Precision Optics Corporation, Inc.

Good afternoon and welcome to the Precision Optics Report's first quarter fiscal year 2024 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Robert Bloom with Lithium Partners. Please go ahead.

All right. Thank you, Anthony. And thank you to everyone joining the call today. As the operator mentioned on today's call, we will discuss Precision Optics first quarter fiscal year 2024 financial results for the period ended September 30th, 2023. With us on the call representing the company today are Dr. Joe Forkey, Precision Optics Chief Executive Officer, and Wayne Cole, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Today's conference call is also being webcast with the replay capabilities available through both the webcast as well as the dial-in instructions. The details of both were included in today's press release. Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Precision Optics during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act 1933 as amended and Section 21E of the Securities Exchange Act 1934 as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, and plan or planned, will or should, expected, anticipates, draft, eventually, or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in our filings with the Securities Exchange Commission. All forward-looking statements contained during this conference call speak only as the date in which they were made and are based on management's assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward-looking statements, whether as the result of the receipt of new information, the occurrence of future events, or otherwise. With that said, let me turn the call over to Dr. Joe Forkey, Chief Executive Officer of Precision Optics. Joe, please proceed.

Thank you, Robert. And thank you all for joining our call today to discuss our first quarter fiscal year 2024 financial results. At a high level, the results of the quarter were in line with the expectations we discussed at the end of September. As anticipated, revenue declined due to timing differences between the pause or exit of certain mature customer programs and the transition of significant new customer programs into productions. Revenue is also impacted by lower order volumes of optical components from our Ross optical operation. We expect that the net result of these in and out transitions will be a higher run rate of quarterly revenue when the transitions are complete, and we expect first quarter revenue levels to be the low point of the fiscal year. The markets we serve continue to be robust. The medical device market continues to show strong continuous growth fueled by the ongoing efforts to develop updated and new medical procedures by leveraging new technology, including robotics and digital imaging. These new technologies enhance the abilities of surgeons, in the case of robotics, by allowing for more precise and complex movements with reduced chance of surgeon fatigue, and in the case of digital imaging, by allowing for the augmentation of traditional visual perception of the surgeon, with computer-aided recognition of physiological features. Digital imaging also has enabled the economic feasibility of single-use imaging devices, a segment of the market that continues to grow at two to three times that of the overall medical device market. Financial markets for medical device startups have been challenging, but the larger, well-capitalized companies are driving forward with innovation in areas that place high value on POC's unique technical capabilities, particularly in micro-optics and digital imaging. We see no signs of the growth of the medical device market slowing. This is directly apparent in the quantity of opportunities we have for new projects entering our engineering pipeline, a number of which we expect to announce in the next few weeks. It is also important to remember that our long-term success with customers' production programs is tied directly to the success of those programs in the market. The more those customers sell, the more we must produce. There has been an increasing profile shift of our customers to establish in highly capitalized companies and away from smaller startups with questionable timelines or funding. Given the high threshold of market opportunity of the larger industry competitors, it should be no surprise that we are extremely enthusiastic about the market opportunities for products we are working on. Some involve single-use replacement of existing reusable devices, giving us high confidence of quick market adoption in future volumes. Others are attempting new therapies in very attractive large markets. Again, our confidence in our customers' programs is fueling our confidence in our revenue acceleration as we progress through this fiscal year. Recently, we announced receipt of initial production orders for two of the programs we expected would move to commercial production, one for a new defense aerospace product and the other for a complex sub-assembly used in a robotic laparoscopy system. We expect these programs to begin to contribute to revenue in the current second quarter, but to increase substantially in the third and fourth quarters. We also expect other programs to transition to commercial production this fiscal year, including our two single-use programs that we have discussed previously. Our Ross Optical operations have already begun to see increases in order and delivery volumes, which are contributing to a recovery of revenue levels more quickly than we had anticipated. In September, we indicated that Ross Optical revenues would be half a million dollars lower than recent historical levels for both Q1 and Q2 of this fiscal year. We now believe that Ross Optical Revenues will begin to recover in the second quarter and will be essentially fully recovered to its previous quarterly run rate in the second half of the fiscal year. The main driver of the anticipated recovery in revenue and of our long-term growth potential ultimately is our engineering pipelines, which remains as robust as ever and continues to grow. During the quarter, engineering revenue was up 16% compared to the same quarter a year ago and was within 5% of the previous quarter's record level. These ongoing high levels of engineering work not only contribute to overall revenue, but, more importantly, are a strong indicator of future potential revenue growth as programs move from the engineering pipeline to long-term commercial production. As a result of the lower Q1 revenue, our adjusted EBITDA came