Q1 2025 Precision Optics Corporation Inc Earnings Call
Good day and welcome to the precision optics reports first quarter fiscal year 2025 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May Press Star then one on your Touchtone phone and withdraw your question. Please press Star then two this event is being recorded I would now like to turn the conference over to Mr. Robert Blum. Please go ahead Sir.
Robert Blum: Right. Thank you very much chalk and to everyone joining the call today as the operator mentioned on today's call. We will discuss precision optics first quarter fiscal year 'twenty twenty-five financial results. This is for the period ended September 30th 2024 with us on the call representing the company today are Dr. Joe for key precision optics Chi.
Robert Blum: [laughter] Executive Officer, Mr. Wayne Cold, the company's Chief Financial Officer.
Robert Blum: At the conclusion of today's prepared remarks, we will open the call for a question and answer session. If you're dialed into the call through the traditional teleconference line as the operator indicated. Please press Star then one to ask your question. If you are listening through the webcast portal and we'd like to ask a question you can submit your questions through the ask a question.
Robert Blum: <unk> feature in the webcast player, we will do our best to get to as many questions as possible.
Robert Blum: Before we begin with prepared remarks, we submit for the record the following statement.
Robert Blum: 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.
Robert Blum: 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 anticipates draft eventually or projected.
Robert Blum: There's a caution 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 the company's filings with the secure.
And Exchange Commission.
Robert Blum: All forward looking statements contained during this conference call speak only as of the date, which they were made and are based on management's assumptions and estimates as of such date.
Robert Blum: <unk> 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.
Speaker Change: With that said, let me turn the call over to Dr. Joe <unk>, Chief Executive Officer of precision optics, Joe. Please proceed.
Speaker Change: Thank you Robert and thank you all for joining our call today.
Speaker Change: The first quarter results that we released today, we're in line with the expectations. We provided on our late September call.
Speaker Change: As we discussed then first quarter revenue was significantly impacted by delays in a few production programs.
Speaker Change: This resulted in Underutilization of our resources and negative adjusted EBITDA for the quarter.
Wayne will provide more details on these results, but the good news is that the production issues had been substantially resolved. So we expect much stronger revenue and dramatically improves bottom line in Q2, and the rest of the year.
Speaker Change: What's important is that our long term view of the markets, we serve and our strategy to address them have not changed in fact, we have had strong success with customer engagements that confirm our market view and strategic positioning.
Speaker Change: We're on the right track for robust long term growth.
Speaker Change: We are expecting to grow all segments of our business, but the most rapid growth will come from production and the key driver for long term growth in production is single use endoscopes.
Speaker Change: Today, we announced our first production order for a single use ophthalmic product expected to begin production in January.
Speaker Change: This is the second single use product to transition from our product development pipeline into production and it comes only six months after the first.
Speaker Change: Supporting our long held belief that our strategic investments in single use <unk> technology would ultimately lead to substantial revenue growth.
Speaker Change: Minimally invasive surgical procedures required devices that worked through very small incision typically five millimeters and smaller with some even under one millimeter.
Speaker Change: The natural evolution of endoscopy, it's been to gradually move to smaller and smaller endoscopes to expand the number of places accessible in the body.
Speaker Change: This migration to smaller sizes and it's been accelerated in recent years by the increasing availability of robotic systems, which are better able to hold and controls such small tools to make precise surgical procedures practical.
Speaker Change: POC is focused on micro optics has always made endoscopy and natural market for us, but augmenting this with the added technology and partnerships required for single use endoscopy has been a major strategic Gulf of ours for many years.
Speaker Change: Our success in this area has its roots in our partnership which began many years ago with omni vision, one of the world's largest Cmos sensor producers.
Speaker Change: Omnivision also recognized the potential benefits of single use endoscopy and invested in the development of high quality medical grade Ultra small Cmos sensors.
Speaker Change: Following omni visions announcements of the first and second of this new class of Endoscopy targeted sensors plc, and Omnivision jointly announced the successful production of the world's first cameras combining these sensors with POC is optics.
Speaker Change: We further expanded our capabilities in this area through our acquisition of lighthouse imaging in 2021.
Speaker Change: Lighthouses unique image signal processing, and electronics engineering capabilities, dovetailed, well with POC as core competencies and optical mechanical in systems engineering.
