Q2 2023 Precision Optics Corporation Inc Earnings Call
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
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Please note this event is being recorded.
Now, let's turn the conference over to Robert Blum from Lytham Partners. Please go ahead.
Thank you very much Gary and thank you all for joining us today to discuss precision optics second quarter fiscal year 2023 financial results for the period ended December 31, 2022 with us on the call representing the company today are Dr. Joe Forky precision optics, Chief Executive Officer.
Mr. Kevin de Hill, the company's interim 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 replay capabilities available both through the webcast as well as through 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 state.
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 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 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 of future plan or planned will or should expected anticipated.
Capades draft eventually or projected.
Centers 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 risks 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 <unk>.
<unk> Exchange Commission.
All forward looking statements contained during this conference call speak only as of the date on 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 with that said, let me turn the call over to Dr. Joe <unk>, Chief Executive Officer precision optics, Joe. Please proceed.
Yeah.
Thank you Robert and thank you all for joining our call today to discuss our second quarter fiscal year 2023 financial results.
This was a quarter of many positive milestones for precision optics.
Operationally, we achieved record quarterly revenue gross margin net income and adjusted EBITDA.
We received a number of significant purchase orders for existing products and new product development that helped to bolster our production backlog in product development pipeline.
These developments will help US continue our recent trend of increasing top line revenue and bottom line profitability.
During the quarter, we completed the up listing to NASDAQ and we finalize the technology licensing and royalty agreement that we believe will be a model for greater access to the single use medical device market and a potential catalyst for long term growth.
Yeah.
I will discuss the drivers of our second quarter operational successes, but first I'd like to talk for a few minutes about the strategic milestones that were accomplished during the quarter.
We've been working on moving the company stock from the OTC QB exchange to NASDAQ for many months I'm really pleased that we were able to complete the up listing on November 16th.
Since we made the move we have seen an increased level of investor interest in the company. The best evidence of this is a six fold increase in our average daily trading volume adjusted for the reverse split.
We also had the honor of ringing the opening bell on NASDAQ on December 14th.
This is a great opportunity to recognize the many years of hard work by everyone involved with the company, including our customers suppliers directors investors and especially our employees.
We continue to believe that the added visibility of our company and its stock that comes from being listed on NASDAQ will be important to support the ongoing growth of the company.
The second development in the quarter that could have a long term impact on the company's success was the finalization of a technology licensing and royalty agreement with one of our significant customers.
The agreement is related to the single use ophthalmic product that we have discussed on many of our calls over the last few years.
I frequently described how the single use market brings both technical challenges and cost challenges as the existing micro optics supply chain is not organized to deliver single use products at the price points. Many Oems thinks the market will bear.
The signing of this agreement in December is important as it indicates that the launch of this particular product is close and because it provides a business framework that we can use to pursue more of the single use medical imaging device market.
The multiple benefits to using single use devices include ease of inventory control by the hospital guarantee a brand new product image quality for the surgeon in every procedure and importantly, the virtual elimination of the possibility of cross contamination from one patient to another.
Because of the clear benefits to hospitals doctors and patients the market for single use medical imaging devices has grown substantially over the last few years.
We estimate that the current total addressable market for these devices is on the order of $500 million per year and that it is growing at a rate of 15% to 20% per year.
We are seeing inbound customer interest for products that are single use from the beginning and for products moving from a reusable design just single use.
Single use medical imaging devices are characterized by low cost into scopes with very good image quality.
It requires technical expertise and small optics use of Cmos sensors, and digital image signal processing as well as very low cost.
This is where the business model needs to be different from that used to manufacture and supply reusable medical devices.
The supply chain for single use will need to adjust to these cost realities by integrating new technologies and relying on scale producers to deliver at cost targets.
The approach that we and our customer defined in our agreement addresses these business issues.
We will initially produce an R. Gardner facility the product we designed for the customer.
And the customer may transfer production to their own facility or a third party facility using tools and fixtures that we have designed and validated.
In return they have agreed to pay us royalties for an agreed upon period of time, if and when production is moved out of a POC facility.
