POCI Q3 2026 Earnings Transcript

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Date

Wednesday, May 13, 2026 at 5:00 p.m. ET

Call participants

• Chief Executive Officer — Joseph N. Forkey
• Chief Financial Officer — Wayne Coll

Takeaways

• Total revenue -- $8.7 million, marking a new quarterly record and up 108% year over year, driven by core production programs.
• Production revenue -- $7.6 million, rising from $3.3 million year over year and $6.4 million sequentially.
• Product development revenue -- $1.1 million, up from $0.9 million year over year and $1 million sequentially.
• Aerospace program revenue -- $3.6 million, a new high with 44% sequential growth, supported by improved production efficiency and yields reaching 97% (up from prior 85%-95% ranges).
• Single-use cystoscope program revenue -- $2.2 million, an all-time high with approximately 10% sequential growth and yield rates above 90% (targeted to increase further in Q4).
• Ross Optical revenue -- $1.3 million, representing a 65% increase year over year and sequential growth from $1 million, with management highlighting scalable margins from incremental revenue.
• Gross margin -- 23.6%, significantly up from 10% year over year and 2.8% in the prior quarter, reflecting operational improvements and a $0.225 million Massachusetts refundable credit.
• Adjusted EBITDA -- Positive $300 thousand, a major improvement from negative $1.3 million year over year and negative $1.5 million sequentially, signaling a milestone for the company.
• Net loss -- $108 thousand, a meaningful shift from a net loss of $2.1 million year over year and $1.8 million sequentially.
• Cash balance -- $10.7 million as of March 31, 2026, boosted by a $10 million oversubscribed public offering that included existing, new, and insider investors.
• Bank debt -- $1.5 million as of March 31, 2026, with active discussions underway to enhance lending terms.
• Updated full year revenue guidance -- Increased to $29 million–$31 million from previous $26 million–$28 million, implying 52%-62% growth over fiscal 2025 revenue of $19.1 million.
• Updated adjusted EBITDA guidance -- Narrowed to negative $2.5 million–$2.7 million, improving from the prior negative $2.5 million–$3 million outlook.
• Backlog and pipeline -- Highest backlog in recent quarters, with three new programs (single-use arthroscopy device, upper GI scope, robotic rigid scope) scheduled to enter production in the next six months, and a $3.5 million follow-on order secured for the single-use ophthalmic endoscope line.
• Unity platform -- One development program actively utilizing Unity, with marketing efforts now generating four new sales prospects.

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Risks

• CEO Forkey said, "our customer has faced bottlenecks elsewhere in their deployment process, they have asked us to slow production against our existing backlog in fiscal Q1 2027," which may cause a 15%-20% revenue pullback for this segment in upcoming quarters.
• Tariff refunds will be partially passed to customers, and CFO Coll stated, "reduce sales at the time those credit memos are issued," impacting reported revenue when credits are processed.
• Yield improvements in the cystoscope line have not yet reached the targeted level, and further procedure, tooling, and fixture changes are required, which may influence throughput and cost in the near term.

Summary

Precision Optics (NASDAQ:POCI) delivered record quarterly revenue underpinned by substantial improvements in manufacturing efficiency and gross margins, supported by expanded contributions from both core and newly ramped programs. The company achieved positive adjusted EBITDA for the first time, complemented by a strengthened balance sheet after completing a $10 million capital raise. Management raised both full-year revenue and adjusted EBITDA guidance on visibility and demand for its lead programs, while stating operational momentum will be bolstered by new products expected to move into production in the following quarters. Risks include near-term aerospace revenue moderation due to customer-driven inventory corrections, partial offsets from tariff-related revenue credits, and the need to further improve efficiency in certain production lines.

• The company's pipeline features up to six development programs slated for production in fiscal 2027, three of which are expected to launch within six months.
• Management confirmed Ross Optical's revenue increase is driven by both new customer acquisition and expansion from existing clients, signaling sustainability.
• CEO Forkey said, "we do see this quarter that we are reporting on here is really an inflection point, and we expect to see growing profitability as we move forward."
• Facility expansion options remain open, and current capacity at Gardner can be doubled without major disruption, though modernization projects are under review to support anticipated volume growth.
• The Unity platform is positioned to shorten time-to-market for customers and attract further program development, though market penetration is still in early stages.
• Major market focuses remain medical devices, defense and aerospace, and satellite communications, each with distinctive growth drivers fueling long-term growth prospects.
• Royalty agreements for the cystoscope program are structured to benefit Precision Optics regardless of production performed in-house or at customer sites.

Industry glossary

• SWAP (Size, Weight, and Power): A defense and aerospace industry acronym denoting the trend of reducing the size, weight, and energy consumption of systems for improved performance and integration.
• Unity platform: A modular imaging system developed by Precision Optics to streamline development and production of reusable and single-use endoscopic systems.
• EDIP (Economic Development Incentive Program): A Massachusetts incentive granting refundable tax credits to businesses increasing employment within the state.

