Precision Optics Corporation, Inc.

Good day, and welcome to the Precision Optics Report's third quarter fiscal year 2026 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the start key, then one on your telephone keypad. To withdraw your question, please press the start key, then two. Please note, this event is being recorded. I would now like to hand the conference over to Mr. Robert Bloom with his partners. Please go ahead.

Robert Bloom All right. Thank you, Darcy, and thank you to everyone joining the call today. As the operator mentioned, on today's call, we will discuss Precision Optics third quarter fiscal year 2026 financial results, and it's for the period ended March 31, 2026. 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'll open the call for a question and answer session. Again, if you dialed in through the traditional teleconference line, as the operator indicated, please press star, then one to ask a question. If you are listening through the webcast portal and would like to ask a question, you can submit your question through the ask a question feature in the webcast player. 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 of 1933 is amended and Section 21E of the Securities Exchange Act of 1934 is 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, 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 projecting the forward-looking statements, including the risks that actual results may differ materially from those projecting the forward-looking statements, as a result of various factors and other risks identified in the company's filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only of 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 a result of the receipt of new information, the occurrence of future events, or otherwise. All right, with that said, let me turn the call over to Dr. Joe Forkey, Chief Executive Officer precision optics. Joe, please proceed.

Thank you, Robert, and thank you all for joining our call today. Last quarter, we said precision optics had strong production demand, but we're still working through the challenges of scaling a much larger manufacturing business. In the third quarter, revenue continued to grow, and we began to see the payoff of the investments we've made in the last few quarters, improving manufacturing processes and efficiencies. Revenue was $8.7 million, a new quarterly record for precision optics, and more than double the quarterly revenue of a year ago. More importantly, we achieved positive adjusted EBITDA, a major milestone that reflects both the strength of our core production programs and the manufacturing improvements we've made over the last several quarters. Our two largest production programs continue to drive the business. Revenue from our top-tier aerospace customer reached $3.6 million, a new record, representing 44% sequential growth. This was the result of our investment in production capacity now achieving improved efficiency. Production yields on this line have now increased to 97% consistently, a significant improvement from previous months that were typically in the 85% to 95% range. Because our customer has faced bottlenecks elsewhere in their deployment process, they have asked us to slow production against our existing backlog in Q1 and Q2 of fiscal 2027, with new orders expected for Q3. All indications are that we continue to be the sole source for this assembly and that the long-term prospects for this program remain extremely high. Our single-use Cystoscope program also contributed record revenue at $2.2 million in the third quarter, an all-time high, in representing approximately 10% sequential growth. More importantly, we have made dramatic progress in terms of production yields and costs. Here, too, yields have increased to current rates above 90%, but not yet to the targeted 95% level, which we expect to achieve in Q4. Beyond those two lead programs, we continue to advance newer programs, including our single-use ophthalmic endoscope program, supported by a $3.5 million follow-on production order that we just announced last week. Our Ross Optical division also contributed significantly to the quarter's improved bottom line. Revenue for Ross Optical was approximately $1.3 million, compared to $1.0 million in Q2 and $0.8 million a year ago. representing 65% year-over-year growth. This is important because this business can support higher revenue without a proportional increase in headcount or other fixed costs, so incremental revenue contributes meaningfully to gross profit and adjusted EBITDA. As a result of revenue growth and production improvements, our overall growth margin improved to 24% compared to 10% a year ago and 3% in Q2. While we still have work to do, the quarter showed that our operational improvements are beginning to translate into stronger financial performance as our production lines become more stable and the higher revenue levels leverage the manufacturing infrastructure we've built over recent quarters. The process and personnel updates that have driven the results are directly attributable to the change we made in our operating leadership, bringing on Joe Trout as Chief Operating Officer in October of last year. Joe has rebuilt the operations team, making changes where needed and empowering others to act with urgency to deliver more product with greatly improved efficiency. Joe and his team have made great progress in six months, and I am confident we are seeing just the beginning of what they can accomplish going forward. We also strengthened our balance sheet in March through an oversubscribed $10 million public offering led by existing and new investors and including participation from directors and officers. This capital supports our growth plans, and I want to thank all of our investors for their support. Given the strength of our results and our visibility into the remainder of the fiscal year, we are increasing fiscal 2026 revenue guidance to a range of $29 to $31 million compared to our previous guidance of $26 to $28 million. This represents 52 to 62% growth over fiscal 2025 revenue of $19.1 million. We are also increasing fiscal 2026 adjusted EBITDA guidance to a range of negative 2.5 to negative $2.7 million