Optex Systems Holdings, Inc.

Good afternoon and welcome to today's OpTex Systems Holdings, Inc. Second Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. If you wish to join the queue to ask a question at any time, you may press star 1 on your telephone keypad. Should you wish to remove yourself from queue, you may press star 2. It is now my pleasure to turn the floor over to your host, Danny Schoening. Danny, the floor is yours.

Thank you, Tom. Hello, my name is Danny Schoening, and I'm the chairman and CEO of OpTech Systems. I'd like to begin by introducing Karen Hawkins, our CFO. We'll walk you through the financials, and then I'll come back to talk a little bit more about the business. Karen?

Thank you, Danny. As Danny said, this is Karen Hawkins. I am going to begin by reading the Safe Harbor Statement, During this call, management will be making forward-looking statements. Any statement that refers to expectations, projections, or other characteristics of future events, including future financial results, future business and market conditions, and future plans, strategies, opportunities, and goals is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in documents filed with the SEC, including the company's latest annual report on Form 10-K, filed December 19, 2024, as well as our second quarter 10-Q filed today. OPTEC Systems Holdings Inc. assumes no obligation to update these forward-looking statements. The first item I'd like to go over on our financials is the balance sheet performance. We ended March, on March 30, 2025, with an increase in cash of $2.5 million, basically driven by higher revenue and EBITDA and reductions in inventory. Final cash balance was $3.5 million as compared to an ending cash balance of $1 million as of the end of September 2024. Our accounts receivable also up $0.5 million on higher revenue, and our inventory was down 0.9 million on higher revenue and inventory use. Then our property plant equipment was up at net of 3.3 million on asset purchases, net of the depreciation. The next item is regarding the financial statement of operations. Year over year, we had a significant increase in revenue of 22.2% for the six months and 25.9% for the three months ending March 30, 2025. Our revenue came in at $10.7 million for the three-month period and $18.9 million for the six-month period. Gross profit also up for the three-month period, $0.8 million or 31.4%. And for the six-month period, we were up $1.2 million or 29.4%. Our three months, gross profit was $3.4 million as compared to $2.6 million for the three months ended in 2024. Our six-month gross profit was $5.5 million as compared to $4.2 million during the six months of 2024. Our G&A has remained relatively flat, slightly lower than the three-month period and consistent with the prior year spending with 2024. Our operating income Also up 0.9 million or 65% for the three months and 1.2 million or 65.2% for the six months. We ended with operating income of 2.2 million for the three month period and 3.2 million for the six month period. Our net income up 0.7 million or 66.5% for the three months and 1.1 million or 74.9% for the six months. Our overall basic and diluted earnings per share was at 62.5% for the three months and 72.7% for the six months ended March 30, 2025. For the cash flow, we had operating cash flow of $3.9 million versus a prior year of $1 million. The increased cash flow was driven primarily by the increases in revenue and net income, as well as decreased inventory, which was slightly offset by other changes in working capital. Our inventory decreased 0.9 million, again, higher shipments. And during the period, we spent 0.5 million on capital expenditures as compared to 0.2 million in the prior year. Prior also included the investment in intangible assets for the purchase of our Speed Tracker product line. During the six-month period, we made payments against our line of credits of $1 million, bringing the balance to zero. We ended the six-month period with $3.5 million in cash on hand as compared to $0.3 million for this time last year. With the statement of stockholders' equity, there were... Some restricted shares issued during the first quarter, 22,800 shares that had been issued to our independent board members. And no other impacts to our outstanding shares during the three or the six months. And a few items to point out on our material trends. The first six months of 2025, we have increased our periscope production levels by 50% over our 2024 production levels. So we're seeing some pretty good improvement on our periscope revenues. And we also, as noted throughout the queue, we had some carryover legacy orders that dated back prior to COVID during the 2021 period that had a few lost contracts. It reflects about 7% of our backlog over For OPTEX and roughly 5% of our backlog overall, this is fully reserved on our balance sheet. We do have $226,000 in reserves set aside to cover that. And last, speaking to the recent tariff uncertainties, we do not expect to have any material impact as a result of the tariffs. Our products are primarily military products. They're sourced domestically, and as such, they come in duty-free. For those that are commercial optical assemblies, there are some selective components that do come from outside, but currently all of that backlog is covered with our existing inventory, and we anticipate that we would be able to recover any future orders with updated pricing that would include those tariffs. So moving on to the segment operations, during both the three and the six-month window, we had significant improvement in our gross margin percentages for both operating segments for both Optex Richardson as well as the AOC Applied Optics Center. On a consolidated basis during the three month window we saw an improvement of or we saw gross margin of 31.3% compared to 30% in the prior year three month window. Most notably we had a 36.1% gross margin on the Applied Optics Center and a 26.1% gross margin for the OPTX Richardson segment, which compares to a 21.7% for the three months last year. For the six months, we are running a 29% gross margin for the six-month window as compared to 27.4 for the prior year six months. And that is driven by higher margins in both the OPTX Richardson at 20.3 as compared to 19.3 in the prior year, and for the Applied Optics Center at 35.9 as compared to 33.5 in the prior year. Our backlog orders have come in roughly at 15.7 million as compared to 17.9 million in the same six-month period last year. That's roughly a decrease of 2.2 million or 12.3%. However, subsequent to the close of the period within 10 days, we did receive an additional award for $5.7 million for laser filters for the AOC Applied Optics Center segment. We do relate most of the decrease in orders otherwise as just purely a timing difference. We have several outstanding business proposals that are pending either audit or award. For our backlog, we ended March 30, 2025 with 41.5 as compared to an ending backlog this time last year of 44.2 million. That is a decrease of 3.1 million or 7%. This predates the $5.7 million award that we received on April 9th. So with that award included, we are slightly above where we were this time last year as of today. And we do expect our, you know, all of our awards that we have booked are firm for the current year and we are expecting additional higher levels of periscopes through Q3, Q4 as indicated on our backlog forecast. So we have roughly 21.8 million remaining to be delivered in 2025 of booked orders and still some room for some unfirm if we should get some additional orders. Moving on to our revenue for the three months, we We were up in revenue 2.2 million, and that increased primarily coming in from the Optech Richardson segment. We had an increase of 101.6% on our periscope lines. Basically, we went from 2.7 million in 2024 to 5.4 million in 2025. And then we had some significant increases on the laser filters, of 21.4% in the current three months, taking the revenue from $2.4 million in 2024 to $3 million in 2025. Those are the most significant increases. Those, however, were slightly offset by some decreases in other product lines, but by and large, overall, 25.9% increase. And for the six months on the revenue, we had a $3.4 million increase, or 22.2%. 2 million of which came from our Optex Richardson segment, 3.7 million in periscopes offset by a decrease in other product lines of 1.7 million. But then we had a $1.4 million increase in the Applied Optics Center driven primarily from laser filters with some offset from commercial optical assemblies. What we have seen is a significant increase in our military defense equipment revenue offset by reductions in our commercial lines. On our EBITDA, we ended the three-month period with 2.4 million in EBITDA as compared to 1.6 million in the prior year three months. For the six months, we had 3.6 million as compared to 2.4 million in the prior year three months, primarily driven by the increased revenue, the improved gross margins, and the stable G&A spending. Beyond that, just to point out, we did have within our critical accounting estimates, we had not any significant changes, but we do have set aside $226,000 for lost reserves against the old legacy Periscope contracts. We do expect those to flow through by the end of this year or the first quarter of next year at the latest. That sums it up for me, Danny. I turn it back over to you.