Speaker Change: This acquisition resulted in a company with a full set of technical disciplines required for next generation single used under scope design and manufacturer utilizing the world's most advanced Cmos sensors, most coming from omni vision.
Speaker Change: Collectively this capability results and Endoscopes with big improvements in image quality, even while reducing costs to support single use economics.
Speaker Change: For example, our single used to starts could be imaging system supports 160000 pixel resolution, while the reusable scope. It replaces had only 30000 pixels, resulting in a greater than five fold increase in resolution.
Speaker Change: Similarly, our new single use ophthalmic into scope has a fourfold increase in pixel resolution over the customer's predicate reusable scope.
Speaker Change: In both cases, because the new scopes provide electronic image data, we are able to further process the images to eliminate pixilation in a way that could not be done on the previous versions of these scopes and with advances in design and construction techniques. We can provide illumination light through much smaller and lower cost led.
Speaker Change: And fiber optic assemblies than in the past.
Speaker Change: Simply put the response from our customers and more importantly, the surgeons, who use the product has been overwhelmingly positive when they see the improvement in performance.
While the extent of such improvement depends on the size and functionality of each scope virtually all Cmos based flexible endoscopes, we will have better image quality than their predecessors built with non Cmos technology.
This means that many medical device systems on the market today intended for use in minimally invasive surgery and designed more than about six or seven years ago are potentially obsolete. Since we can design new products that are clearly superior to them with better technical performance and single use price points.
Speaker Change: Okay.
Speaker Change: With these characteristics medical device companies have great incentives to hire us to apply our expertise and capabilities.
Speaker Change: Their users doctors and surgeons will always prefer a clearer more accurate imaging of the surgical site.
Speaker Change: And with single use scopes, they get brand new scope image quality for every procedure.
Speaker Change: Also because there is no need to reprocess the scopes hospital inventory management is greatly simplified.
Speaker Change: The device companies themselves prefer single use rather than reusable in order to receive steady demand based on numbers of procedures, rather than volatile demand based on the ups and downs of hospitals capital equipment budgets.
And finally, everyone benefits from the improvement in patient safety with single use endoscopes virtually eliminating any chance of cross contamination from one patient to another.
Speaker Change: It has taken longer than we anticipated when we first started our work with Omnivision many years ago, but with our second single use program going into production in January.
Speaker Change: And a number of additional single use programs in our product development pipeline.
Speaker Change: Our strategy of investment in this area is finally, starting to pay off.
Speaker Change: The first thing you'll use program for which we announced the $9 million production order in may as far as just to scope imaging Assembly that we designed in now manufacturer for our customers' next generation AI powered surgical robotic platform for treatment of benign prostate hyperplasia.
Speaker Change: Our customer who is already a dominant player in this market has been selling their previous system for many years and after receiving FDA clearance recently began sales of the new system, which includes our scope assembly.
Speaker Change: We currently estimate that we will deliver approximately $3 $6 million of this product during our current fiscal year, an increase compared to the $2 2 million estimated in our may announcement.
Speaker Change: Like our customer we are optimistic the market for treatment of benign prostate hyperplasia, which is already a large market will continue robust growth.
Speaker Change: Our customer has been very successful already in addressing this market and we expect over the long term our business could grow several fold as their success continues with their updated AI driven robotic platform that includes our product.
Speaker Change: Our second single use and the scope production order, which we announced just today is for a very small ophthalmic endoscope that is used for ice surgery to treat glaucoma.
Our customer for this product is a large well established global market leader in this space.
Speaker Change: The initial $340000 order is intended to support initial production ramp with deliveries scheduled to begin in January 2025 and proceed over the following five months.
Speaker Change: This order will provide starting inventory levels only to support full product launched in June.
Speaker Change: Our customer has already indicated that follow on orders to support first year requirements. Following launch we'd likely have delivery rates two to three times. Those of this initial stocking order or approximately $1 $5 million for the first year.
Speaker Change: This order is the culmination of more than five years of joint product development.
Speaker Change: This product replaces our customers current reusable under scope based system, which has been in the market for over 10 years.
