Chris Guzowski

Chris Guzowski inquired about Precision Optics Corporation's fiscal year 2026 revenue guidance, questioning its conservatism given the strong Q4 2025 run rate and anticipated growth from major production programs and engineering services. He also sought clarification on the renegotiated pricing for the medical program, including the ramp-down schedule for initial production difficulties and the status of tariff reimbursements. Additionally, Guzowski asked about the allocation of engineering resources, specifically if they are now freed from the single-use cystoscope program for new revenue-generating projects, and the potential impact of past engineering focus on future production orders.

Answer

CEO Joe Forkey confirmed a conservative approach to FY26 revenue guidance, attributing the apparent flatness to an $800,000 expected decrease in micro-optics lab revenue due to a large defense customer reorder timing, and the replacement of $500,000 in low-margin Q4 tooling/fixturing revenue with higher-margin production. For the medical program, Forkey explained that open-book pricing allowed for customer agreement to cover higher short-term startup costs, with a negotiated step-down plan to achieve original margin targets. He also stated that tariff reimbursement agreements are verbally confirmed and awaiting documentation. Regarding engineering resources, Forkey clarified that while some design work for yield improvement on the cystoscope continues, the need for "sustaining engineering" on the production line has significantly reduced due to new hires and solutions, allowing resources to progressively fill with new projects. He assured that the engineering pipeline is robust, with 7-8 programs, including 3 in verification/validation expected to transition to production within 12 months, and new programs being targeted for 2-3 year production cycles, mitigating any impact on future production orders. CFO Wayne Coll added details on the expected strengthening of margins in the second half of FY26.

Chris Guzowski inquired about the conservative nature of Precision Optics' fiscal 2026 revenue guidance, the renegotiated pricing and ramp-down schedule for the medical program, the status of tariff reimbursements, the current allocation of engineering resources, and the potential impact of past engineering focus on future production orders.

Answer

CEO Joe Forkey confirmed a conservative approach, citing an $800,000 decrease in Micro-Optics lab revenue and the replacement of $0.5 million in low-margin tooling revenue with higher-margin production in Q4 2025. For the medical program, he explained that open-book pricing led to customer agreement on higher short-term costs due to startup difficulties, with a negotiated step-down to original target margins. Verbal agreements for tariff reimbursements are in place and awaiting documentation. Forkey clarified that while some engineering is still needed for redesigns to improve Yields, the need for engineers on the production line has significantly reduced due to new hires and initial solutions, allowing resources to progressively fill new projects. He also stated that despite past engineering focus, other programs continued, with three in verification/validation expected to enter production in the next 12 months, and new programs being targeted for 2-3 year production cycles leveraging the Unity platform. CFO Wayne Coll added that gross margin improvement is expected to be back-half weighted.