Q2 2026 Optex Systems Holdings Inc Earnings Call
Speaker #2: Please stand by. Your meeting is about to begin. Hello and welcome to today's Optex Systems Holdings Inc. second quarter earnings call. At this time, all participants are in a listen-only mode.
Operator: Hello, and welcome to today's Optex Systems Holdings, Inc, Q2 earnings call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session.
Speaker #2: Later, you'll have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one on your telephone keypad.
Operator 2: To register to ask a question at any time, please press star one on your telephone keypad. Please note that this call is being recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn the meeting over to Chad George, CEO. Please go ahead, sir.
Operator: To register to ask a question at any time, please press star one on your telephone keypad. Please note that this call is being recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn the meeting over to Chad George, CEO. Please go ahead, sir.
Speaker #2: Please note that this call is being recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn the meeting over to Chad George, CEO.
Speaker #2: Please go ahead, sir. Thank you. Hello, my name is Chad George, and I'm the CEO of Optex Systems. I'd like to begin by introducing Karen Hawkins, our CFO.
Chad George: Thank you. Hello, my name is Chad George, and I'm the CEO of Optex Systems. I'd like to begin by introducing Karen Hawkins, our CFO, who will take the opportunity to walk us through our Q2 fiscal 2026 financials. I'll return later to add additional perspective on our business and a path forward. Karen?
Chad George: Thank you. Hello, my name is Chad George, and I'm the CEO of Optex Systems. I'd like to begin by introducing Karen Hawkins, our CFO, who will take the opportunity to walk us through our Q2 fiscal 2026 financials. I'll return later to add additional perspective on our business and a path forward. Karen?
Speaker #2: Who will take the opportunity to walk us through our second quarter fiscal 2026 financials. I'll then return later to add additional perspective on our business and a path forward.
Speaker #2: Karen?
Speaker #3: Thank you, Chad. Before we begin, I'd like to note that statements made during today's call, including our responses during the Q&A session, may include forward-looking statements.
Karen Hawkins: Thank you, Chad. Before we begin, I'd like to note that statements made during today's call, including our responses during the Q&A session, may include forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially. Factors that could cause such differences are described in our filings with the SEC, including Risk Factors section of our most recent 10-K. We will also make reference to non-GAAP measures such as Adjusted EBITDA. Reconciliations to GAAP results are available in our filings. For Q2 of fiscal year 2026, revenue was $9.6 million, compared to $10.7 million in the prior year period. For the 6 months, revenue totaled $18.8 million compared to $18.9 million last year, essentially flat year over year.
Karen Hawkins: Thank you, Chad. Before we begin, I'd like to note that statements made during today's call, including our responses during the Q&A session, may include forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially. Factors that could cause such differences are described in our filings with the SEC, including Risk Factors section of our most recent 10-K. We will also make reference to non-GAAP measures such as Adjusted EBITDA. Reconciliations to GAAP results are available in our filings. For Q2 of fiscal year 2026, revenue was $9.6 million, compared to $10.7 million in the prior year period. For the 6 months, revenue totaled $18.8 million compared to $18.9 million last year, essentially flat year over year.
Speaker #3: These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially. Factors that could cause such differences are described in our filings with the SEC, including risk factors section of our most recent 10-K.
Speaker #3: We will also make reference to non-GAAP measures such as adjusted EBITDA. Reconciliations to GAAP results are available in our filings. For the second quarter of fiscal year 2026, revenue was $26 million, compared to $10.7 million in the prior year period.
Speaker #3: For the six months, revenue totaled $18.8 million, compared to $18.9 million last year, essentially flat year over year. The first half of the year was impacted by the federal government shutdown and delays in approvals of the fiscal year 2026 appropriations bill.
Karen Hawkins: H1 was impacted by the federal government shutdown and delays in approvals of the fiscal year 2026 appropriations bill. These factors pushed several contract awards into H2. Looking ahead, we expect a stronger H2 of fiscal year 2026 as delayed awards move forward. We continue to project full year revenue in the range of $43 million to $45 million. Gross profit was $3.4 million for the quarter and $5.5 million for the 6 months, consistent with prior year periods despite the lower revenue. Gross margin improved meaningfully, 35.2% for the quarter, up from 31.3%. 29.2% for the 6 months compared to 29.0% in the prior year period.
Karen Hawkins: H1 was impacted by the federal government shutdown and delays in approvals of the fiscal year 2026 appropriations bill. These factors pushed several contract awards into H2. Looking ahead, we expect a stronger H2 of fiscal year 2026 as delayed awards move forward. We continue to project full year revenue in the range of $43 million to $45 million. Gross profit was $3.4 million for the quarter and $5.5 million for the 6 months, consistent with prior year periods despite the lower revenue. Gross margin improved meaningfully, 35.2% for the quarter, up from 31.3%. 29.2% for the 6 months compared to 29.0% in the prior year period.
Speaker #3: These factors pushed several contract awards into the second half of the year. Looking ahead, we expect a stronger second half of fiscal year 2026 as delayed awards move forward.