Speaker Change: With the benefits of significantly improved image quality combined with single use functionality. We believe this product will not only replace our customer's existing product, but it has great potential to increase their market share and over time become a major contributor to POC as ongoing production revenue.
Speaker Change: Beyond these two orders we have a growing number of single use applications and our product development pipeline and we are confident this business segment will continue to drive significant growth in the coming years.
Speaker Change: Let me put the increase in production from these two single use programs into the context of our overall view of near term business growth.
Speaker Change: Broadly speaking, we think about our business in three operational areas product development or engineering pipeline.
Speaker Change: Reduction.
Speaker Change: And optical components, which is supported by a Ross optical division.
Our product development business has seen steady growth over the last five years.
Since our acquisition of lighthouse imaging three years ago, which was done in large part to enhance our product development team.
Speaker Change: This part of our business has grown organically at an average growth rate of about 25% per year with record revenue of $8 $3 million last year in fiscal 2024.
Speaker Change: Today, we have 11 programs and our product development pipeline.
Speaker Change: Two of these are currently transitioning to production in two to four are expected to enter production in each of the next three years.
This is consistent with our business model of using our proprietary technology to develop new products in partnership with our customers and then rolling those products into production, where they deliver recurring long term revenue.
Speaker Change: In order to support our ability to bring new programs on board, we continue to refine the way we present, our unique technology to the market.
Speaker Change: In the coming weeks, we intend to launch our new platform solution, which will encapsulate much of our technology and a starting platform design that will reduce development risk and time to market for our customers.
Speaker Change: Initial reaction to this platform solution has been very positive and we expect this approach to further increase our competitive advantage and presence in the marketplace.
Speaker Change: We expect product development revenue to be relatively flat in fiscal 2025, as we use some of our engineering resources to complete development work on this platform solution and as this group supports the transfer it to production of a number of programs contributing to significant fiscal 2020.
Five production growth.
Speaker Change: In the future we expect this business to grow at annual rates in the 20% to 30% range as we continued to hire more engineers and pursue new opportunities.
Speaker Change: As we've said many times our product development work leads directly to increases in our production business.
Speaker Change: This is precisely what's happening today and supporting the bulk of our growth that we anticipate for fiscal 2025.
Speaker Change: With three programs launching into production in fiscal 'twenty five we expect strong revenue growth in this part of our business growing from $6 $6 million last year to over $10 million this year.
Speaker Change: This kind of growth in production presents scaling challenges, but our operations team is already executing as demonstrated by the significant increases we see from Q1 to Q2.
Speaker Change: Some of this scaling requires additional production support rules, which we have already filled in anticipation of this production growth.
Speaker Change: The largest contributor to this growth in production revenue in fiscal 'twenty five is our single use just to scope that I mentioned earlier.
Speaker Change: Looking forward with a few programs anticipated to enter production in each of the next three years, each with starting production levels in the $1 million to $3 million range, we anticipate growth rates of our production revenue will be in the 25% to 30% range.
Speaker Change: Over the last several quarters, we have seen a ross optical components business dropped and level out due to short term market forces that we've discussed previously.
Speaker Change: We anticipate revenue for this division to be flat year over year for this fiscal year, but we have begun to see some signs of market recovery and expect that this recovery combined with our investments in additional marketing will help this part of our business achieve annual growth rates of 10% to 15% beginning in fiscal 2000.
Speaker Change: 26.
Speaker Change: I am extremely excited about where we are today. We are just beginning to see the fruits of our investments. We started many years ago to advanced our single use products solutions and the rest of our business is fitting together to support significant growth over the next few years.
Let me now turn it over to Wayne to review the financials in more detail.
Speaker Change: <unk>.
Wayne Cold: Thank you Joe.
Speaker Change: Let me expand on some of Joe's comments on the financial results starting with revenue.
Speaker Change: For the first quarter revenue was $4 2 million compared to $4 3 million in the first quarter of 2023. This was within the range that we discussed on our last call.
Speaker Change: For the quarter ending September 32024, gross margins were 27% compared to 34% in the quarter ending September 26th of September 32023.
Speaker Change: First quarter revenues were impacted by manufacturing pause for defense aerospace customer that was occasion by a change in specification finalized late in the quarter ending September 32024.
