Precision Optics Q4 2025: Contradictions in Strategic Partnerships, Regional Demand, and Defense Contracts

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 29, 2025

Financials Results

• Revenue: Q4 revenue $6.2M, up from $4.2M sequentially and from $4.7M in the prior-year quarter; FY25 revenue $19.1M, flat YOY.
• Gross Margin: Q4 gross margin 13%, vs 10% in Q3 and 22% in Q4 FY24; FY25 gross margin 18% vs 30% in FY24.

Guidance:

• FY26 revenue ~$25M (~30% YOY), sustaining roughly $6M per quarter.
• Systems manufacturing to grow ≥75% as aerospace and single-use programs expand; aerospace program backlog near $9M; capacity increases planned.
• FY26 blended gross margin ~30% (vs 18% FY25); improvement back-half weighted; Q4 FY26 GM expected >30%.
• Positive adjusted EBITDA ~$0.5M in FY26; long-term gross margin goal 40%.
• Single-use program pricing +24% near term; customers to reimburse tariffs (one retroactive to Jul 1); yields/touch-time to improve via design and process changes.
• Expect 2–3 programs to move to production in each of the next two years.

Business Commentary:

* Record Revenue and Production Expansion: - Precision Optics Corporation reported highest quarterly revenue of $6.2 million for Q4, putting them at an annualized run rate of approximately $25 million. - The increase was driven by the advancement of two major production programs, one with a top-tier aerospace company and another with a surgical robotics company.

• Gross Margin Challenges and Improvements:
• Gross margins were 13% in Q4, with expectations for improvement to 30% in fiscal 2026.

• Margins were affected by production yields and tariff costs, particularly in the single-use cystoscope program, but improvements are expected through design updates and process improvements.

• Investment in Facilities and Engineering:

• The company moved its headquarters and invested in new facilities in Littleton, Massachusetts, and South Portland, Maine, to support growth.

• These investments are aimed at consolidation and expansion of production resources and access to a broader engineering talent pool.

• Engineering Pipeline and Program Expansion:

• The engineering pipeline is expected to recover with two to three programs transferring to production in the next two years.
• New programs are being integrating into the Unity platform, with increased outreach and marketing efforts to enhance the product development pipeline.

Sentiment Analysis:

• “Highest quarterly revenue in our company's history” ($6.2M Q4). FY26 outlook: revenue ~$25M (30%+ growth), gross margin ~30% (vs 18% FY25), and positive adjusted EBITDA ~$0.5M. Aerospace backlog nearly $9M with sequential growth and mid-30% program margins. Single-use pricing up 24% and tariff reimbursement expected, supporting margin recovery. Management expects gains to flow to bottom line in FY26 and beyond.

Q&A:

• Question from Chris Bechowski (Private Investor): Guidance for FY26 seems to match Q4’s run-rate despite expected increases from major programs and higher engineering revenue—are you being conservative?
  Response: Yes; mix shift and an ~$800k decline in micro-optics timing offset growth, and low-margin tooling revenue in Q4 will be replaced by higher-margin production, particularly aerospace.

• Question from Chris Bechowski (Private Investor): For the medical single-use program, how will the temporary price increase ramp down?
  Response: Open-book pricing with agreed temporary increase; step-down targets tied to yield/touch-time improvements, returning to originally negotiated margins over time.

• Question from Chris Bechowski (Private Investor): What’s the status of tariff reimbursements?
  Response: Verbal agreements are in place; documentation is being finalized, with one arrangement expected to be retroactive to July 1.

• Question from Chris Bechowski (Private Investor): Are engineering resources freed up and ready to drive engineering revenue?
  Response: Yes; sustaining-engineering needs are reduced and new manufacturing/quality hires handle line issues, enabling design engineers to refocus on billable work with a notable pickup in Q1–Q2.

• Question from Chris Bechowski (Private Investor): Did the focus on the cystoscope line slow new production orders?
  Response: No; 3 programs are in verification/validation and expected to enter production within 12 months, another program returns later this year, and Unity is fueling a robust pipeline.

• Question from Robert Blum (Lytham Partners, LLC): Update on the second single-use program—are similar challenges occurring?
  Response: Ramp is slower and smoother, leveraging lessons from the cystoscope; some start-up issues exist, but the customer doubled its forecast and the team is prepared to ramp efficiently.

• Question from Robert Blum (Lytham Partners, LLC): Will Q4 FY26 gross margin be well north of 30%?
  Response: Yes; margins should strengthen through the year as cystoscope yields improve and the aerospace program scales.