Speaker #3: We continue to project full-year revenue in the range of $43 million to $45 million. Gross profit was $3.4 million for the quarter and $5.5 million for the six months.
Speaker #3: Consistent with prior year periods, despite the lower revenue. Gross margin improved meaningfully: 35.2% for the quarter, up from 31.3%. 29.2% for the six months, compared to 29.0% in the prior year period.
Speaker #3: This improvement was driven by completion of legacy loss-making periscope contracts, improved pricing on newer programs, and continued operational efficiencies. Operating expenses were $1.7 million for the quarter, compared to $1.1 million last year, an increase of 0.6 million.
Karen Hawkins: This improvement was driven by completion of legacy loss-making periscope contracts, improved pricing on newer programs, and continued operational efficiencies. Operating expenses were $1.7 million for the quarter compared to $1.1 million last year, an increase of $0.6 million. For H1, operating expenses were $3.7 million compared to $2.3 million, an increase of $1.4 million. The increase was driven primarily by leadership transition costs and organizational changes, higher stock-based compensation, increased research and development investment, ongoing compliance and systems upgrades, and to a lesser extent, inflationary pressures. We expect operating expenses to remain elevated as we continue to invest in R&D, meet Cybersecurity Maturity Model Certification requirements, and enhance internal reporting systems.
Karen Hawkins: This improvement was driven by completion of legacy loss-making periscope contracts, improved pricing on newer programs, and continued operational efficiencies. Operating expenses were $1.7 million for the quarter compared to $1.1 million last year, an increase of $0.6 million. For H1, operating expenses were $3.7 million compared to $2.3 million, an increase of $1.4 million. The increase was driven primarily by leadership transition costs and organizational changes, higher stock-based compensation, increased research and development investment, ongoing compliance and systems upgrades, and to a lesser extent, inflationary pressures. We expect operating expenses to remain elevated as we continue to invest in R&D, meet Cybersecurity Maturity Model Certification requirements, and enhance internal reporting systems.
Speaker #3: For the first six months, operating expenses were $3.7 million, compared to $2.3 million, an increase of 1.4 million. The increase was driven primarily by leadership transition costs and organizational changes.
Speaker #3: Higher stock-based compensation increased research and development investment, ongoing compliance and systems upgrades, and, to a lesser extent, inflationary pressures. We expect operating expenses to remain elevated as we continue to invest in R&D, meet Cybersecurity Maturity Model Certification requirements, and enhance internal reporting systems.
Speaker #3: Net income for the quarter was $1.3 million, or $0.19 per diluted share, compared to $1.8 million last year. For the first six months, net income was $1.6 million, or $0.23 per diluted share, compared to $2.6 million in the prior year period.
Karen Hawkins: Net income for the quarter was $1.3 million or $0.19 per diluted share compared to $1.8 million last year. For H1, net income was $1.6 million or $0.23 per diluted share compared to $2.6 million in the prior year period. Adjusted EBITDA was $2.0 million for the quarter versus $2.4 million last year and $2.8 million for H1 versus $3.6 million last year. The year-over-year decline reflects lower revenue volumes and increased operating expenses. We continue to expect full year Adjusted EBITDA in the range of $7.5 million to $8.5 million.
Karen Hawkins: Net income for the quarter was $1.3 million or $0.19 per diluted share compared to $1.8 million last year. For H1, net income was $1.6 million or $0.23 per diluted share compared to $2.6 million in the prior year period. Adjusted EBITDA was $2.0 million for the quarter versus $2.4 million last year and $2.8 million for H1 versus $3.6 million last year. The year-over-year decline reflects lower revenue volumes and increased operating expenses. We continue to expect full year Adjusted EBITDA in the range of $7.5 million to $8.5 million.
Speaker #3: Adjusted EBITDA was $2.0 million for the quarter versus $2.4 million last year, and $2.8 million for the six months versus $3.6 million last year.
Speaker #3: The year-over-year decline reflects lower revenue volumes and increased operating expenses. We continue to expect full-year adjusted EBITDA in the range of $7.5 million to $8.5 million.
Speaker #3: For the balance sheet and cash flow, we ended the quarter with $4.2 million in cash and cash equivalents, compared to $6.4 million at fiscal year-end, with no outstanding debt on our revolving credit facility.
Karen Hawkins: For the balance sheet and cash flow, we ended the quarter with $4.2 million in cash and cash equivalents compared to $6.4 million at fiscal year-end, with no outstanding debt on our revolving credit facility. We used $1.3 million in operating cash flow compared to $4.0 million generated in the prior year period. This reflects higher operating expenses, increased inventory purchases to support the expected H2 revenue. Working capital remained strong at $22.6 million compared to $21.1 million at fiscal year-end. Orders and backlog. New orders increased 3.8% year-over-year to $16.3 million for the H1. Ending backlog was approximately $36.6 million, providing good visibility into the remainder of fiscal year 2026. We continue to see steady bookings tied to defense programs.
