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Precision Optics (PEYE)

Participants
Robert Blum Lytham Partners
Joe Forkey Chief Executive Officer
Dan Habhegger CFO
Call transcript
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Operator

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

Robert Blum

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

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

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

Joe Forkey

year, At our due August. difficult $XX.X Thank pre-announced Similar we you take some the about our wrap considering forward. you, of few call and and calls, a performance strategic the I'll fiscal many of our quarter I status Robert. the projects on on environment and for pandemic. into positioned the a our then million, numbers results commentary events and back brief programs summarize it year-end to consistent a our context to grow as reported projects, Then in throughout of financial joining up seeing will first the detailed of annual to for level, and with I great record going production of XXXX always, we Optics bit the is high fiscal Precision trends questions. operations some talk have This including plans with with revenues put to as pipeline commercialized the I'll including achievement, am financial calls. earlier discussed and recap key all fourth a few more last today are our results. pleased XXXX And quarter a we our results; of how thank is discuss the the industry

we had pandemic by revenue in enhance significantly As largely programs the major or products discussed production has earlier three slowing reduced revenue from released of these our for has call, production our postponing The on been we programs. engineering This capabilities acquire and engineering new projects. the made focus few new pipeline of years for strategic the projects. pipeline have by advance to was and to because possible our last over replaced sales

as generated projects positive replace, the profitable some some an otherwise. and not gross of would revenues were had pipeline mature as have the related While revenue reductions impact more greatly pandemic in margin, that new the individually production they production of engineering all they reduced

future, XXXX Our fiscal return engineering growth company's pipeline levels overall as many as is has and And the a any hopeful as large robust in we our in and with expect the today been it history. production pre-pandemic projects time in beyond. to of

us time, of did a management senior also improvement precautions XXXX, ensure the to adjusted employees. to were the $XX,XXX, performance our EBITDA way efficient of management June, $XXX,XXX necessary tools to first year This taking end Our an affected pandemic fiscal a the fiscal the available job adjusted XXXX only the EBITDA managing allowed maintain us was fiscal that workforce, great nearly to our pandemic. to in leveraging at year in while compared by slight which as our by through with team safety the loss of same

growing true of market the customers their applications be true uniformly record back industries proprietary some continued have the of production customers mature production impacted startup of micro-optic to established orders and and expenses comment development compared for of for traditional medical we return operating when pulled unique management and during cash our for devices positioned of companies, Even Optics. operations a all throughout fiscal future. products, some efforts product, our revenue on our and perform drivers that associated year. is historic revenue, pursue as decrease for the we high the on for XD to their production to are year engineering three cardiac, players, pandemic, and well for production pipeline, and Overall, the With pandemic million, the both in on mature products who summary, off with otoscopy reduced customers of continuously now the generation well believe of Coming the leverage about primary as from during well levels XXXX. to the aerospace interestingly, of some product large and and levels opportunities industry defense hopeful robust. flows, continued trends. This to various capabilities pandemic fiscal projects details down a as the I'll on industry were Precision level well X% funded the defense the Importantly, continued is $X.X impact and The lead enabled next was components all XXXX and our continues product. Ross our and efficient that

reported pandemic. throughout the from to the the reduced continue much we to they we of from start fiscal XXXX, of cardiac where As prior see program were production levels

make, number customers’ inventory increased. of As our surgical the we last year, the that endoscope of reduced procedures pandemic the

they fiscal of new for indications cases, coming And from pre-pandemic a levels of ramping conversations is excess levels longer delayed as our the the so will term year. acute otoscopy demand have demand This pending inventory visibility resulted production strong the demand. levels have during effect the burn of XXXX, as remains some in year-over-year believe last recovering, customer with we and to have are to reduction provides this the of before by production that than in will recovery optimism In end up this pandemic. on as they back some they and product their the pre-pandemic were us In excess to pre-pandemic significant back in efforts market we throttled better production market. We the climb built expand as revenue fact product our market rate. Production there inventory. hold geographic compared customer customer, and terms immediate have high XX% about work full to their our This into are for greater market beyond return a on that through to XX% off begun the resume back that application. levels impact to of moved pandemic. starting pandemic back the But even to is they

to extent of this product our some the and customer customer order sell to the our Despite While very strong. still requirements early with continues and this, beginning timing continues to uncertain. of are volume remain signs show relationship future is recovery, market

options engaged us to help mentioned evaluate last another they've I on some program. As quarter, design them