Full Conference Call Transcript

Dr. Joe Forkey, Precision Optics' chief executive officer and Wayne Coll, the company's chief financial officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. Again, if you dialed in through the traditional teleconference line, as the operator indicated, If you are listening to the webcast portal and would like to ask a question, you can submit your question through the ask a question feature in the webcast player. Before we begin with prepared remarks, we submit for the record the following statement.

Statements made by the management team of Precision Optics during the course of this conference call may contain forward looking statements within the meaning of Section 27A of the Securities Act of 2030 as amended, and Section 21E of the Securities Exchange Act of 2030 as amended, and such forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 2 thousand. Forward looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may. Future, plan or planned, will or should, expected, anticipates, draft eventually or projected.

Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties, that could cause future circumstances, events or results to differ materially from those 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 Securities and 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.

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. Alright. With that said, let me turn the call over to Dr. Joe Forkey, chief executive officer of Precision Optics. Joe? Please proceed.

Joseph N. Forkey: Thank you, Robert. And thank you all for joining our call today. Last quarter, we said Precision Optics had strong production demand, but we are still working through the challenges of scaling a much larger manufacturing business. In the third quarter, revenue continued to grow and we began to see the payoff of the investments we have made in the last few quarters improving manufacturing processes, and efficiency. Revenue was $8.7 million, new quarterly record for Precision Optics and more than double the quarterly revenue of a year ago. More importantly, we achieved positive adjusted EBITDA, a major milestone reflects both the strength of our core production programs and the manufacturing improvements we have made over the last several quarters.

Our 2 largest production programs continue to drive the business. Revenue from our top tier aerospace customer reached $3.6 million a new record. Representing 44% sequential growth. This was the result of our investment in production capacity now achieving improved efficiency. Production yields on this line have now increased to 97% consistently a significant improvement from previous months that were typically in the 85% to 95% range. Because our customer has faced bottlenecks elsewhere in their deployment process, they have asked us to slow production against our existing backlog in Q1 and 2027, with new orders expected for Q3. All indications are that we continue to be the sole source for this assembly.

And that the long term prospects for this program remain extremely high. Our single use cystoscope program also contributed record revenue at $2.2 million in the third quarter, an all time high and representing approximately 10% sequential growth. More importantly, we have made dramatic progress in terms of production yields and costs. Here too, yields have increased to current rates above 90% but not yet to the targeted 95% level, which we expect to achieve in Q4. Beyond those 2 lead programs, we continue to advance newer programs, including our single use ophthalmic endoscope program, supported by a $3.5 million follow on production order that we just announced last week.

Our Ross Optical division also contributed significantly to the quarter's improved bottom line. Revenue for Ross Optical was approximately $1.3 million compared to $1 million in Q2 and $800 thousand a year ago. Representing 65% year-over-year growth. This is important because this business can support higher revenue without a proportional increase in headcount or other fixed costs. So incremental revenue contributes meaningfully to gross profit and adjusted EBITDA. As a result of revenue growth and production improvements, our overall gross margin improved to 24% compared to 10% a year ago and 3% in Q2.

While we still have work to do, the quarter showed that our operational improvements are beginning to translate into stronger financial performance as our production lines become more stable and the higher revenue levels leverage the manufacturing infrastructure we have built over recent quarters. The process and personnel updates that have driven the results are directly attributable to the change we made in our operating leadership bringing on Joe Traut as chief operating officer in October. Joe has rebuilt the operations team. Making changes where needed and empowering others to act with urgency to deliver more product with greatly improved efficiency.

Joe and his team have made great progress in 6 months, and I am confident we are seeing just the beginning of what they can accomplish going forward. We also strengthened our balance sheet in March. Through an oversubscribed $10 million public offering led by existing and new investors and including participation from directors and officers. This capital supports our growth plans, and I want to thank all of our investors for their support.

Given the strength of our results, our visibility into the remainder of the fiscal year, we are increasing fiscal 26 revenue guidance to a range of $29 million to $31 million compared to our previous guidance of $26 million to $28 million This represents 52% to 62% growth over fiscal 25 revenue of $19.1 million. We are also increasing fiscal 26 adjusted EBITDA guidance to a range of negative $2.5 million to negative $2.7 million compared to our previous guidance of negative $2.5 million to negative $3 million This translates into another quarter of roughly breakeven adjusted EBITDA in Q4.

For comparison, adjusted EBITDA was negative $3.7 million in fiscal 25, and negative $2.7 million in the first 6 months of the current fiscal year. As we look forward to Q4, and into fiscal 27, we anticipate continued strong performance from our lead aerospace and cystoscopy production lines, along with our quickly ramping single use ophthalmic endoscope line. And with the highest backlog in many quarters, we believe that the recent increases in Ross Optical revenues are sustainable and will continue to contribute to positive margins and bottom line profitability going forward.

