Q3 2026 Optex Systems Holdings Inc Earnings Call

August 11, 2026

Speaker #2: February 2, 2017.

Speaker #3: Please stand by. Your meeting is about to begin.

Speaker #4: Hello, and welcome, everyone, to today's Optex Systems Holdings Incorporated third-quarter earnings call. At this time, all participants are in listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session.

Operator: Hello and Welcome everyone joining today's Optex Systems Holdings, Inc. Q3 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will 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. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Karen Hawkins, CFO. Please go ahead.

Speaker #4: To register to ask a question at any time, please press star one on your telephone keypad. Please note, this call is being recorded. We are standing by if you should need any assistance.

Speaker #4: It is now my pleasure to turn the meeting over to Karen Hawkins, CFO. Please go ahead.

Speaker #2: Before we begin, please note that today's discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those projected in these statements.

Karen Hawkins: Before we begin, please note that today's discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those projected in these statements. Please refer to the company's SEC filings for a discussion of these risks and uncertainties. In addition, management may discuss certain non-GAAP financial measures. Reconciliations of these measures can be found in the company's earnings release and SEC filings. I will now turn the call over to Chad George, our CEO.

Speaker #2: Please refer to the company's SEC filings for a discussion of these risks and uncertainties. In addition, management may discuss certain non-GAAP financial measures. Reconciliations of these measures can be found in the company's earnings release and SEC filings.

Speaker #2: I will now turn the call over to Chad George, our CEO.

Speaker #5: Thank you, and welcome, everyone. We appreciate you joining us today to discuss our third-quarter and year-to-date fiscal 2026 results. While our revenue performance during the quarter was impacted by delayed contracts, lower demand for certain periscope products, and delays in customer scheduling changes, we continue to make meaningful progress in improving profitability and positioning the business for future growth.

Chad George: Thank you, and welcome everyone. We appreciate you joining us today to discuss our Q3 and year-to-date fiscal 2026 results. While our revenue performance during the quarter was impacted by delayed contracts, lower demand for certain periscope products, and delays in customer scheduling changes, we continue to make meaningful progress in improving profitability and positioning the business for future growth. Q3 revenue was $9.7 million, compared to $11.1 million in the prior year quarter. For the first 9 months of fiscal 2026, revenue totaled $28.5 million, compared to $30 million in the prior year period. Importantly, despite lower revenue, our gross profit increased and gross margin improved significantly. Q3 gross margin increased to 34.2% from 28.5% a year ago, reflecting improved product mix, better pricing on new programs, operational efficiencies, and completion of legacy low margin and loss-making contracts. Revenue was affected by several temporary factors.

Chad George: Thank you, and welcome everyone. We appreciate you joining us today to discuss our Q3 and year-to-date FY 2026 results. While our revenue performance during the quarter was impacted by delayed contracts, lower demand for certain periscope products, and delays in customer scheduling changes, we continue to make meaningful progress in improving profitability and positioning the business for future growth. Q3 revenue was $9.7 million, compared to $11.1 million in the prior year quarter.

Speaker #5: Third-quarter revenue was $9.97 million compared to $11.1 million in the prior year quarter. For the first nine months of fiscal '26, revenue totaled $28.5 million compared to $30 million in the prior year period.

Chad George: For the first nine months of FY 2026, revenue totaled $28.5 million, compared to $30 million in the prior year period. Importantly, despite lower revenue, our gross profit increased and gross margin improved significantly. Q3 gross margin increased to 34.2% from 28.5% a year ago, reflecting improved product mix, better pricing on new programs, operational efficiencies, and completion of legacy low margin and loss-making contracts. Revenue was affected by several temporary factors.

Speaker #5: Importantly, despite lower revenue, our gross profit increased and gross margin improved significantly. Third-quarter gross margin increased to 34.2% from 28.5% a year ago, reflecting improved product mix, better pricing on new programs, operational efficiencies, and completion of legacy low-margin and loss-making contracts.

Speaker #5: Revenue was affected by several temporary factors. The federal government shutdown during the beginning of fiscal '26, followed by delayed appropriations funding, pushed a number of expected contract awards into later periods.

Chad George: The federal government shut down during the beginning of fiscal 2026, followed by delayed appropriations funding, pushed a number of expected contract awards into later periods. Additionally, approximately $1.5 million of completed periscope deliveries were deferred from the Q3 into the Q4 due to a delay in customer delivery scheduling changes. Those products are now in finished goods, and we expect this delayed revenue to recover in Q4. Looking at our operating segments, Optex Richardson experienced lower periscope revenue due to reduced demand and delayed deliveries, while our Applied Optics Center generated strong growth in optical assemblies and specialty coatings, partially offsetting weakness in laser filter shipments. Turning to orders and backlog, we received $19.5 million of new orders during the first 9 months of fiscal 2026. Backlog at quarter end was $30.1 million.