their of both the the has the continues solid. remains end the program, original with positive, that day, we our strong to In long-term look sole follow-on make been as difficult as is closely At for program this believe as and of size developed. up long-term held working for supplier our grow continue company. forward of production them very successful validates product to is to new our to to position this of it progress the product their defense beginning our and pandemic. have prospects program the predict, We we the since well the order and While partnership

now. should customer, back heard is this we have that our from any order recently, project day ramping that and We however, up an expect

raw earlier materials prepared As anticipated this mentioned calls, I've have for quickly product, to the order. and we already start well procured when on receive this are we

the our division, earlier, fourth custom Optical mentioned along year. with spinal traditional our products, and specialized components surgery remained stable volumes endocouplers, complex of supplied by during products, I the endoscopes, Ross As quarter all the including

the maintaining shipping products time developed despite delays many worldwide lead good across on industries. have margins that are from these We and impacts

see Ross last that to coming out and played developing Optical how fruition. be has and has I couldn't new few operations of Finally, the our highlights at of simply This it historical the we opportunities, pleased between operation. are cross-selling POC this to itself over to pleased with always see continue years. been one synergies acquisition our we more customer acquisition, the

we couple our we parts to into effects of the production programs that pipeline fiscal of with of As as growth a well we in production. programs forward the year, from see believe look the from will long-term later fiscal XXXX, as recovery of transition pandemic,

a in where as and at spoke last initial Let's development to in recent time transition developments which we From the colonoscopy, have programs our has we large this quarter also were the market, standpoint, the our neurology. recently XXXX it to history. certain robust business added device was explore was compared into million, projects a Fourth pipeline, pipeline defense/aerospace been another engineering our double any engineering ophthalmology, market the we cardiology as pipeline. project have $X.X compared in Even $XXX,XXX. we in of efforts Today, have when engineering medical nearly And areas have XXXX. added to consequence advanced to revenue stage. from May, to continued of beyond we and otoscopy, new and projects is development and fiscal as revenue engineering opportunities fiscal evaluation revenue

of are due has reductions resources, the identified of investment. in of which areas recently growth engineering been last of to On indicator areas on potential the increase revenue technology we growth earnings developing years production due As us allowed in of in for quickly. strategic revenue significantly they of And call while I've led has of commercial couple increase to and in that we product. opportunities, our near-term, the along Both our revenue. engineering due one production growth long-term have to offset manufacture minutes group discussed, pipeline to last that products number the more of revenue the of design which pandemic we and in increase discussing in revenue single-use Not helped are to the sales our part engineering impact has engineering are areas This ultimately through candidates through the generally in projects a of future production, these in that only this have pipeline strong to is product. improvements true these our don't to to is projects technical with capabilities production. every move expect also identification it a in released our few as I spent drive opportunities moving such respond our engineering these leading associated the over

benefits of devices As as and medical recognize then, single-use more more I to market for the expand financial devices. the customers mentioned and continues such

next cutting generation are of to edge we ongoing to a advanced technologies growing well the require While market reusable as well, especially performance. provide we single-use medical market, positioned to take robust that for continue devices advantage those see

As such, as existing we as products, new area long-term future, development projects. expect our both ongoing well opportunities for the and foreseeable this existing in from

projects, micro-cameras proprietary in similar let quarter, the couple me is projects expanded of the status focused to Very wait market. for Finally, with three aerospace that pipeline multi-camera most clearance FDA area. XXX(k) custom opportunities, we our defense technologies, starting our colonoscope, of projects, final at a look pipeline and of to that a last we overview colonoscope advanced markets few we which for market this the pipeline summarize anxiously areas continue With on new to we have enabled by provide. the the continue we customer. our Today, particularly for for in

product this clearance. related not FDA Use well been the has As to reported, received Authorizations, pandemic the yet Emergency I believe is final why been behind which reason has due has

their XXX(k) the they that on have had meetings based FDA. that reiterated recent soon belief has track however, clearance customer, are with for on they Our

we our go-to-market the developed demo facilities in in we for continues the systems to the defense/aerospace large have that place. after company a with additional they that they forward. already confident last will for quarters, production production our receive discussed cameras. plan wait and FDA, customer soon have move While We project orders the The few salesforce, remain clearance, with robust we see

prototype we the we or complete lot are units move stage to ophthalmology be through continue single-use this final design of program. to production still what project have validation our positioned the program, transition to of will week expect next We Within so, we well this the soon. to and believe in