Speaker Change: Similar to the prior sequential quarter revenues were also impacted by the direction of certain engineering resources toward the completion of research and development projects and just specifically what.
Work around the company's platform offering that is already leading to accelerating interest in our product development offerings.
Speaker Change: Additionally, as Joe mentioned, we have added to our manufacturing team in anticipation of increasing production revenues. These items and relatively low sales volume work to reduce gross margin.
Speaker Change: We expect gross margin to recover in the second quarter as manufacturing continues to scale and revenues increase.
Speaker Change: Operating expenses for the quarter were $2 4 million compared to $1 9 million last year.
Speaker Change: This increase included increases in R&D of 188000 for the quarter.
With the anticipated rollout of our new platform solution and similar to the prior sequential quarter, we incurred significant internal R&D expenses that were higher compared to earlier quarters, but also represent a strong investment in the platform solution that we believe will have positive sales impact in the near term.
Speaker Change: Additionally, operating expenses included some one time recruitment costs and other expense fluctuations.
Speaker Change: Otherwise in line with our expectations for the quarter.
Speaker Change: As a result of the lower revenue our net loss was $1 3 million for the quarter ending September 32024, compared to a $464000 net loss last year.
Speaker Change: Adjusted EBITDA, which excludes stock based compensation interest depreciation and amortization was negative $1 million in the first quarter of 2020 compared to negative adjusted EBITDA of 245000 last year.
Speaker Change: As we look to achieve our goals for the upcoming year, we expect adjusted EBITDA breakeven quarterly revenue levels to be approximately $5 $5 million. We believe we will achieve revenue levels of at least $5 million for the second quarter ending December 31, 2024 with continued revenue growth that will move us be.
Speaker Change: Adjusted EBITDA breakeven in the second half of the fiscal year.
Speaker Change: Our cash balance at September 30, 2024 was $636000 during the first quarter in August we completed a registered direct offering of common stock that netted $1.2 million, which included participation from directors and officers to supplement our work.
King capital. Additionally, we maintained availability on our line of credit of $750000.
Speaker Change: As we have mentioned in prior calls we are evaluating several alternatives that can support our growth in manufacturing and our need to continue to attract high caliber engineering talent that will be key in our drive to scale and profitability.
Speaker Change: As we've already noted we see strong customer retention, resulting from how we maintain joint ownership over our intellectual property and participate in our customers' FDA filings.
Speaker Change: Additionally, our proprietary manufacturing techniques global partnerships with key suppliers and the high degree of recurring revenue from single use medical devices leads us to believe that the long term prospects of our business are both strong and unique.
Speaker Change: We're taking action today to expand manufacturing capacity and are confident the attractiveness of our business model what is the ability to attract any needed investment to scale more dramatically in the future.
Speaker Change: I will now turn the call back over to Joe for some final comments.
Speaker Change: Thank you Wayne.
Let me finish by summarizing a few key points.
Speaker Change: First as we anticipated on our last call Q1 revenue revenue and EBIT the levels were significantly suppressed due to issues with a few production programs.
Speaker Change: Second these production issues have been largely resolved. So we expect significantly higher revenue and dramatic improvements in profitability in Q2 and continued growth over the second half of the fiscal year.
Speaker Change: Third and perhaps most importantly, the recent receipt of first production orders for two single use programs that have been in development for multiple years represents a real milestone for precision optics.
Speaker Change: <unk> many years of investments we have made in this area and confirms our ability to bring these programs to production where they contribute to long term revenue growth.
Speaker Change: And finally, our product development pipeline remains robust with new opportunities coming to US every day to replace those that are transitioning to production.
Speaker Change: This level of interest in our technology gives us confidence we are truly providing differentiated solutions in the marketplace.
All in all I'm very pleased with the progress, we are making and extremely optimistic for future opportunities and growth of our business.
Speaker Change: To all of you on the call I. Thank you for your continued support of precision optics, we'd be happy to take questions now.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble roster.
Again to ask a question. Please press Star then one.
Speaker Change: Yeah.
Speaker Change: Hey, Chuck This is all Robert why don't I jump in while we see if anybody queued up on the teleconference line and we will take a few web casted questions that we are that we have here.
Speaker Change: Guys, if I try to put these maybe in a couple of different buckets, if I can.