Chad George: The federal government shut down during the beginning of FY 2026, followed by delayed appropriations funding, pushed a number of expected contract awards into later periods. Additionally, approximately $1.5 million of completed periscope deliveries were deferred from the Q3 into the Q4 due to a delay in customer delivery scheduling changes. Those products are now in finished goods, and we expect this delayed revenue to recover in Q4.

Speaker #5: Additionally, approximately $1.5 million of completed periscope deliveries were deferred from the third quarter into the fourth quarter due to a delay in customer delivery scheduling changes.

Speaker #5: Those products are now in finished goods, and we expect this delayed revenue to recover in Q4. Looking at our operating segments, Optex Richardson experienced lower periscope revenue due to reduced demand and delayed deliveries, while our Applied Optics Center generated strong growth in optical assemblies and specialty coatings, partially offsetting weakness in laser filter shipments.

Chad George: Looking at our operating segments, Optex Richardson experienced lower periscope revenue due to reduced demand and delayed deliveries, while our Applied Optics Center generated strong growth in optical assemblies and specialty coatings, partially offsetting weakness in laser filter shipments. Turning to orders and backlog, we received $19.5 million of new orders during the first nine months of FY 2026. Backlog at quarter end was $30.1 million.

Speaker #5: Turning to orders and backlog, we received $19.5 million of new orders during the first nine months of fiscal '26. Backlog at quarter-end was $30.1 million.

Speaker #5: While backlog remains low below remains below prior year levels, we believe current order activity understates future demand because several anticipated awards remain pending. We continue to expect approximately $4 million of laser filter awards related to the next-generation squad weapon fire control program within the next three to six months.

Chad George: While backlog remains below prior year levels, we believe current order activity understates future demand because several anticipated awards remain pending. We continue to expect approximately $4 million of laser filter awards related to the Next Generation Squad Weapon - Fire Control within the next three to six months. Additionally, we currently have more than $24 million in outstanding quotations, which we believe could generate between $10 to $12.5 million of awards during the next six months. We are also investing aggressively in the future of the business. During the first nine months of fiscal 2026, we invested approximately $1.1 million in capital equipment and currently have approximately $2.8 million of additional committed capital expenditures. These investments are focused on manufacturing capacity expansion, new product development, rapid prototyping, and advanced optical coating capabilities. Overall, we believe the company is positioned for a significantly stronger Q4.

Speaker #5: Additionally, we currently have more than $24 million in outstanding quotations, which we believe could generate between $10 million to $12.5 million of awards during the next six months.

Speaker #5: We are also investing aggressively in the future of the business. During the first nine months of fiscal '26, we invested approximately $1.1 million in capital equipment and currently have approximately $2.8 million of additional committed capital expenditures.

Chad George: We are also investing aggressively in the future of the business. During the first nine months of FY 2026, we invested approximately $1.1 million in capital equipment and currently have approximately $2.8 million of additional committed capital expenditures. These investments are focused on manufacturing capacity expansion, new product development, rapid prototyping, and advanced optical coating capabilities. Overall, we believe the company is positioned for a significantly stronger Q4.

Speaker #5: These investments are focused on manufacturing capacity expansion, new product development, rapid prototyping, and advanced optical coating capabilities. Overall, we believe the company is positioned for a significantly stronger fourth quarter. Our funded backlog, anticipated contract awards, completed but deferred shipments, and investments in capacity provide confidence in our outlook.

Chad George: Our funded backlog, anticipated contract awards, completed but deferred shipments, and investments in capacity provide confidence in our outlook. We continue to expect full year revenue between $43 million and $45 million and adjusted EBITDA between $7.5 million and $8.5 million. With that, I'll turn it over to Karen.

Speaker #5: We continue to expect full-year revenue between $43 and $45 million, and adjusted EBITDA between $7.5 and $8.5 million. With that, I'll turn it over to Karen.

Speaker #2: Thank you, Chad. I'll begin with a review of our financial results and balance sheet. Third-quarter results: Revenue for the quarter was $9.7 million, down 12.4% from $11.1 million in the third quarter of fiscal 2025.

