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PRECISION OPTICS CORPORATION, INC. (POCI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY2024 revenue was $4.72M, down 6% YoY, with gross margin compressing to 21.7% due to ramp-up challenges, inventory adjustments, and lower absorption; quarterly net loss widened to $(1.41)M and Adjusted EBITDA was $(1.09)M .
  • Management guided Q1 FY2025 revenue to $4.2–$4.4M and expects a step-up beginning in Q2 FY2025, with double-digit revenue growth for FY2025 driven by production ramps, including a single-use endoscope program; adjusted EBITDA breakeven is targeted at ~$5.5M quarterly revenue .
  • FY2024 revenue of $19.1M exceeded the August pre-announced range’s high end ($18.9M), aided by record engineering revenue ($8.3M) offsetting weaker production and Ross Optical component demand; Q4 revenue also beat an implied $4.5M high end .
  • Operational issues behind the miss vs Q3 and YoY decline were largely resolved: defense program production hold (measurement technique), variable yields in robotic laparoscopy, and otoscopy customer shipment reductions; these are expected to rebound in Q2 FY2025 and beyond .
  • Additional catalysts: $9M production order (single-use cystoscopy) moving to ~$3.6M FY2025 revenue with second line being stood up; $1.4M registered direct offering bolstered working capital for scaling .

What Went Well and What Went Wrong

What Went Well

  • Record engineering revenue: Q4 engineering revenue rose to $1.9M (vs $1.4M YoY), and FY engineering revenue reached a record $8.3M (+24% YoY), helping backfill lost FY2023 programs .
  • Strategic single-use endoscopy order ramping: The $9M cystoscopy order is delivering at ~$600k per quarter, with plans to scale to ~$3.6M FY2025 via a second line; demand pulled forward post FDA clearance of the customer’s system .
  • Platform product initiative: Management launched a baseline design “platform product” to accelerate customer time-to-market and improve margins on engineering, already attracting three customers .

What Went Wrong

  • Margin compression: Q4 gross margin fell to 21.7% (vs 35.0% YoY), impacted by ramp inefficiencies, inventory carrying value adjustments, and lower absorption; Adjusted EBITDA declined to $(1.09)M .
  • Program-specific headwinds: Defense aerospace line faced a customer-imposed production stop over measurement technique differences (~$0.5M impact to Q1), robotic laparoscopy had variable yields, and otoscopy shipments were reduced due to a discontinued component at the customer .
  • Ross Optical softness: Industry-wide slowdown reduced FY revenue by ~$1.5M and gross margin by ~$1.0M; recovery is expected to begin calendar 2025, with increased marketing spend .

Financial Results

Quarterly Trend (Q2–Q4 FY2024)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$4.80 $5.24 $4.72
Gross Margin %30.1% 35.4% 21.7%
Net Income (Loss) ($USD Millions)$(0.76) $(0.32) $(1.41)
Adjusted EBITDA ($USD Millions)$(0.27) $0.05 $(1.09)
Diluted EPS ($USD)n/an/a$(0.23)

Q4 FY2024 vs Prior Year and vs Pre-announced

MetricQ4 2023Q4 2024YoY ChangeReference/Notes
Revenue ($USD Millions)$5.02 $4.72 -6%Q4 FY2024 exceeded implied $4.5M high-end from Aug 14 update
Gross Margin %35.0% 21.7% -1,330 bpsRamp inefficiencies, inventory adjustments
Net Income (Loss) ($USD Millions)$(0.10) $(1.41) $(1.31)
Adjusted EBITDA ($USD Millions)$(0.41) $(1.09) $(0.68)
Diluted EPS ($USD)$(0.02) $(0.23) $(0.21)

Segment/KPI Breakdown (Q4 FY2024)

Segment/KPIQ4 2023Q4 2024YoY Change
Engineering Revenue ($USD Millions)$1.4 $1.9 +$0.5
Production Revenue ($USD Millions)$3.6 $2.8 -$0.8
Adjusted EBITDA ($USD Millions)$(0.41) $(1.09) $(0.68)
Gross Margin %35.0% 21.7% -1,330 bps

FY2024 Overview

MetricFY2023FY2024
Revenue ($USD Millions)$21.04 $19.10
Gross Margin %36.8% 30.3%
Net Income (Loss) ($USD Millions)$(0.145) $(2.95)
Adjusted EBITDA ($USD Millions)$0.49 $(1.55)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q1 FY2025n/a$4.2–$4.4Introduced; relatively flat YoY
Revenue growth (directional)FY2025n/aDouble-digit growth; step-up beginning Q2Introduced
Adjusted EBITDA breakeven thresholdOngoingn/a~$5.5M quarterly revenueIntroduced
Single-use endoscope program revenue ($USD Millions)FY2025~$2.2 (May guide) ~$3.6; second line plannedRaised (customer demand pulled forward)
Micro-optics lab defense revenue ($USD Thousands)Q2 FY2025n/a~$370Introduced
Otoscopy shipments ($USD Thousands per quarter)FY2025 run-raten/a~$250 (may rise later in FY25)Introduced
FY2024 Revenue ($USD Millions)FY2024$18.5–$18.9 (Aug 14 pre-ann.) Actual $19.1Beat vs guidance high end

