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PRECISION OPTICS CORPORATION, INC. (POCI)·Q4 2018 Earnings Summary

Executive Summary

  • Precision Optics delivered record fiscal Q4 2018 revenue of approximately $1.461M (derived from FY $4.038M minus 9M $2.577M), consistent with its preliminary guidance of $1.4–$1.5M; Q4 gross margin expanded to ~38.3% and operating income was ~$18K, with Q4 net income of ~$17K versus a ~$238K loss in Q4 2017 .
  • Management cited production transitions from multi‑year engineering programs and improved production efficiencies; the CEO called it “the highest [quarterly revenue] in over twenty years,” and indicated Q1 FY2019 revenue “to remain strong” .
  • Operating leverage and mix drove margin improvement versus prior year; however, non‑recurring items (including bad debt reserve activity) tempered operating profit versus the preliminary operating-income range provided in July .
  • Liquidity improved with $0.403M cash and $0.858M in customer advances at year-end, aided by subsequent $2.0M equity raise in October 2018; nonetheless, management continued to flag the need for sustained revenue to fund operations .

What Went Well and What Went Wrong

  • What Went Well

    • Record quarterly revenue driven by conversion of engineering programs to production; management: “successful start of some of these production orders along with increased production efficiencies,” and “highest in over twenty years” .
    • Strong gross margin execution on increased scale and efficiency; FY gross margin rose to 36.7% (from 24.5%), with Q4 margin ~38.3% (derived) as product mix, absorption and process learning improved .
    • Visibility/signals of demand: customer advances at 6/30/18 of $0.858M and ~$2.0M of production orders expected to be fulfilled starting Q4 FY2018 into the next two fiscal years .

  • What Went Wrong

    • Operating income in Q4 (~$18K, derived) came in well below the preliminary operating-income range ($100–$200K gross of non‑recurring items), reflecting non‑recurring items including bad-debt reserve activity (FY reserve $227.5K; increases noted in Q2/Q3) .
    • Liquidity risk acknowledged: despite improved results, management cautioned about the need to maintain revenue and, absent that, potentially pursue funding to support operations .
    • Quarterly volatility persisted: Q3 revenue declined to $0.736M with a $0.279M loss before rebounding in Q4, underscoring project timing sensitivity .

Financial Results

  • Quarterly trend (Q2 → Q3 → Q4 FY2018)
MetricQ2 FY2018Q3 FY2018Q4 FY2018
Revenue ($USD)$812,773 $735,597 $1,460,932 (Derived from FY $4,038,048 minus 9M $2,577,116)
Gross Profit ($USD)$300,222 $236,153 $558,801 (Derived from FY $1,481,918 minus 9M $923,117)
Gross Margin (%)36.9% 32.1% 38.3% (Derived from Q4 GP/Revenue)
Operating Income ($USD)$(59,844) $(278,823) $18,317 (Derived: Q4 GP less Q4 R&D and SG&A)
Net Income ($USD)$(60,326) $(279,271) $16,992 (Derived from FY $(351,390) minus 9M $(368,382))
EPS (Basic/Diluted)$(0.01) $(0.03) N/A (Not disclosed; derived NI above)
  • Year-over-year (Q4 FY2018 vs Q4 FY2017)
MetricQ4 FY2017Q4 FY2018
Revenue ($USD)$720,223 (Derived: FY2017 $3,154,547 minus 9M2017 $2,434,324) $1,460,932 (Derived)
Gross Profit ($USD)$180,142 (Derived: FY2017 $773,724 minus 9M2017 $593,582) $558,801 (Derived)
Gross Margin (%)25.0% (Derived) 38.3% (Derived)
Operating Income ($USD)$(235,388) (Derived: FY2017 $(1,002,401) minus 9M2017 $(767,013)) $18,317 (Derived)
Net Income ($USD)$(237,601) (Derived: FY2017 $(1,006,457) minus 9M2017 $(768,856)) $16,992 (Derived)

  • Estimate comparison (S&P Global): Consensus EPS and revenue for Q4 FY2018 were unavailable at time of analysis (SPGI access limit); compare/adjustment to estimates cannot be presented [GetEstimates error].