As this volume. the made design in that can confirm product, to a product high serves reproducibly single-use validation be

before We expect have more these validation design already units of few the to built a few hundred completing and hundred process. build a

six benefit through this While product in gain is of to originally it still costs infants, in system in production continue imaging the program the next augmented We an higher profitable still technical are projects. and new to and abdominal program will will two approval pipeline year. projects for system, additional in ophthalmology future months we related projects, include experience knowhow and for go three this new multispectral defense/aerospace that single-use mid a otoscopy us system. a we a anticipated, somewhat by Other valuable camera next engineering our than that use in surgery, reality anticipate regulatory XD

than our pipeline in number our programs is time and are the team projects to a on our which doing nicely. recent these with All strategic team, Also, opportunities. forward of pursue is moving and engineering continues long-term sales past, possible. the plan, of we move busy engineering today Consistent job executing greater as continue any additional quickly as to pipeline to to production great expand projects extremely them

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

to compared a On X% increase XX% and sequentially. year's during was the revenue quarter fourth the last quarter million up $X.X top-line, fourth

about up roughly as to $XXX,XXX company compared The fourth during fourth QX a quarter to revenue sequential year ago, XXXX. year, million the from fourth XXX% a was $X.X the which new year the during quarter, Engineering quarter compared million revenue was previous and third the production X% well $X.X flat was ago. services sequential from as was quarter. increase a record, quarterly $XX.X up fiscal quarter, breakdown million fiscal of of XXXX, of $XXX,XXX a revenue in the For the

revenue to Again, on projects of larger effects in engineering the is point of at the helped $X.X double this of some the in the engineering was history. in fiscal year, production. that of the any offset And than the approximately volume pulling pandemic company's For XXXX. revenue million, pipeline

the the quarter margin gross in fourth fourth and previous was Our quarter, XX% compared XX% ago. for year quarter, to the XX% a in

year with variable the of higher For be engineering in year. more shift work, costs year XX%, reflects slight gross predict. the and to somewhat overall a difficult this our margins where compared mix proportion despite last to revenue, XX% higher can year-over-year, revenue were This reduction

engineering much payoff sold, in There are revenue. production overhead for room goods we cost is quarters’ of investments in to also important leading make will of margin. of a a which our each calls, have of represents included overall margin. are to continue and gross the which year. these I much been single rebound improvement, what reduced margins believe for pipeline the use-engineering beyond Adjusting investment work an in costs, impact gross complete discussed current in gross for of XX% particular, growth technology utilization programs, has our we far on knowhow, have manufacturing and come As through previous approximately from In more still would which

be and a gross a fourth were expenses up of These Operating to up to expenses to $XXX,XXX due continues of back quarter Our third the quarter in quarter near-term compensation. margin the fourth recent XX% plus the compared one-time increases goal quarter XXXX, to million the year to during $X.X the range. incentive get to stock-based XXXX. $XXX,XXX fiscal fourth were ago fiscal for quarterly in most compared increase approximately mainly

$XXX,XXX area the a certain reported in travel in costs, we fiscal management during million, $X.X all of net told, overall were year, The fourth sales the operating expenses come operating on expenses the reduction to due line, income activities, of All the the to as continues For operating and of year-over-year in as particularly quarter. million GAAP well careful $X.X marketing in net to from compared XXXX. limitations pandemic. loss

QX year's of a being That $XXX,XXX. adjusted with a positive compared and to primary last compensation. in stock-based net However, difference was EBITDA negative loss the adjusted $XXX,XXX $XX,XXX, EBITDA

breakeven net of adjusted net compares $XXX,XXX net XXXX adjusted the fiscal for For pull large The fiscal due by programs pandemic. days XXXX. $XX,XXX part was recovery commented in of was roughly loss more quickly effects XXXX to on significant already. at the to roughly for EBITDA the $XXX,XXX. EBITDA The breakeven loss mainly was to early fiscal in This was as of the to ability I've back loss, caused and year, for our loss an engineering

pandemic of margins increase. back the running production As programs online, expect and effects revenues the we and previously subside come to

coming the Although of ups engineering timing back downs expect of timing along online. level and the production projects to due and scheduling quarterly still some we programs of way, and specific

balance to sheet. Turning our now

from Our cash was was end at $XX,XXX The in and which customers primarily careful fourth the as was cash compared $XXX,XXX us our our We quarter well balance balance cash the to at March. well management. up June expense the of believe position XX, XXXX of at continues increases $XXX,XXX, as by the to on end to execute driven increase advances balance plan. of

take our the strategic me I discussed few elements we questions, plan major Before that last the of let have in quarters. recap