in at negative $245,000 during the first quarter, compared to positive $26,000 for the same quarter last year. We expect the recovery and acceleration of revenue growth in the current quarter and back half of the year to drive adjusted EBITDA positive once again. We are managing costs appropriately and have not stopped investing in our business for future growth. Our goal is to reach an appropriate level of EBITDA for a small but fast-growing company while simultaneously investing in the company to continue that high growth rate. Earlier this year, we added a new Chief Operating Officer position and hired a new CFO. It has been very valuable having these two very skilled and experienced executives on board. We have reevaluated procedures and processes, all while planning to deliver the growing book of business we see coming. We have implemented new tools to safeguard against project cost overruns, for example, and we are progressing in the implementation of a new ERP system to help manage the entire organization, which we expect to complete early in calendar 2024. We are making other investments in our business, including the addition of a new sales resource, and we are consistently recruiting for additional engineering capacity to increase the size of our product development capability, which continues to run at high utilization rates. As we've discussed previously, our business model relies on us engaging with our customers early in their design process and utilizing our product development group to design their product, making use of our enabling proprietary technology. This puts us in an ideal position to become the manufacturer of our customer's product for many years once the product is released commercially. Growing the size of our engineering team increases the number of programs we can support in our development pipeline. Ultimately, this increases the number of products in commercial production, which in turn fuels our long-term growth. A great example of this development and production lifecycle is the program for which we announced initial production orders just last week. This product is a highly complex optical sub-assembly that will be used in our customer's new robotic laparoscopy system. This program progressed through the development pipeline over a number of years, initially at Lighthouse Imaging, and after our acquisition of Lighthouse, was continued by our combined team of engineers. We are excited to see a major customer program that came to us through Lighthouse begin production. Our customer in this case is a well-funded startup that is in the final stages of receiving FDA clearance and expects to launch their product in calendar 2024. We expect this product will contribute to increased revenue this fiscal year and that we will receive follow-on orders after this one is complete. There are a number of other medical device programs we expect to transition to commercial production this fiscal year. Two of these, are the single-use programs we have discussed on recent calls. Both of these programs are currently going through the transition phase of the development process, where we are manufacturing many hundreds of units to verify and validate the design and the production process. While these assemblies are built by a combination of manufacturing and engineering resources, they are categorized as engineering revenue and have contributed to the record engineering revenue levels in the last two quarters. Both of these products rely heavily on our micro optics and digital imaging technologies. We expect both of these products to enter commercial production in the second half of the fiscal year. We continue to see evidence that single use devices are gaining market share. Given our experience with our two initial single use programs, we are updating our sales and marketing efforts to pursue additional opportunities in this quickly growing market segment. As part of this effort, we are exhibiting this week at the Medica exhibit in Germany, which is one of the largest medical device trade shows in the world. This year, we will exhibit in OmniVision's booth. As we've discussed before, OmniVision is one of the largest CMOS sensor manufacturers in the world and a close partner to POC in digital imaging, and particularly in single-use endoscope projects. Within the aerospace and defense markets, our opportunities continue to grow. Anything for which weight is an issue needs smaller size optics. This includes any device that is carried by a soldier, that flies through the air, or is launched into space. This key denominator of weight fits perfectly into POC's micro-optic specialty. Combining small size with our expertise in digital imaging creates a broad offering for defense aerospace applications. We have begun an effort to better understand the details of the defense aerospace market and to identify specific segments where our technology can be most competitive. We have experience with three significant programs in the defense and aerospace market. Last month, we announced the receipt of $680,000 in initial production orders from a top tier defense aerospace company addressing a new commercial application that leverages our manufacturing IP developed for high-precision micro-optics technology. This product is a high-level sub-assembly. It is a very complicated product that has required much effort from our talented engineering group to design a robust and cost-effective manufacturing process. Although we have had other defense and aerospace programs more centered on component procurement, this one should be a very profitable and consistent opportunity for us with the customer already discussing significant follow-on production orders. The large number of programs slated to transition from development to production during this fiscal year is a direct result of the strong engineering pipeline we have discussed for some time now. Importantly, we have been busy bringing in new programs to the development pipeline, even while other programs are transitioning to production. This is critical as it ensures that the growth we anticipate in fiscal 2024 will be sustainable with additional programs moving through the pipeline for production starts in fiscal 2025 and beyond. At our size, the timing of specific programs moving in and out of production can cause some ups and downs in quarterly revenues, but the clear trend is toward increasing revenue in fiscal 2024 and beyond. With that, Let me turn it over to Wayne to review the financials in more detail. Thank you, Joe.