We are in effect being paid a royalty not only for the intellectual property in the product design, but also for the IP and knowhow in the production process.
This program has resulted in two patent applications, one of which was recently granted by the U S patent office as well as the development of significant knowhow that will be useful in future programs.
Our agreement provides our customer with rights to these technologies for the manufacturer of their product and in some cases exclusive rights, but only in a very narrow fields of use.
POC maintains ownership and control of these technologies and has broad leeway to use these technologies on other products.
As part of this agreement POC received a onetime nonrefundable payment of $600000 upon execution of the agreement.
This payment is nonrefundable irrespective of any future production revenues are royalties received by POC.
To be clear if and when production is shifted to a non POC facility POC will begin to receive royalty payments based on the number of units produced and sold.
The $600000 payment is reflected in our second quarter financials as a one time sale of technology rights and therefore has a positive impact on our quarterly revenue gross margin income and adjusted EBITDA.
As we review our operational performance I will comment on our numbers with and without this sale included since our performance in the second quarter set New records, even when the impact of this $600000 payment is excluded.
Revenue for the second quarter was $5 $9 million, which is a new quarterly record.
Even without the $600000 technology rights revenue revenues of $5 $3 million would have been a record.
These strong revenue levels are being fueled by the programs that have recently gone into production.
For the second quarter production revenue was $3 6 million compared to $2 $3 million in the second quarter of fiscal 2022, which represents an increase of 59%.
This was also an increase of $140000 from the first quarter.
Similar to last quarter. The key drivers here were the increase in production orders for our spinal products for a major longtime customer, which we announced last year.
Our new defense Aerospace production contract, which we also announced last year and the and the tradition the transition to production of lighthouses next generation Otoscope.
We announced in May of last year.
We have talked on recent calls about the defense Aerospace order that is now in full production.
Last year, we announced initial production orders for this program and we have received subsequent follow on orders.
During the second quarter of fiscal 2023, we delivered over $800000 to discuss them.
We expect to work with this customer on a next generation redesign.
This redesign may create a bit of a gap in production during the fourth quarter, but we expect it to ramp back up in the first quarter of fiscal 2024.
We are pleased with the development of this program to date and look forward to a long future with this customer.
In March of last year, we reported that we received production orders totaling approximately $2.5 million for spinal surgery product that we have been delivering to a large medical device customer for over 10 years.
We delivered nearly $250000 in product to them in the second quarter.
These orders surged to restock, our customers' inventory. So we expect there will be a reduction in orders for the next 12 months or so, but we believe the long term ongoing market opportunity for this product remains strong.
As we talked about the last two quarters. The first program from our lighthouse acquisition to transition to production occurred during the fourth quarter of fiscal 2022 and continued through to the second quarter of fiscal 2023.
This product is a highly complex optical and electronic assembly used for imaging in the E&P space.
This customer is seeking to secure additional funding for our broader market launch, which has caused some variability in our deliveries to them.
Well it is difficult to predict the future delivery schedule of this product, we expect deliveries to be reduced or even pause for the next couple of quarters.
Well some of these programs that have contributed to our recent revenue increases may pull back a bit in the next couple of quarters two of our major programs that had experienced order reductions due to the pandemic have now come back at levels greater than the levels before the pandemic. We believe these will fill the temporary gap that may be.
Caused by the pullback in the other programs.
In December we received our second follow on production order in the past year from the major U S. Defense contractor. We have worked with since 2018 to meet increased demand for a highly complex optical assembly.
A year ago, we received an 875000 dollar order.
The new order, we announced in December was $2 $6 million, representing a nearly threefold increase.
The timing of deliveries with such that this program did not contribute to second quarter revenue.
We will begin delivering against this newer order and continued deliveries against the earlier water in the third fiscal quarter and into the future.
Based on discussions with the customer the end market product is seeing increased demand and the customer expects to continue ongoing renewals of production orders in the years to come.
In January we announced the receipt of a follow on production order totaling approximately $2 $3 million from a large medical device company Corona Otoscopy application to meet enhanced demand for the product.
The order is expected to be delivered over the next 12 to 24 months commencing in the third or fourth quarter of fiscal 2023.
