Contradictions Emerge in Q2 and Q3 Earnings Calls on International Sales Strategy and Backlog Clarity

Date of Call: May 13, 2025

Financials Results

• Revenue: $10.7M (quarter), up 25.9% YOY; $18.9M (six months), up 22.2% YOY
• EPS: Basic and diluted EPS up 62.5% for the three months and up 72.7% for the six months (dollar per share not disclosed)
• Gross Margin: Consolidated gross margin 31.3% for the three months, compared to 30% prior year; six-month gross margin 29%, compared to 27.4% prior year. AOC: 36.1% (3M) and 35.9% (6M). Optex Richardson: 26.1% (3M) and 20.3% (6M) vs 21.7% and 19.3% prior year respectively.

Guidance:

• Backlog was $41.1M at March 30, 2025 (down 7% YoY) but a $5.7M award received post-period moves backlog slightly above prior year; ~$21.8M remains to be delivered in 2025.
• Expect additional higher levels of periscope shipments through Q3–Q4 2025.
• Anticipate no material impact from tariffs; existing inventory covers backlog and pricing can recover future tariff costs.
• Expect remaining legacy low-margin periscope orders to ship by end of 2025 or Q1 2026, which should improve margins.

Business Commentary:

• Revenue Growth and Profitability Improvement:
• Optex Systems Holdings reported $10.7 million in revenue for the three-month period and $18.9 million for the six-month period, representing a 22.2% increase year-over-year.

• The growth was driven by an increase in periscope production and higher gross margins in both operating segments.

• Operating Income and EPS Increase:

• 
• The company's operating income increased by $0.9 million or 65% for the three months and $1.2 million or 65.2% for the six months, leading to a 66.5% increase in net income for the three months and a 74.9% increase for the six months.

• The improvement was primarily due to increased revenue, improved gross margins, and stable G&A spending.

• Backlog Dynamics and Order Timing:

• Optex Systems ended March with $41.1 million in backlog, a decrease of 7% from the previous year, but subsequent to the period, they received an additional award of $5.7 million.

• The decrease in orders was mainly due to a timing difference, and the company expects additional orders to boost their backlog in Q3 and Q4.

• Gross Margin Expansion:

• The company achieved a 31.3% gross margin for the three months, up from 30% in the prior year, driven by a 36.1% gross margin at the Applied Optics Center and a 26.1% gross margin for Optex Richardson.
• This expansion was largely due to increased revenue, improved product mix, and operational efficiencies.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted strong operating performance: revenue +25.9% QoQ YoY for the quarter, six-month revenue +22.2%; three-month gross profit +31.4% YoY; operating income up 65% (3M). Management reiterated growing periscope production (+50% vs 2024) and recent $5.7M award, and expects higher periscope levels in Q3–Q4 2025.

Q&A:

• Question from Patrick Vogelard (Unknown): Assuming that sales will increase going forward, how will this affect the cost basis and is there a need for significant CapEx investments going forward?
  Response: Production is covered with one shift plus selective overtime/weekends; no significant additional CapEx expected and factory leverage should improve margins.

• Question from Patrick Vogelard (Unknown): Is there any potential to diversify the customer base internationally, especially considering the strong push by the European Union for increased military spending?
  Response: Yes — company is pursuing avenues into Europe but must navigate ITAR and related paperwork before selling directly.

• Question from Jordan Crenshaw (Unknown): As cash continues to come in and no long-term debt, please provide a view on how the company thinks about potential cash usage?
  Response: All capital-allocation options remain on the table (reinvest, buybacks, dividends, bolt-on M&A); board has discussed but no firm decision yet.

• Question from Jordan Crenshaw (Unknown): Can you please speak on why new orders are down year-over-year, 12.3% for the first six months?
  Response: Primarily timing and lumpiness — a $5.7M award received 4/9 fell just after period close; orders are not indicative of a sustained decline.

• Question from Frank Wisniewski (Unknown): You had some great progress in your gross margins during the past six months. What kind of further progress do you think you can make on gross margins?
  Response: Optex Richardson margins constrained by legacy fixed-price IDIQ periscope orders that will be exhausted by end-2025/early-2026 improving margins; AOC margins are already strong with only modest incremental upside.

• Question from Frank Wisniewski (Unknown): On acquisitions and the Speedtracker purchase, where do acquisitions fall into your capital allocation scheme?
  Response: Approach is conservative — will consider bolt-ons aligned with core competencies but avoid paying high EBITDA multiples; product-line acquisitions (like Speedtracker) are preferred over expensive targets.

• Question from Frank Wisniewski (Unknown): Commercial prospects for Speedtracker and is the commercial push worth the time given weak sales the last six months?
  Response: Speedtracker and new Reacher product were moved to Texas and launched; commercial channel is early-stage and management expects to judge success over the next year.

Contradiction Point 1

ITAR-controlled Items and International Sales

It highlights differing statements about the potential and timelines for expanding international sales, which could impact revenue projections and strategic focus.

Is there potential to expand the international customer base, given the EU's push for increased military spending? - Patrick Vogelard (Unknown Company)

2025Q2: Yes, we have several avenues into Europe and we’re working through those now. Again, we’re talking about ITAR-controlled items here. So there’s a paperwork side to this, along with the normal customer and supplier issues. But yes, we’d like to be selling directly into Europe once we’ve chosen the correct path and work through these paperwork issues dealing with ITAR. - Danny Schoening(CEO)

What is your current cash position, and do you have plans for dividends, buybacks, or acquisitions? - Laurence Burgart (Private Investor)

2025Q3: We’re fairly conservative when it comes to acquisitions. Acquisitions are tough. And so former Honeywell, former Finisar, I’ve been through several of them and they’re not to be taken lightly. So we’ve had several acquisitions ranging from purchasing the assets from a competitor, Miller-Holdsworth Inc., up in Salem, Ohio. We acquired the Applied Optics Center from L3 Communications in 2014-2015, that time frame, I think. - Danny Schoening(CEO)

Contradiction Point 2

Backlog Clarification and Strategic Focus

It involves differing explanations about the company's backlog and strategic focus, which could affect investor understanding and expectations regarding the company's growth and performance.

Why are new orders down year-over-year by 12.3% in the first six months? - Jordan Crenshaw (Unknown Company)

2025Q2: We already have another $23 million in orders in our backlog. And despite the large order in April, we still ended the quarter at $23 million, which was exactly where we were three months ago. - Karen Hawkins(CFO)

Are there any catalysts that could help reach a $50 million backlog? - Laurence Burgart (Private Investor)

2025Q3: We are in the back-end of several multi-year contracts. We’re in the beginning of several multi-year contracts. And we have at least one proactive pursuit that we are working on, which is one of those we’re hopeful we’re going to land that one. - Danny Schoening(CEO)