within portfolio a areas. our overall second, Precision developing in size markets. this in augmenting programs Overall, created benefit possible investing partnerships sales strong resources position for capabilities our investing and our made growing augment external single-use business robotics, scale, acquisitions. customers. am the First, market; economies particularly our transactions the example, our third, point, existing to technical progress medical address or our and aerospace skills the device increase and in to enhance continue our to last fourth, these Optics explore in strategic own own On of property; has capacity; defense and micro-optics updating and our to to and and strategic the from and via intellectual capabilities capabilities, XD and of production we four and the with I of pleased offerings and

to accomplish been. visionary pipeline the otherwise robust created would capabilities marketing, to our to our applications allows next that their have measures to and be investment and development, companies it that sales as bring We as taken generation to research increase market proactive on has Due leverage unable ever end-to-end to in own. they an is solution and

safe. on operations XXXX near-term we which these, about a the business. world, for of managing were in said, able our and through impact well. from continue able the Much to We even the efforts, of just, minimize creative we of back operations as COVID-XX In as year the diligent orders our all keeping while pull this both POC, breakeven, number of projects employees, while approaching I and on of to accomplished commercialization and our Precision much soon. projects performed Fiscal maintain pandemic anticipate to company impact pipeline everyone continued. some engineering on our have Optics We increase activity. the was to was for Through production workforce production were

beyond. engineering running to production expect as pandemic to XXXX into impact on the products begins fiscal expect as also, continue these we reduced increased long-term year We for levels currently And of and to we orders recover the revenues lighten, or hold. at

virtual well again Fall us recovery Investor to is note, timing, strategy, available difficult and for advancements this the Partners will the have some While our the next meetings we due be on combined expect we to one-on-one success downs October positions Xth. the timing this of One made which XXXX week and be future I Conference, ups believe predict, will through for while XXXX Lytham of overall the uncertain held X the very quarters fiscal in we upcoming with that future. during final at once

Blum contact questions. Robert happy to for Thank today. additional time information. your you take be please As I'll usual, for now any And

Operator

[Operator the begin Instructions]. will We now question-and-answer session.

Robert Blum

impact maybe electronics while you in the here, we've international shortages shipping Any with a to general, to I've Eily, as and that's relates this affecting got we that supply see there's chain labor any of just here questions for quarter. anything them Joe, issues business? if the wait it any of or seen couple

Joe Forkey

Yes.

the in see impact hard of We those. those aware So with the all minimize business, in some we that to of very those areas certainly but some we about work of we are news. all issues hear

are electronics, electronics find we shortages, too We As of use can far alternatives impacted in of many for. short do supply. so not been them not In that we some the the product we've as use, significantly. but many

international of delays products shipping the has those with, some but even of days, months. Some not and that working shipping we're matter are or domestic weeks delayed the a of

been So there. impact huge there a hasn't

you have think the looking we're I of the some the for employees is couple There impact. biggest of and are But any mentioned, say impact the where ones taken significant the shortage that that potentially would little category wouldn't those see, we new business. we I searches that of a one labor in enough places expected. having have a major falls longer that on have than the of to

Robert Blum

then Okay, a you Delta one just we've any round of production great. here. seen second the see else more to Do rate that or And the sort maybe of or anything of it pandemic? due from let’s call here either on other sort variant iterations impacts

Joe Forkey

Yes.

been So the hospitals. the been this we closely. of talk course, us folks with news, as all do. We And customers. with who of the watch of We've work we've watching some and talking papers our inside

that using. are I on our there some there somewhat cases, be not being think surgeries of to in while overburdened of sense that guess these, there's seem that that there's kinds systemic pullback increases are products number by -- some there COVID a the that the are get we -- and is isolated hospitals of while the are some clearly incidents I

our on the when while, term seem plans. are it's predict hard again, customers’ happening, surgical kind that procedures products things not the that certainty, with our impact a having is using nearer these so does on And overall impact major are of any it to

on we increase an to it's stopped and nowhere inventory which but start our there decrease all. kind is rate surgery think burn near may our there of of their situation not or at the saw use our customers customers completely bit at the to were a little that inventory impact may the at I Now, the pandemic, able -- may off beginning be where their

point I which impact complete this at but it the the some like doesn't degree will end come at they to be past. to rate it in stop a of seem did the back, think it causing day, the at

Robert Blum

back you. I’ll over Eily to That’s had. it Alright. all I Perfect. turn

Operator

[Operator And ahead no to any to I'd back Instructions]. questions, go remarks. it further and seeing for like turn management closing over

Joe Forkey

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

Operator

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

now disconnect. may You