We had supplied the sophisticated optical assembly to the customers since 2018.
Due to the impact of the pandemic. However production of the assemblies had halted in December 2020, with little revenue recognized during the past eight quarters from this customer.
The end product application is sense regain traction in the marketplace with an expectation for ongoing production orders into the future.
The positive impact of this program restarting is gratifying as it highlights the benefits of having multiple products in production at any given time and the growth opportunities that can be presented when end market demand for these products take off.
All in all we expect some ups and downs with individual production programs. During the second half of fiscal 2023 between the programs recovering from the pandemic along with new programs moving out of the engineering pipeline. We expect the overall trend of increasing production revenue to continue in the long run.
Okay.
Our development pipeline remains robust with a number of new projects advancing through the pipeline.
Our product development pipeline and the volume and size of new opportunities continues to be as large as it has ever been.
In the second quarter of fiscal 2023, our engineering revenue was $1 $7 million for the quarter, an increase of 4% compared to the second quarter of the previous fiscal year and up slightly from the previous fiscal quarter.
Because we have so many programs in the product development pipeline, we are able to maintain a high level of utilization of our engineering resources, which explains the nearly flat quarter over quarter and year over year revenue levels attributable to engineering.
This is a good place to be because the robust engineering pipeline is a strong indicator of future production growth.
There are several programs in our product development pipeline that have the ability to transition to production in the near term, including programs that support orthopedics robotic laparoscopy ophthalmology, urology and E N T applications.
Well, we have made strong progress moving programs from our development pipeline closer to production. We have also been equally successful in replenishing our pipeline with new opportunities.
With the positive market response to the combination of lighthouse imaging and precision optics, the number of opportunities coming to us for new development projects is greater than ever.
One Great example of this is the order for approximately $750000 that we announced in December for the development of a next generation single use urology device.
This order came from an established medical device company and Leverages, our unique expertise in micro optics medical systems in digital imaging.
This marked the second high volume single use program in our development pipeline to move beyond the proof of concept phase. The development program is expected to continue for one to two years with production orders expected upon successful validation.
With increases in revenue we have also seen an increase in gross margin were.
We are leveraging higher utilization of our existing infrastructure, along with improved efficiencies as production programs mature to drive improvements in gross margin.
We have stated a corporate goal of 40% gross margin and in the second quarter. We achieved this level for the first time in recent history.
This goal was achieved excluding the $600000 technology rights revenue I mentioned, a few minutes ago.
Including the impact of the technology rights revenue gross margin was 46%.
With an expectation of changes in product mix as programs come in and out of revenue for various quarters, we expect gross margin to fluctuate from quarter to quarter, but achieving our 40% gross margin goal in the second quarter was a great validation of the long term business plan and potential for profitability.
Another key goal for fiscal 2023 is to achieve bottom line profitability and growth.
The increases in both revenue and gross margin combined with close management of operating expenses helped us achieve positive net income of $634000 and adjusted EBITDA of $993000 in the second quarter.
Removing the impact of the $600000 technology rights revenue net income and adjusted EBITDA would have been $34000 and $393000 respectively.
This is a record for adjusted EBITDA and a significant achievement by the entire team at precision optics.
Before I move on to a quick summary of some of the key items on the income statement and balance sheet I want to comment on the status of our CFO position.
We announced in late December that Dan Habiger would be resigning from the CFO position.
Dan has taken an active role in finalizing the second quarter 10-Q, and has agreed to be available on an as needed basis for the indefinite future.
While we are disappointed by Dan's departure I'm grateful for his willingness to continue to work with us through a transition period, and we certainly wish him well in his future endeavors.
As Robert mentioned at the beginning joining us on this call today is Kevin Dale our interim Chief Financial Officer.
Kevin has served as a senior executive CFO and director at multiple private and public companies across multiple industries, primarily with technology based businesses.
Kevin is not new to precision optics as he served as a finance and operations consultant to the company back in 2013 in 2014.
I am thankful that Kevin has been able to step in to assist the company. During this time.
We have initiated a search for a new permanent CFO and look forward to filling the position in the near future.
With that let me do a quick run through of the financial highlights and then I'll take questions.