Speaker Change: I'm talking about the first single use program. There I think you've talked about this a little bit about what type of visibility will you have two orders against the initial 9 million dollar order for next year.
Speaker Change: And sort of as a follow up here when might you see a follow on order is there a sort of rolling target that they are looking to have.
Speaker Change: Yeah.
Speaker Change: Yeah sure. So so we've provided a little bit of information about this in our in our press releases and we commented in the in the comments today.
Speaker Change: At $9 million, we expect about $3 6 million to be delivered in this fiscal year that number increases a bit for fiscal 'twenty.
Speaker Change: <unk>.
Speaker Change: And then it finishes out sometime in fiscal 'twenty, seven I will say that with the initial launch our customer has been pulling things in a bit. So I think there's a chance that it will it will will complete deliveries sooner which of course is a good thing for us all in all I would expect that towards the middle or end of fiscal.
Speaker Change: 26, we would start to see indications of what a follow on might look like for fiscal 'twenty seven I'll also comment that.
Speaker Change: As we finish this order I expect we will get into a more natural and in regular routine of getting updates on our customers forecast every quarter and then following with quarterly purchase orders there some fairly detailed approach that work.
Speaker Change: We've agreed to take with our customer on rolling forecasts and such.
In terms of the the level they expect to get to this for this particular customer.
Speaker Change: They are looking at the market.
Speaker Change: Growing quite substantially they shared with us their view of the market and it's clear that there is plenty of addressable market for them to grow quite substantially which is why we've commented on the fact that we believe.
Speaker Change: Disorder in particular could could grow several fold over the next couple of years.
Speaker Change: Okay. Great question here on the announcement from today sort of the second program again.
Speaker Change: Basically sort of a similar question what sort of visibility do you have here and cadence for for order flows into the future.
Speaker Change: Yes sure.
Speaker Change: So again as we commented in the press release and in the in the comments today and this initial order for about $350000 is really just not just but it's it's a smaller order because it's a stocking order.
Speaker Change: To fill their inventories. So they are prepared for full launch in June they'll have a more limited launch I think in April or May and then they'll have the full launch in June.
Speaker Change: We've already we've already been talking with this customer about a follow on order to support their first year.
Speaker Change: After launch and as I said in my in my comments, we expect that that'll be.
Speaker Change: At a at a higher delivery rate if you do all the math it'll be somewhere around $1 5 million could be a little less little more I think.
Speaker Change: For that first year of their launch, which which happens to line up with our fiscal 2026.
Speaker Change: This customer as well as looking at growing their market and we expect that the numbers would increase from there. This customer has also talked with us about the possibility of transferring their production to their own facility and if if folks go back and look at some of our earlier.
Speaker Change: Press releases and comments on these things Youll remember that we negotiated an arrangement here with both of these customers, but particularly with this this one that we just announced today, where either we will manufacture the product or will be paid a royalty in either case, we ended up with similar bottom line EBITDA numbers. So so.
Speaker Change: We're comfortable moving in either direction and so with this customer I think there's a fair chance that after that first year of production. It may move to one of their facilities and of course, there's a lot that's going to happen in the next year year and a half. So we'll see maybe will continue producing it either way.
Speaker Change: We and they expect that their their orders will go up from that one and a half million dollar rate or the comparable royalties will go up as they as they absorbed more market share beyond their first year of launch.
Speaker Change: Okay, great sort of staying on the topic here of single use.
Speaker Change: You mentioned other single use programs in the pipeline can you quantify further and any insights into timelines for advancement to production.
Speaker Change: Yeah.
Speaker Change: Yeah sure. So so right now we have two programs that are formally in the in the pipeline, meaning we've been working on their designs for some time now.
Speaker Change: We have two or three additional programs, where we've done some sort of limited proof of concept.
Speaker Change: Prototypes and with these other customers there we're working with them now to define the exact characteristics of the scope that they may be looking for so there are two that are that are sort of moving forward full speed ahead and in two or three that we expect to get into the pipeline in the next.
Speaker Change: Few months of the two that are that are already in production is always difficult to predict timing accurately because of course, you have to go through prototypes and they have sometimes some testing and they have to get FDA approval, but one of these two we expect will go into production in the next 12 months they are pretty far along now the second one will like.
