks our in on better from like up, on worked guess kind something the growth a plans objective kind it. for revenue easy to really acquisition to engineering company? that stated net present Optics lack of looks Optical how very like

Joe Forkey

Yeah, two so made there. to think be comments I there's

first is of growth. that team some really is really our we organic that a that company and focus great great one acquisitions. as believe can on We that independent continue technology The grow to primary has organically, technology a

incorporation working general the that quite various also could the standpoint of parties, say the successful. opportunities the the that standpoint have attract ability the pretty we optics together, the Optical both Ross the from financial However, transaction of any has the of from been I to employees some measure, in by And and is I neither fragmented. recognized for attracted industry time have now companies independently. would think

is not the So towards growth. say future I only that is we see acquisitions other way guess that what would I finding

conversations would I is we on last at on thing in would opportunities. so very them that basis. The add general be to can say But back interested the industry of than did in that can an about opportunistic be want the force that saw continuing we also in like in more would the strong focused pandemic. the do reduction reduction pretty acquisitions, be in And doing conversations it just look because business of around a an acquisition we amount we a helpful. beginning see to acquisition detrimental towards I we're

force won't it conversations. a positive, we but I target, and if and more hesitate organic are think we now and find them do we hearing And opportunity looks with engaging the do we for and folks to because the well. that's growth we issue the as and from won't the acquisition another one right we bit when recovered have little if having

Operator

I'd no are any remarks. for the back at conference this to over turn there Joe further And time. questions closing like to

Joe Forkey

for of one-on-one again Great. many And great a the speaking again the Thank near we during visit all face-to-face and look I us evening to on today. operator. hope have everyone the call Thanks, safe. you Thanks. you, can with forward stay you joining all meetings. I I hope future. in

Operator

concluded. now is attending Thank conference presentation. today's for The you

lines at You now your may time. this disconnect