I've already mentioned revenue a few times, but to reiterate revenue for the second quarter was a record $5 $9 million, which compared to $3 $9 million in the same quarter a year ago, an increase of 51% excluding.
Excluding the $600000 technology rights revenue total revenue would have been $5 $3 million, which corresponds to a 38% year over year increase.
Our gross margin was 46% for the second quarter compared to 29% in the same quarter last year, excluding the $600000 technology rights revenue gross margin was 40% a key milestone achieved for the company and an 11% improvement year over year.
Operating expenses in the second quarter were $2.0 million compared to approximately $1 $6 million in the previous year's second quarter and $1 $7 million in the sequential first quarter.
On a cash basis, excluding depreciation and amortization as well as stock based compensation operating expenses were approximately $1 $7 million compared to approximately $1 $2 million in the second quarter of last year and $1 $6 million in the first quarter of this year.
The roughly $100000 quarter over quarter increase is largely due to increased costs related to the NASDAQ listing and increases in commissions due to the increased revenue level.
And the year over year increases were also impacted by travel trade shows and other general sales and marketing expenses that have increased with the end of the pandemic and with increasing revenues.
As I mentioned, we achieved operating profitability for the first time in many years with net income of $634000 or <unk> $34000, when excluding the $600000 technology rights revenue.
This is a significant improvement from the $507000 loss in the second quarter, a year ago and from a $74000 loss in the first quarter of this year.
Adjusted EBITDA, which excludes stock based compensation interest expense depreciation amortization and any acquisition expenses was positive $993000 for Q2 compared to a loss of $72000 for the second quarter, a year ago and a positive $110000.
In Q1.
Again, even excluding the technology rights revenue adjusted EBITDA would have been $393000, a significant improvement compared to both the previous periods.
Despite the substantially positive adjusted EBITDA for the second quarter, our cash balance at the end of the quarter was $381000 down $292000 from the end of the previous quarter.
This is due in large part to the heavy weighting of shipments towards the end of the quarter along with a couple of slow paying customers.
This can be seen any increase in accounts receivable balance of $618000 at the end of the second quarter compared to the end of the first quarter.
We will continued careful cash management and judicious use of our $500000 line of credit as we work to collect on this significant outstanding AR balance.
As we look to the third quarter of fiscal 2023, we expect that run rate of overall revenue to be steady or slightly higher compared to Q2, as some projects slowed down but new projects come online.
We still expect solid revenue growth in the range of 20% for this fiscal year overall.
Importantly, with the improvement in gross margin and as we hold the line on operating expenses. We believe we will continue to see improved bottom line profitability.
This is an extremely exciting time for precision optics with another successful operating quarter highlighted by record revenues significant gross margin improvements positive net income the impact of a number of projects moving to production a large pipeline that continues to move projects through the development process.
And strategic plans to support long term opportunities I believe we are in a great position to continue the acceleration of growth through this fiscal year and into the future.
I. Thank you all for your continued support of precision optics and I'd now be happy to take any questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If you were using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Okay.
Our first question is from Sergio Heber with Huber Research. Please go ahead.
Hey, Joe Congratulations fantastic quarter.
Especially on the part of <unk>.
Jim.
Okay.
Yeah.
Yeah.
Does that come from a new customer.
Tablet customer.
Sorry, Sergio you you broke up for just a minute there I hope I heard the end of the question, whether it's from a new customer or an old customer if I didn't hear the beginning of the question Oh could.
Could you give us more color on the on the AUR.
Catherine.
Conceivable Oh, yeah, it's fairly broad I mean, there are there are two or three.
Customers, who have been customers for many years that that are slow paying a little bit as they're managing their their cash.
But but but that's only a part of the of the large AAR, that's maybe 25% of it the rest of it is really spread out across many many customers and it comes from the fact that we deliver products heavily in the end of the quarter.
Do you want to give us any guidance going forward.
Non beyond what I've already said.
There wasn't very much as far as guidance.
This is a very strong pipeline.
So can you give us any color on what you expect from the pipeline as far as go into commercial.
In the next 12 months.