Speaker Change: We take another year or two before that one goes into production in general with new programs that come in.
Speaker Change: The cystoscopy single use program that that that's associated with the $9 million order that we announced in May that one we actually went through the development process in only two years. It was a very very aggressive program the customer was highly motivated.
Speaker Change: So that sort of you know on the on the short side the amount of time that it takes for new programs coming in.
Speaker Change: The order the program that we announced the production order for today I think I mentioned in my in my remarks took over five years, but they were sort of an early adopter because they were our first single use program. So generally speaking we would expect that new programs would take somewhere between two and three years to get into production. So does.
Speaker Change: Summarized we have one other one we have two that are going into production now we have another one that will likely go into production in 12 months. Another one after that will that will go into production in 12 to 24 or 30 months and then three or four more that will come on line after that.
Speaker Change: Okay. Great next question here or single use program theoretically larger than the 1 million minimum run rate you are desire for advancement. If so are you prioritizing.
Speaker Change: <unk> will use opportunities versus more conventionally internally and how your staff your engineers.
Yeah, So let's see there's two parts to that the first the first part is the size of the typical production order.
Speaker Change: It is true that typically the single use programs will start above.
Speaker Change: Above the million dollar range, so you're right. Our R. R. R. Typical goal here is to have products go into production in the $1 million to $3 million range typically.
Speaker Change: Typically single use programs will started quantities of 10000 units a year of higher sometimes it takes a little while the run up to that but that's basically where you get the economies of scale that makes single use.
Speaker Change: A meaningful and then the the typical average selling price on the very low side, it's about $100 a unit.
Speaker Change: On the high side around $300 units. So so starting quantities of 10000 units and pricing of about 100 to $300 would put you in that 1 million to $3 million range.
Speaker Change: I would say that that.
Speaker Change: It really depends on the customer, but I think there is there is better than a 50 50 chance that that typical single use programs will start at a at a rate that's higher than that million dollars closer to the two or $3 million range.
Speaker Change: In terms of how we prioritize the programs and the product development pipeline. It it really depends on a number of factors certainly.
The revenue that we expect in the production side of things when it gets to production is one of the variables that we consider we also consider pretty heavily how quickly we can get it to production because.
Speaker Change: Whenever we can get a product transition from the product development pipeline into production. It becomes a long term revenue generator and it opens up a slot in our product development pipeline to bring new programs in the.
Speaker Change: And the third the third part that we look at carefully is the timeline of our customer of course, we don't have complete control over the timelines.
Speaker Change: Where does our customer in all cases, because there is this F D a.
Speaker Change: Certification or approval that always has to happen as well and that can that can limit the timeline as well. So we really look at it at a set of variables.
Speaker Change: And certainly the size of the revenue potential when it gets to production is one of those variables that we look at.
Speaker Change: Okay great.
Speaker Change: Maybe transitioning topics here a little bit engineering engineering has been relatively flat. The last few quarters are there opportunities to re grow the base and I know you touched a little about on it but let's make sure we have their questions addressed here.
Speaker Change: Yeah sure so you.
Speaker Change: Right, we did comment a little bit on that so there are a couple of things happening here with the with the engineering team with the product development team. So the first thing is.
Speaker Change: They've been growing pretty.
Substantially over the last couple of years since we acquired lighthouse, even while we were we were doing the integration of lighthouse into POC.
Speaker Change: So they've done a great job at.
Speaker Change: Continuing to move forward a number of programs in particular these two that were just launched into production. These two single use programs.
The last couple of quarters, a few things have been happening. So the first thing is we have found a new facility for this group and they've been running pretty fast with the systems that we had in place and so we are updating the facility of the group in Maine. We're also updating the tools that they have to work with because they were.
Become more efficient and all of that is is difficult to do while you're growing at a 25% year over year growth rate. So.
Speaker Change: We're giving them a little bit of space to update their tools in order to be able to to grow beyond where they are now at the same time as.
As we as we mentioned a couple of times, we have been using some of those resources to support our platform solution product, which will be launching in the in the upcoming weeks that has taken a.
Speaker Change: Yeah, a fair amount of internal R&D, and so that hasnt shown up as as revenue even though the team has been working every bit as hard as as they were a few quarters ago.