Karen Hawkins: Thank you, Chad. I'll begin with a review of our financial results and balance sheet. Q3 results. Revenue for the quarter was $9.7 million, down 12.4% from $11.1 million in the Q3 of fiscal 2025. Gross profit increased by 5% to $3.3 million, while gross margin increased 570 basis points to 34.2%. Improved product mix, operational efficiencies, stronger pricing on new awards, and the completion of legacy low margin contracts continued to drive profitability improvement. Operating expenses were $1.9 million, compared to $1.3 million last year's quarter. The increase primarily reflected investments in research and development, leadership transition costs, stock-based compensation, CMMC and cybersecurity compliance initiatives, and internal systems enhancements. Operating income was $1.4 million, representing an operating margin of approximately 14.3%. Net income was $1.3 million, or $0.18 per diluted share. Adjusted EBITDA was $1.8 million, representing an adjusted EBITDA margin of approximately 18.1%.

Speaker #2: Gross profit increased by 5% to $3.3 million, while gross margin increased $570 basis points to $34.2%. Improved product mix, operational efficiencies, stronger pricing on new awards, and the completion of legacy low-margin contracts continue to drive profitability improvement.

Speaker #2: Operating expenses were $1.9 million, compared to $1.3 million in last year's quarter. The increase primarily reflected investments in research and development, leadership transition costs, stock-based compensation, CMC and cybersecurity compliance initiatives, and internal systems enhancements.

Karen Hawkins: Operating expenses were $1.9 million, compared to $1.3 million last year's quarter. The increase primarily reflected investments in research and development, leadership transition costs, stock-based compensation, CMMC and cybersecurity compliance initiatives, and internal systems enhancements. Operating income was $1.4 million, representing an operating margin of approximately 14.3%. Net income was $1.3 million, or $0.18 per diluted share. Adjusted EBITDA was $1.8 million, representing an adjusted EBITDA margin of approximately 18.1%.

Speaker #2: Operating income was $1.4 million, representing an operating margin of approximately 14.3%. Net income was $1.3 million, or $0.18 per diluted share. Adjusted EBITDA was $1.8 million, representing an adjusted EBITDA margin of approximately 18.1%.

Speaker #2: For the year-to-date results, for the first nine months of fiscal year 2026, revenue totaled $28.5 million, gross profit was $8.8 million, gross margin increased to 30.9%, operating income was $3.2 million, net income was $2.9 million, or $0.41 per diluted share, and adjusted EBITDA was $4.5 million.

Karen Hawkins: For the year-to-date results, for the first nine months of fiscal year 2026, revenue totaled $28.5 million, gross profit was $8.8 million, gross margin increased to 30.9%, operating income was $3.2 million, net income was $2.9 million or $0.41 per diluted share, and adjusted EBITDA was $4.5 million. For the balance sheet and liquidity, our balance sheet remains exceptionally strong. As of 28 June 2026, cash and cash equivalents were $6.2 million. Working capital was $23.9 million. Current assets totaled $27.9 million, with stockholders' equity at $27.7 million. We had zero debt outstanding under our $3 million revolving credit facility. During the first nine months of fiscal year 2026, cash flows from operations was $1.0 million. Capital expenditures total approximately $1.1 million. Inventory increased to $16.4 million, supporting anticipated Q4 deliveries and future growth opportunities.

Karen Hawkins: For the year-to-date results, for the first nine months of FY 2026, revenue totaled $28.5 million, gross profit was $8.8 million, gross margin increased to 30.9%, operating income was $3.2 million, net income was $2.9 million or $0.41 per diluted share, and adjusted EBITDA was $4.5 million. For the balance sheet and liquidity, our balance sheet remains exceptionally strong. As of 28 June 2026, cash and cash equivalents were $6.2 million. Working capital was $23.9 million.

Speaker #2: For the balance sheet and liquidity, our balance sheet remains exceptionally strong. As of June 28, 2026, cash and cash equivalents were $6.2 million, working capital was $23.9 million, current assets totaled $27.9 million, with stockholders' equity at $27.7 million.

Karen Hawkins: Current assets totaled $27.9 million, with stockholders' equity at $27.7 million. We had zero debt outstanding under our $3 million revolving credit facility. During the first nine months of FY 2026, cash flows from operations was $1.0 million. Capital expenditures total approximately $1.1 million. Inventory increased to $16.4 million, supporting anticipated Q4 deliveries and future growth opportunities.

Speaker #2: We had zero debt outstanding under our $3 million revolving credit facility. During the first nine months of fiscal year ’26, cash flows from operations were $1.0 million. Capital expenditures totaled approximately $1.1 million. Inventory increased to $16.4 million, supporting anticipated fourth-quarter deliveries and future growth opportunities.

Speaker #2: We also have approximately $2.8 million of committed capital investments focused on increasing manufacturing capacity, expanding capabilities, enhancing prototyping, and supporting new products. Subsequent to quarter-end, we entered into an equipment financing arrangement related to the purchase of an approximately $2.1 million high-vacuum coating system.