Yeah sure I can comment a little more on that so.
We have something like.
Seven or eight programs that could go into production in the next 12 to 18 months.
There are three or four in particular that are that are sort of.
And pretty ready to go into production and.
Our limited.
From a timing standpoint really by the steps that the customers have to go through either finalizing the funding in order to get into launch.
Or are waiting for their final clearance from the from the FDA. So here I can give you. An example of just two or three of those that are in that sort of lateral category, where we sort of see things coming fairly imminently.
One of them is the ophthalmology single single use program that I talked a lot about that has to do with that agreement that agreement in part as an indication of how close we are we're finalizing validation units now the customers planning.
To submit to the FDA in the next few months and then we'll start production to build the pipeline.
Hopefully before the end of the year to build the inventory I should say.
The second one is is for robotic surgery customer.
We just finished our final prototype run they're.
Waiting for us to build a certain number of pilot units will still put into.
Into inventory, while they're waiting for their final approval from the FDA on their their final clinical tests. So that one also looks like it could it could launch before the end of this calendar year.
And then the third one that I would put in that category as urology program, where we basically finished the final.
Prototypes and we're ready to build.
The pilot build again that would fill the pipeline and in this case the customer is doing their next round of funding. So that they can they can fully fund their launch plans. So we've got a number of customers each of which is is.
Is waiting for various things from clinical trials to final funding, but because our pipeline is so large now it's not and it won't be unusual going forward for us to have multiple customers that are sort of poised and ready to go into production and while some of them may take a little longer than others. I expect we will start to see a pretty good cadence of things coming out of the pipeline and going into fall.
Yeah.
Super Joe and I know that this has been your plan.
Going back a few years so congratulations on achieving would you set out to achieve.
I have one last question.
Well T M.
That's never been I don't think anything that you brought up can you give us more color why you chose to go the royalty route.
Yes.
Yeah sure.
So first I'll say I didn't I haven't said much about it before because we've been negotiating with the customer and we werent sure.
Until it was done wherewith, where exactly where we're going to end up what I will say is that this this.
<unk> customer was an ideal customer for us to engage with for our first single use program are they really have been a partner and figuring out.
Together, how we would manage not only the technical aspects of the single use program, but also the economic aspects of it and so I have talked a lot about the fact that as we've been going through this program. We've been learning not only the technology, but also the business side of it and so we basically started with.
This company some some four or five years ago and sat down at the conference room table and said look there is some challenges we're gonna have to overcome but we're willing to work together and to get creative and figure out how we can we can put together a plan that works for both sides.
So that's the real you know there are a number of benefits to our customer.
To have this technology licensing arrangement in place. So first of all they can have us continue to manufacture it for forever, if they want right.
They they also however have the option of taking it to their own facility or to a third party facility.
That becomes very important with the single use.
Program, because the labor cost profile of of our company and Gardner, Massachusetts is not the most aggressive right.
And there's always an interest on our customers' part to having multiple suppliers, especially these days where everyone is concerned about supply chain with some of the challenges that came over the last couple of years.
So at the end of the day. The Bottomline is going this route where there's an opportunity for our customer to move to a third party manufacturer, which might be themselves and pay us a royalty.
Is beneficial to us because we receive a royalty without using all of our limited resources all of our limited production resources that royalty is lower than it would be for gross margin, but because we're not using up all of our resources, it's still beneficial because it drops directly to the bottom line from our customers' standpoint at Bay.
Sickly removes one layer of the supply chain, if they bring it in house or they can go to a very low cost labor.
Contract manufacturer and so from their standpoint, the royalty ended up being a much smaller addition to their cost of goods and then they would see otherwise.
Otherwise so so really it benefits both of US are in a way that allows us both to benefit from the the really.
The significant growth that we're all seeing in the single use market.
Fantastic.
Can we expect more acquisitions.
So as I've said before we are looking at acquisitions and we will.
We will pursue acquisitions on an opportunistic basis and as I've said before the auto industry is fairly well fragmented and I think there are probably other targets out there.
So Joe do you.
Three years ago did you see the company as it is now where you exceeding your expectations, beating your expectations or behind.