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 FY2024)Current Period (Q4 FY2024)Trend
Single-use endoscopy (cystoscopy)Accelerating demand; $9M order; expected ~$2.2M FY25 and $4.6M FY26 ; customer accelerated launch ~Q4 Delivering at ~$600k/quarter; scaling to ~$3.6M FY25; demand pull-in post FDA clearance; second line planned Positive acceleration
Defense aerospace programsNew program ramp to ~$0.5M/quarter by end FY2024; historic program steady ~$2M/year; orders $720k and $1.25M Temporary production stop; measurement technique misalignment resolved; restart; expected ~$850k contribution starting Q2 FY2025 Short-term disruption, recovery underway
Ross Optical components demandIndustry-wide slowdown; sequential improvement Q2; ATC marketing efforts Still soft; beginning signs of acceptance; expected recovery starting calendar 2025; increased marketing budget Gradual improvement expected
Gross margin and profitabilityQ2 GM 30.1%; Q3 GM 35.4%; positive Adj. EBITDA $0.05 in Q3 Q4 GM 21.7%; Adj. EBITDA $(1.09)M; causes: ramp inefficiencies, inventory adjustments; breakeven at ~$5.5M/quarter Short-term setback, path to breakeven
Platform product initiativeConcept introduced; accelerates time-to-market; monetizes baseline IP Limited launch well received; three customers; margin enhancement on engineering Building traction
ERP and operations consolidationERP go-live; consolidation of imaging production in MA (from ME) to improve efficiencies Manufacturing infrastructure updated; new ops leadership; evaluating facility expansion/consolidation Scaling to support growth

Management Commentary

  • “We expect our first quarter revenue will be in the range of $4.2 to $4.4 million…we expect double digit revenue growth for fiscal 2025 with significant increases in revenue beginning with the second quarter of fiscal 2025.” — Dr. Joseph Forkey .
  • “We restarted production on the [defense] line last week and fully expect this product to contribute to revenue at a higher level of approximately $850,000 starting in Q2.” — Joseph Forkey .
  • “Adjusted EBITDA breakeven quarterly revenue levels [are] approximately $5.5 million, which is aligned with our revenue expectations for the second quarter and beyond.” — Wayne Coll .
  • “We are now delivering [single-use endoscope] at a rate of approximately $600,000 per quarter…we are…standing up a second production line to achieve our updated estimate of $3.6 million in revenue for fiscal 2025.” — Joseph Forkey .
  • “This platform…offers an accelerated path to market…and should help our gross margins on the product development side go up slightly.” — Joseph Forkey .

Q&A Highlights

  • Defense aerospace: Customer-imposed production hold was due to measurement technique discrepancies, not product quality; shipments restarted with new follow-on orders; deliveries expected to catch up next quarter .
  • Margin mix across lines: Micro-optics defense margins >50%; single-use manufacturing ~30% currently; product development low-to-mid 40% margins; Ross Optical higher at fuller utilization .
  • Demand visibility: Single-use program demand increased after clinical validation; marketing feedback indicates expansion potential beyond initial plan .
  • Platform product clarification: Modular baseline designs enable faster prototyping and monetization, while maintaining custom elements; expected to lift engineering gross margins .
  • Facilities and scaling: Ops leadership update, consolidation efforts, and potential facility expansion under evaluation to support ramping production .

Estimates Context

  • Wall Street consensus (EPS, revenue) for Q4 FY2024 via S&P Global was unavailable at time of analysis due to an access limit. We attempted retrieval but did not receive data. Therefore, no estimate comparisons are shown, and any estimate-related conclusions are not provided [GetEstimates error]. Values would have been retrieved from S&P Global if available.

Key Takeaways for Investors

  • Near-term revenue dip is transitory: Q1 FY2025 guide of $4.2–$4.4M reflects ramp challenges, with catalysts in Q2 from defense restart and single-use scaling; double-digit FY2025 growth expected .
  • Margin recovery hinges on volumes: Management targets adjusted EBITDA breakeven at ~$5.5M quarterly revenue as production processes stabilize and scale; watch Q2 trajectory .
  • Single-use endoscope is a structural growth driver: Updated FY2025 revenue to ~$3.6M for this program with second line; potential expansion beyond current forecasts based on market feedback .
  • Engineering pipeline strength offsets production volatility: Record engineering revenue provides visibility for future production programs; platform product should improve engineering margins and win rates .
  • Defense aerospace offers high-margin mix and resilience: Measurement issue resolved; follow-on orders indicate confidence; expect ~$850k contribution starting Q2 FY2025 .
  • Liquidity to support scaling: $1.4M registered direct offering closed to bolster working capital for ramp initiatives .
  • Monitor Ross Optical recovery: Signs of improvement into early 2025; increased marketing may aid margins when utilization normalizes .

Additional Relevant Press Releases and Disclosures

  • Registered direct offering: Precision Optics priced a ~$1.4M registered direct offering on Aug 14, 2024 to support working capital and general corporate purposes .
  • FY2024 pre-announcement: Company pre-announced FY2024 revenue of $18.5–$18.9M on Aug 14, 2024; actual FY revenue of $19.1M exceeded the high end .
  • $9M single-use order: Q4 press release reiterated the May 2024 production order and noted shipments began in July 2024 .

Appendix: Cross-References (for discrepancy checks)

  • Q4 press release highlights include Q4 and FY metrics, segment splits, and non-GAAP reconciliation .
  • Q4 call provided granular program ramp issues and resolution timing, margin drivers, and FY2025 expectations .
  • Q2 and Q3 calls underpin sequential trends and pipeline maturation .