Karen Hawkins: We also have approximately $2.8 million of committed capital investments focused on increasing manufacturing capacity, expanding capabilities, enhancing prototyping, and supporting new products. Subsequent to quarter end, we entered into an equipment financing arrangement related to the purchase of approximately $2.1 million high vacuum coating system. This investment is a key component of our strategy to expand advanced coating capabilities and support future growth. Overall, we believe we have sufficient liquidity to fund our operating requirements, capital investments, growth initiatives, and potential share repurchases under the company's authorized stock repurchase program. I'll now turn the call back to Chad for closing remarks.

Speaker #2: This investment is a key component of our strategy to expand advanced coating capabilities and support future growth. Overall, we believe we have sufficient liquidity to fund our operating requirements, capital investments, growth initiatives, and potential share repurchases under the company's authorized stock repurchase program.

Karen Hawkins: Overall, we believe we have sufficient liquidity to fund our operating requirements, capital investments, growth initiatives, and potential share repurchases under the company's authorized stock repurchase program. I'll now turn the call back to Chad for closing remarks.

Speaker #2: I'll now turn the call back to Chad for closing remarks.

Speaker #5: Thank you, Karen. Despite a challenging revenue environment during the first nine months of fiscal 2026, we are encouraged by the progress we've made in strengthening the foundation of the business.

Chad George: Thank you, Karen. Despite a challenging revenue environment during the first nine months of fiscal 2026, we are encouraged by the progress we've made in strengthening the foundation of the business. We have significantly improved gross margins, completed most of our legacy low margin contracts, maintained a strong balance sheet, invested in future manufacturing capabilities, and positioned ourselves to benefit from expected Q4 activity and future defense program opportunities. We remain focused on operational execution, expanding our product portfolio, supporting our customers, and creating a long-term value for our shareholders. Thank you for your continued support of Optex Systems Holdings. With that, we're now ready to take questions.

Chad George: Thank you, Karen. Despite a challenging revenue environment during the first nine months of FY 2026, we are encouraged by the progress we've made in strengthening the foundation of the business. We have significantly improved gross margins, completed most of our legacy low margin contracts, maintained a strong balance sheet, invested in future manufacturing capabilities, and positioned ourselves to benefit from expected Q4 activity and future defense program opportunities.

Speaker #5: We have significantly improved gross margins, completed most of our legacy low-margin contracts, maintained a strong balance sheet, invested in future manufacturing capabilities, and positioned ourselves to benefit from expected fourth-quarter activity and future defense program opportunities.

Speaker #5: We remain focused on operational execution, expanding our product portfolio, supporting our customers, and creating long-term value for our shareholders. Thank you for your continued support of Optex Systems Holdings.

Chad George: We remain focused on operational execution, expanding our product portfolio, supporting our customers, and creating a long-term value for our shareholders. Thank you for your continued support of Optex Systems Holdings. With that, we're now ready to take questions.

Speaker #5: With that, we are now ready to take questions.

Speaker #6: Thank you. If you would like to ask a question, please press star one now on your telephone keypad. To leave the queue at any time, you may press star two.

Operator 2: Thank you. If you would like to ask a question, please press star one now on your telephone keypad. To leave the queue at any time, you may press star two. Once again, that is star one to ask a question. We'll pause for just a moment to allow everyone a chance to join the queue. Once again, if you would like to ask a question, please press star and one on your keypad now. It appears that we have no questions at this time. I will now turn the meeting back over to our host for any concluding remarks.

Operator: Thank you. If you would like to ask a question, please press star one now on your telephone keypad. To leave the queue at any time, you may press star two. Once again, that is star one to ask a question. We'll pause for just a moment to allow everyone a chance to join the queue. Once again, if you would like to ask a question, please press star and one on your keypad now. It appears that we have no questions at this time. I will now turn the meeting back over to our host for any concluding remarks.

Speaker #6: Once again, that is star one to ask a question. We'll pause for just a moment to allow everyone a chance to join the queue.

Speaker #6: And once again, if you would like to ask a question, please press star one on your keypad now. And it appears that we have no questions at this time.

Speaker #6: I'm going to turn the meeting back over to our hosts for any concluding remarks.

Speaker #5: Appreciate everyone's time for listening to our fiscal third quarter 2026 earnings call. And again, thank you for your support of Optex Systems Holdings. That's it.

Chad George: Appreciate everyone's time for listening to our fiscal Q3 2026 earnings call. Again, thank you for your support of Optex Systems Holdings. That's it.

Chad George: Appreciate everyone's time for listening to our Q3 FY 2026 earnings call. Again, thank you for your support of Optex Systems Holdings. That's it.

Operator 2: Thank you.

Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Speaker #5: Thank you.

Chad George: Thank you.

Operator 2: This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.