Oh Boy, that's a tough question because I ran through lots and lots of models on on.
On the whole on the whole we are we are performing as well or better than I had hoped for.
Well congratulations excellent quarter keep up the good work. Thank you Joe Thanks for taking my questions. Okay. Thank you Sergio.
Again, if you have a question. Please press Star then one.
The next question is from Rick Teller, a private investor. Please go ahead.
Hi, Joe.
Some of the things I was going to ask you about the the.
The single use ophthalmic product that you announced yesterday.
But there's one thing you.
It didn't cover and I wanted to ask about tomorrow.
Mark which is that.
The.
The economics of single use as you've discussed a number of times is it's a much lower price point.
And obviously.
Higher volume and presumably more automated production.
And so it's more of a.
It's more of a fixed cost operations as far as.
Your company is concerned.
And in order to really make money on it you have to have you.
We have to be pushing through a certain amount of volume.
And how often.
Other than the initial pipeline filling.
So while for your customers to develop.
Demand for their product they have to train people.
So forth.
If this this.
If you're a customer.
Two the agreement you announced yesterday.
Decides to take the thing in house or to have it.
Hum.
Overseas someplace.
[noise] extensively.
Does that.
Make it more difficult.
To achieve profitability in the single use category.
Secondly, not just.
That product, which obviously getting royalties right and do nothing for it is very profitable but.
Might that hurt the gross margins on some other products you have because your volume could be more.
Yeah, no that's a.
Eight question Rick So.
If if our plan was was simply.
Hum.
To move forward with an expectation of manufacturing.
I'll use products in every case.
Then than it is true this would make it a more challenging although I will I'll add there's a little caveat there because.
A large part of the the volume economics comes from a sourcing of the of the components the materials that go into it part of the bomb.
And there are opportunities I think even with our cuts our individual customers.
Who may choose to pay us a royalty.
To manufacturer themselves or with a third party, we still have a unique relationship with those customers and I think there are still opportunities where we may.
Aggregate the demand for certain components.
And and be able to step in in the supply chain and still supplier to them at a lower cost if we're aggregating the demand from all of our customers and so that may be another another place where we can continue to benefit from the economies of scale.
The other thing I'll add is that you know with this new agreement, there's there's nothing that says that that going into the future.
We might not still make the decision.
To.
Expand the company in a way that that we're in a better position to manufacture ourselves right. I think we're gonna have to see a little bit how.
How the the next agreement like this one pans out and and.
Uh huh.
And what kinds of opportunities we have to move forward.
One of the things that was really beneficial with this.
<unk> technology agreement is that we were able to get started in the single use space without having to make a large investment on a low labor costs facility overseas and in all of the the startup and standup that that requires.
Once we get to the point, where we see that that might be a useful thing to do theres nothing that says that we cant come back to these existing customers.
Pull those projects back into a facility like that again, I don't know exactly where we're going to end up but but the nice thing about this agreement as it hasn't it hasn't eliminated the possibility of moving in any of those directions, but it has given us an opportunity to start into the single use market in a way that we're guaranteed some bottomline profit no matter.
How this goes moving forward.
Oh, well thank you I appreciate it.
Thanks, Rick.
Once again, if you have a question. Please press Star then one.
Hi, Gary This is Robert Blum here I've, just got one question I know that hadn't been touched on.
All right and I'll turn it back over to you if there are any questions.
Joe can you just sort of comment a little bit on sort of the integration of White house, it's been sort of a year now any sort of general updates or or commentary you can provide on that for us.
Yes sure Thanks Robert.
So so the question comes I am sure in part because I I didn't mentioned lighthouse by name very often in the.
In the prepared remarks, and that was really by design. It's been it's been over a year now.
The integration has gone quite well.
And so we're really pushing forward now is as one combined company. So the plan going forward with these earnings calls is is not to be breaking out the performance of one division or another that having been said I will just comment.
The sales and accounting teams are fully integrated now the engineering team is working very well together, it's fully integrated they're doing a really great job on the the new Urology program that I mentioned, both from the comments here today and in our press release that we put out a couple of months ago.
<unk>.