Karen Hawkins: For the balance sheet and cash flow, we ended the quarter with $4.2 million in cash and cash equivalents compared to $6.4 million at fiscal year-end, with no outstanding debt on our revolving credit facility. We used $1.3 million in operating cash flow compared to $4.0 million generated in the prior year period. This reflects higher operating expenses, increased inventory purchases to support the expected H2 revenue. Working capital remained strong at $22.6 million compared to $21.1 million at fiscal year-end. Orders and backlog. New orders increased 3.8% year-over-year to $16.3 million for the H1. Ending backlog was approximately $36.6 million, providing good visibility into the remainder of fiscal year 2026. We continue to see steady bookings tied to defense programs.
Speaker #3: We used $1.3 million in operating cash flow, compared to $4.0 million generated in the prior year period. This reflects higher operating expenses and increased inventory purchases to support the expected second-half revenue.
Speaker #3: Working capital remained strong at $22.6 million, compared to $21.1 million at fiscal year-end. Orders and backlog. New orders increased $3.8% year-over-year to $16.3 million for the first half.
Speaker #3: Ending backlog was approximately $36.6 million, providing good visibility into the remainder of fiscal year 2026. We continue to see steady bookings tied to defense programs.
Speaker #3: We invested $0.8 million in capital equipment during the first half and have $1.1 million in additional committed investments. We expect full-year capital expenditures to range between $2 million and $2.5 million.
Karen Hawkins: We invested $0.8 million in capital equipment during H1 and have $1.1 million in additional committed investments. We expect full year capital expenditures to range between $2 million and 2.5 million. These investments support capacity expansion, new product lines, research and development, and enhanced prototyping capabilities. That concludes the financial portion of our remarks. I will now turn the call back over to Chad for closing comments.
Karen Hawkins: We invested $0.8 million in capital equipment during H1 and have $1.1 million in additional committed investments. We expect full year capital expenditures to range between $2 million and 2.5 million. These investments support capacity expansion, new product lines, research and development, and enhanced prototyping capabilities. That concludes the financial portion of our remarks. I will now turn the call back over to Chad for closing comments.
Speaker #3: These investments support capacity expansion, new product lines, research and development, and enhanced prototyping capabilities. That concludes the financial portion of our remarks. I will now turn the call back over to Chad for closing comments.
Speaker #2: Thank you, Karen. Well, the first half of fiscal 2026 was impacted by delays in government funding and contract timing. We remain encouraged by the strength of our backlog, improving gross margins, and continued demand across our core defense programs.
Chad George: Thank you, Karen. While the H1 of fiscal 2026 was impacted by delays in government funding and contract timing, we remain encouraged by the strength of our backlog, improving gross margins, and continued demand across our core defense programs. We have made significant investments in research and development, manufacturing capabilities, and organizational structure that we believe position Optex for long-term growth and expanded market opportunities. As funding activity normalizes and recently awarded programs ramp into production, we expect stronger revenue performance during the H2 of the fiscal year. Our team remains focused on execution, operational efficiency, and delivering value to our customers, war fighters, and shareholders. We are confident in the long-term direction of the business. With that, I'd like to open it up for questions.
Chad George: Thank you, Karen. While the H1 of fiscal 2026 was impacted by delays in government funding and contract timing, we remain encouraged by the strength of our backlog, improving gross margins, and continued demand across our core defense programs. We have made significant investments in research and development, manufacturing capabilities, and organizational structure that we believe position Optex for long-term growth and expanded market opportunities. As funding activity normalizes and recently awarded programs ramp into production, we expect stronger revenue performance during the H2 of the fiscal year. Our team remains focused on execution, operational efficiency, and delivering value to our customers, war fighters, and shareholders. We are confident in the long-term direction of the business. With that, I'd like to open it up for questions.
Speaker #2: We have made significant investments in research and development, manufacturing capabilities, and organizational structure that we believe position Optex for long-term growth and expanded market opportunities.
Speaker #2: As funding activity normalizes and recently awarded programs ramp into production, we expect stronger revenue performance during the second half of the fiscal year. Our team remains focused on execution, operational efficiency, and delivering value to our customers, war fighters, and shareholders.
Speaker #2: And we are confident in the long-term direction of the business. With that, I'd like to open it up for questions.
Speaker #1: Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, please press star two.
Operator 2: Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask a question. We'll pause for just a moment to allow everyone the chance to queue. And once again, that is star one if you would like to ask a question now. I am currently showing no questions in the queue at this time.
Operator: Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask a question. We'll pause for just a moment to allow everyone the chance to queue. And once again, that is star one if you would like to ask a question now. I am currently showing no questions in the queue at this time.
Speaker #1: Once again, that is star one to ask a question. We'll pause for just a moment to allow everyone the chance to queue. And once again, that is star one if you would like to ask a question now.
Speaker #1: I am currently showing no questions in the queue at this time.
Speaker #2: Okay.
Chad George: Okay.
Chad George: Okay.
Speaker #1: Any closing remarks?
Operator 2: Any closing remarks?
Operator: Any closing remarks?
Speaker #2: No, thank you. I appreciate it. Thanks for your time.
Chad George: No. Thank you. I appreciate it. Thanks for your time.
Chad George: No. Thank you. I appreciate it. Thanks for your time.
Operator 2: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