compared to our previous guidance of negative 2.5 to negative $3.0 million. This translates into another quarter of roughly break-even adjusted EBITDA in Q4. For comparison, adjusted EBITDA was negative $3.7 million in fiscal 2025 and negative $2.7 million in the first six months of the current fiscal year. As we look forward to Q4 and into fiscal 2027, we anticipate continued strong performance from our lead aerospace and cystoscopy production lines, along with our quickly ramping single-use ophthalmic endoscope line. And with the highest backlog in many quarters, we believe that the recent increases in ROS optical revenues are sustainable and will continue to contribute to positive margins and bottom-line profitability going forward. In addition to the continuation of these strong revenue-producing programs, we expect as many as five to six programs in the development pipeline to move to production in fiscal 2027. Three of these are scheduled to enter production over the next six months. a low-volume single-use device for small joint arthroscopy, an upper GI scope, and a robotic surgery articulating rigid scope. Well, there are always timeline, yield, and efficiency challenges when development programs are transitioning to production. Our new operations team is deeply experienced and already working closely with the production and product development teams to ensure a smooth transfer and efficient drive to profitable volume production. This was a fantastic quarter for POC, and we believe it's just the beginning of leveraging our improved operational infrastructure. With high revenues supported by our existing programs, new programs entering production today, and new production slated for the next six to 12 months, along with a strong outlook for ROS optical revenue and high variable margins, we believe the recent positive trends will continue to drive growing profitability. In light of our operating performance and growing confidence in our production capabilities, which contributed to our successful capital raise, we are thinking about strategic investments in our business in two specific areas. First, we are investing in capabilities required to become the leading production company in micro-optics, including components and systems. especially those that are small and complex. We have learned through the ramp of the production programs I spoke to before that there are greater requirements to becoming a premier production company than we initially expected. Investments go beyond simply increased production capacity. We require investment in quality assurance, manufacturing engineering, supply chain management, and other functions. We have made several of these out of necessity in recent months, and we'll continue on this path to enhance and stabilize these capabilities to be well prepared for the anticipated ongoing increase in production volumes. Along with this, we continue to evaluate multiple options for potential updates to our manufacturing facilities. Second, we want to grow within the markets we currently serve, all of which continue to exhibit strong growth trajectories able to support the substantial long-term growth of POC. We participate in three primary markets, medical device, defense and aerospace, and satellite communications. We have previously considered satellite communications as part of aerospace, but have begun to treat that segment separately as we work to better understand market drivers and primary participants. Medical device, which remains our largest and most immediate opportunity, continues to move toward minimally invasive procedures. smaller imaging systems, and single-use devices. This aligns directly with our core strengths, particularly in micro-optics and digital imaging. Market data continues to support these observations, with recent reports estimating the disposable income market will grow at a compound annual growth rate of approximately 15% to 20% over the next 10 years. This is also where our Unity platform becomes important. Unity was designed to reduce development costs, time to market, and execution risk through a modular imaging architecture that can support reusable and single-use endoscopic systems. As more customers look to bring advanced imaging products to market efficiently, we believe Unity can enhance our role as a development and production partner and provide a strong competitive advantage. Today, we have one Unity program in our product development pipeline and are in discussions with four additional sales prospects today. The second major market is defense aerospace, which is increasingly driving optical systems to smaller size, weight, and power, or SWAP. We believe there are opportunities in a broad range of products from autonomous vehicles to directed energy weapons. Interest in budgets for these types of systems have increased substantially given the wars in Ukraine and Iran. We are adding resources and emphasis here, as evidenced by our recent participation at the SPIE Defense and Security Conference at the National Harbor in Maryland just two weeks ago. Our recently announced development agreement for a high-end jet engine inspection borescope is a good example of the complex optical opportunities where precision optics can be highly competitive. The third market focus is satellite communications and related infrastructure. Current market studies estimate this market to be growing at 15% to 25% per year. We see opportunities similar to the program, which is currently our largest revenue generator in both ground-based and space-based systems as satellite networks continue to expand. Across medical device, defense aerospace, and satellite communications, we are finding a common theme that customers need smaller, more precise, higher performance optical systems. We will be investing in go-to-market resources to expand our presence and customer reach within these sectors, and we will consider add-on capabilities as needed to complement and broaden our current offerings. Investments will be made with discipline and high expectations of returns, which we think is achievable given current market dynamics. With that overview, let me turn it over to Wayne to review the financials in more detail. Wayne?