They're working hand in hand, we had joint meetings with the customer and there were engineers, who sit in Portland, and their engineers, who sit ear in Gardner all in the same room all on the same team.
Impressing our customer greatly so.
So all in all the integration is going quite well.
Perfect Joe Thank you for that Gary I'm going to turn it back over to you. If there are any further questions.
And the next question is from George Melas with M. K H management. Please go ahead.
Hey, Joe Good afternoon, Hi, George.
Quick question on the single use programs does that bring you.
In relationship with customers that are larger.
Because it seems like you have two programs right now that beyond the POC stage.
So how do I get a sense that you are <unk>.
Established medical device company.
Is that right and is that a trend in mid single use space that is going to be larger companies rather than start ups.
That's an interesting question. So let me let me answer that in in that.
Let me give you two answers to that.
No.
The first answer is that.
Across the board, where we're seeing larger opportunities, so I that that that isn't necessarily characterize by startup versus existing.
Large medical device company, but the size of the opportunities in general.
<unk> are getting larger I think theres a couple of reasons for that the first is that.
We're a larger company than we were before with more resources. So I think companies are more comfortable with us than maybe they were when we were at three or $4 million of your company right.
The second one of course is because of the acquisition, particularly of lighthouse, we have a broader offering and so we can deliver.
A more complete system.
From from the standpoint of the single use programs specifically.
I'm trying to think it is it is true that the majority of the programs that we've.
<unk> been involved with so far have been with larger established customers are larger established companies. There have been a couple that have come to us who have still been startups. So so I guess I guess I'd have to say the jury is still out on whether whether it's going to.
Gonna break one way or the other but the companies that we're working with right now in the single use programs are in fact larger more established medical device companies.
Okay, and then maybe just a quick follow up on that so.
So your relationship with them.
Somewhat different is it more difficult for you to keep the IP.
And maybe sort of.
Slightly different way.
Are these programs, placing I imagine, they're replacing is it cool devices that are not single use so.
Large companies that have these devices and then trying to shift to a single new space.
And all in all some of the technology that's involved with these devices.
I guess I'm, a little complicated no.
I understand exactly what you're saying I think let me give you let me give it a try you can you can steer me in the right direction, if I Miss it.
So theres really two questions. There I think there are two parts to this question. The first one is whether these companies.
These are cannibalizing their existing market and moving from a reusable device to a single use device and for the larger companies that were working with which by and large are the ones who are working with now for our single use single use programs. We have now that is that is true that is the case.
When we look at the at the single use market in general one of the reasons that we see it growing faster than the medical device market in general is because it's not only growing with new procedures, but it's also growing by by replacing reusable devices with single use devices I would say, though.
Sort of across the board whenever a customer comes to us with a new product.
One of the questions, they're always asking us cannot be single use and so it depends then on the configuration of the system and all the rest so.
So the answer to the first part is it is true that our customers today are are replacing their reusable device with a single use device, we really liked that by the way because it means that they already have an established market. They already have a brand names. So we see that is lowering the risk to the overall success of the.
Of the of the program.
In terms of our negotiations with regard to.
Maintaining ownership of the technology, the the technology that we're bringing to the.
Partnership of course is is is the technology that that.
That relates to the design and manufacture of the objects in the imaging system.
In a way that can be manufactured at low cost with high quality.
And that those technologies are technologies that cut across lots of different disciplines. So while it is true that our customers may already have some technology. Some IP in sort of the particular procedure, they're going to use the products for the the technology that's embedded in the single.
Houston is if you like of the system and in the imaging system really still belongs to us and really comes.
From our expertise that after all is why they've come and engage with us and so it's in all cases, we have to have in negotiation, but I wouldn't say that it's more challenging in these cases than it has been in other cases, because again the reason they're coming to us is because we have capabilities and technology that.
Other companies don't know they don't have and so that gives us a.
Significant leverage and being able to negotiate a fair and beneficial technology agreement that's beneficial to POC.
Okay great.
Great Great answers. Thank you very much Joe.
Thank you George.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you Gary and thank you all for joining us today on the call I look forward to speaking with you all soon have a good evening.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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