Speaker Change: So those things are all happening now I think that there'll be.
Speaker Change: There'll be wrapped up in the you know the.
Speaker Change: The next couple of quarters. So I would expect starting again in fiscal 'twenty six we will start to see.
Speaker Change: Some fairly significant growth, we continue to hire new engineers, and we can find them the engineering talent.
Speaker Change: That fits with the product development work that we do is hard to find but we're successful and when we find a candidate they they generally liked to come work with us because we have a good reputation. So we will continue growing the team and I think we'll continue to see pretty steady revenue levels. This fiscal year and then we'll start to see some significant growth.
Speaker Change: As we come out of the fourth quarter and into fiscal 'twenty six.
Okay, Great. Let me remind everyone. If again, if you're on the teleconference line and you would like to ask a question you can press star and then one and get if you're listening through the webcast you can type your question in the ask a question box.
Speaker Change: It looks like maybe just a couple more here Joe.
Speaker Change: Can you help people understand the fixed versus variable expenses on Cogs and how incremental revenue flows through to the bottom line.
Speaker Change: I got it I'm going to let Wayne answer that one.
Yes, so as you expect with lower revenues and a relatively fixed cost of sales when we have a revenue decrease it does impact the margins quite substantially.
Speaker Change: Oh, yes on the way.
When revenues increase what we will see is a variable cost would be.
<unk> materials.
Speaker Change: And then some labor.
Speaker Change: We staff, our direct labor as a line so when revenues decrease we can't exactly.
Speaker Change: That that line up if you will let's turn that lying down so it's more.
Speaker Change: This is more of a penalty going down in revenues, obviously think going up.
Speaker Change: I think the pieces of.
Margin are very different when you look at the different business components of the business. So for instance for Ross optical we could grow that business quite substantially without adding any head count.
Because they're really the only variable costs, there are really logistics and materials.
Speaker Change: On the engineering side margins impacted by the mix of materials, which has a lower margin than versus the.
Speaker Change: The labor components, so that can be quite a bit of a bit of variability.
Speaker Change: And any particular quarter.
Speaker Change: Alright, great. Thanks, Wayne looks like maybe one more question here.
Speaker Change: Given the company's leading position in three D. Endoscopes and single use technologies does management expect intuitive surgical to be a potential customers they would need access.
Or integration that can you, maybe just talk about and I know, there's the history here. So maybe you can expand upon that for investor.
Yeah sure.
Speaker Change: So so.
Speaker Change: We're quite proud of the fact that that POC was is the company that that design. The very first three D and a scope for intuitive surgical way back in the late 19 nineties.
Speaker Change: And we have been.
Speaker Change: Engaged with intuitive surgical many times over those last 20 years we.
Speaker Change: We entered into an agreement about 15.
Speaker Change: <unk> 15, or 17 years ago that was a.
Speaker Change: All of our technology of some of our patent portfolio at the time that was many years ago now.
Speaker Change: But we have a.
Speaker Change: A good relationship with intuitive surgical I can't comment obviously on things.
Speaker Change: Things that we're doing currently but certainly the kinds of tech.
Speaker Change: Technologies that we're developing are in line with the kinds of things that not only intuitive but really.
Speaker Change: Many of the robotics system robotic companies there.
That are that are out there today that have grown quite substantially maybe looking for them I will just add to that intuitive surgical now has as acquired a big division of shortly that happened a couple of years ago. So they do have their own internal optical engineering.
Speaker Change: And manufacturing capability.
Speaker Change: So so I wouldn't.
I wouldn't say that intuitive is without their own optical capabilities, but we do have some unique things and I think that the technologies that we've developed as the as the question.
Speaker Change: Employees, both in single use and in three D. Endoscopy can have have broad applications throughout the robotic.
Speaker Change: Endoscopy World.
Speaker Change: Alright, great.
Speaker Change: Well, Joe it looks like I'm, not seeing any further questions online or in the teleconference. Queues, so with that I will turn it back over to you for closing remarks.
Okay. Thank you Robert and thank you everyone for joining us on the call today I look forward to speaking to everyone. Soon thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: I didn't see it.
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Speaker Change: Hum.
Speaker Change: [music].
Yeah.
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