  • Segment/KPI breakdown: The company reports a single operating segment; no formal segment revenue/KPI disclosures beyond mix commentary (engineering transitioning to production) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1 FY2019None disclosed“Expect revenue levels … to remain strong” Positive qualitative outlook
Operating Income/MarginsQ1 FY2019None disclosedNot quantifiedN/A
Other (OpEx, tax, etc.)——No quantitative guidance provided—
Capital/Dividends——No dividend policy change; general WC funded; later $2.0M equity raise (Oct 2018) strengthened liquidity

Earnings Call Themes & Trends

Note: The company planned a call late September 2018; no transcript was available in the document set reviewed .

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 FY2018)Trend
Engineering→Production transitionsQ2: Engineering + production both up; one large project transitioning to production . Q3: ~$2.0M of production orders to fulfill starting Q4 and into next two years .Production ramps drove record revenue and improved efficiency .Improving conversion, building backlog
Gross margin/operational efficiencyQ2: GM 36.9% on higher absorption and efficiencies . Q3: GM 32.1%, still up YoY .Derived Q4 GM ~38.3% on scale/mix .Uptrend in profitability metrics
Working capital & fundingQ2/Q3: Going-concern style caution if revenues don’t sustain; need for working capital .YE cash $0.403M; customer advances $0.858M ; post-Q4 $2.0M equity raised .Liquidity strengthened post quarter but execution remains key
Bad debt/customer creditQ2/Q3: Increased reserve (cumulative $113.8K by Q3) .FY bad debt provision totaled $227.5K, weighing on results .Headwind moderated with recognition
Compensation alignment—CEO/CFO comp tied to revenue ≥$1.5M for two consecutive quarters and GM ≥30% triggers .Incentives aligned with growth/margin milestones

Management Commentary

  • “We are extremely pleased with the preliminary results… which reflect the successful start of some of these production orders along with increased production efficiencies… and we expect revenue levels for the first quarter of fiscal 2019 to remain strong.” — CEO Joseph Forkey .
  • “The level of revenue reported today is the highest in over twenty years for Precision Optics… we look forward to building on this success.” — CEO Joseph Forkey .

Q&A Highlights

  • No Q4 FY2018 earnings call transcript was available in the reviewed document set. Company indicated the quarterly conference call was expected on Friday, September 28, 2018; Q&A detail not accessible for analysis .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ): EPS and revenue consensus for Q4 FY2018 were unavailable at time of analysis due to access limitations; we cannot quantify beats/misses versus consensus. We recommend revisiting S&P Global data for precise estimate comparisons when available (SPGI daily request limit error).

Key Takeaways for Investors

  • The inflection to production materially improved scale and margins: Q4 revenue ~doubled YoY and gross margin expanded ~13 points, with a swing to positive net income .
  • Backlog/visibility strengthened: ~$2.0M in production orders spanning multiple periods and significant customer advances underpin near-term revenue cadence .
  • Quality of earnings matters: Non‑recurring bad-debt reserve activity muted operating income relative to preliminary guidance; sustainability hinges on execution and credit discipline .
  • Liquidity improved but remains execution‑sensitive: YE balance sheet shows modest cash offset by advances; subsequent $2.0M equity bolsters working capital for growth .
  • Incentives aligned with profitable growth: CEO/CFO equity awards tied to revenue and gross margin thresholds (≥$1.5M revenue for two consecutive quarters; ≥30% GM), reinforcing focus on quality of scale .
  • Near-term trading setup: With qualitative guidance for Q1 FY2019 “to remain strong,” watch for confirmation of consecutive ≥$1.5M quarters and ≥30% GM as catalysts for option vesting triggers and narrative reinforcement .
  • Medium-term thesis: Durable transition from custom engineering to recurring production can compound margins; monitor backlog conversion, customer concentration, and working capital cycles to gauge sustainability .