In addition to the continuation of these strong producing programs, we expect as many as 5 to 6 programs in the development pipeline to move to production in fiscal 27. 3 of these are scheduled to enter production over the next 6 months. A low volume single use device for small joint arthroscopy, an upper GI scope, and a robotic surgery articulating rigid scope. While there are always timeline, yields, and efficiency challenging challenges, when development programs are transitioning to production. Our new operations team is deeply experienced and already working closely with the production and product development teams to ensure a smooth transfer and efficient drive to profitable volume production.

This was a fantastic quarter for POC, and we believe it is just the beginning of leveraging our improved operational infrastructure. With high revenues supported by our existing programs, new programs entering production today and new production slated for the next 6 to 12 months, along with a strong outlook for Ross optical revenue and high variable margins, We believe the recent positive trends will continue to drive growing profitability. In light of our operating performance, and growing confidence in our production capabilities, which contributed to our successful capital raise, we are thinking about strategic investments in our business in 2 specific areas. First, we are investing in capabilities required to become the leading production company in micro optics.

Including components and systems. Especially those that are small and complex. We have learned through the ramp of the production programs I spoke to before that there are greater requirements to becoming a premier production company than we initially expected. Investments go beyond simply increased production capacity, and we require investment in quality assurance, manufacturing engineering, supply chain management, and other functions. We have made several of these out of necessity in recent months, and we will continue on this path to enhance and stabilize these capabilities to be well prepared for the anticipated ongoing increase in production volume. Along with this, we continue to evaluate multiple options for potential updates to our manufacturing facility.

Second, we want to grow with the markets we currently serve. All of which continue to exhibit strong growth trajectories able to support the substantial long term growth of POC. We participate in 3 primary markets. Medical device, defense and aerospace, and satellite communications. We have previously considered satellite communications as part of aerospace but have begun to treat that segment separately as we work to better understand market drivers and primary participants. Medical device, which remains our largest and most immediate opportunity, continues to move toward minimally invasive procedures. Smaller imaging systems, and single use devices. This aligns directly with our core strengths, particularly in micro optics and digital imaging.

Market data continues to support these observations, with recent reports estimating the disposable endoscope market will grow at a compound annual growth rate of approximately 15% to 20% over the next 10 years. This is also where our Unity platform becomes important. Unity was designed to reduce development costs time to market, and execution risk through a modular imaging architecture that can support reusable and single use endoscopic systems. As more customers look to bring advanced imaging products to market efficiently, we believe Unity can enhance our role as a development and production partner and provide a strong competitive advantage.

Today, we have 1 Unity program in our product development pipeline, and are in discussions with 4 additional sales prospects today. The second major market is defense aerospace. Which is increasingly driving optical systems to smaller size, weight, and power or SWAP. We believe there are opportunities in a broad range of products from autonomous vehicles to directed energy weapons. Interest and budgets for these types of systems have increased substantially given the wars in Ukraine and Israel. We are adding resources and emphasis here. As evidenced by our recent participation at the SPIE Defense and Security Conference at the National Harbor in Maryland just 2 weeks ago.

Our recently announced development agreement for a high end jet engine inspection borescope is a good example of the complex optical opportunities precision optics can be highly competitive. The third market focus is satellite communications and related infrastructure. Current market studies estimate this market to be growing at 15% to 25% per year. We see opportunities similar to the program which is currently our largest revenue generator, in both ground based and space based systems as satellite networks continue to expand. Across medical device defense aerospace, and satellite communications, we are finding a common theme that customers need smaller, more precise, higher performance optical systems.

We will be investing in go to market resources to expand our presence and customer reach within these sectors. And we will consider add on capabilities as needed to complement and broaden our current offer. Investments will be made with discipline, and high expectations of returns which we think is achievable given current market dynamics. With that overview, let me turn it over to Wayne review the financials in more detail. Wayne?

Wayne Coll: Thank you, Joe. Let me expand on some of Joe's comments on the financial results starting with revenue. For the third quarter, total revenue was $8.7 million compared to $4.2 million in the year ago third quarter, an increase of $4.5 million or 108%. Revenue was also up compared to $7.4 million in the prior sequential quarter. Breaking it down, production revenue was approximately $7.6 million compared to $3.3 million in the year ago quarter and $6.4 million in the prior sequential quarter. Product development or engineering revenue was $1.1 million compared to $900 thousand in the year ago quarter and $1 million in the previous quarter. Our aerospace program contributed $3 million in revenue during the quarter.

While the single use cystoscope program contributed $2.2 million in revenue. Net of tariffs. Ross Optical revenue was $1.3 million in the quarter, compared to $1 million in the sequential second quarter and $800 thousand in the year ago third quarter. Both represented quarterly records. As we discussed last quarter, successfully negotiated agreements with these customers to pass through tariffs without markup. Total revenue net of tariffs would have been $8.3 million. For the quarter, gross margin was 23.6% compared to 10% in the year ago third quarter and 2.8% in the prior sequential quarter. Gross profit increased to $2.1 million compared to $418 thousand in the year ago quarter.

As Joe discussed, the improvement was especially meaningful because it reflects the operational progress we have made in the business. Higher production volumes, better throughput, and improved yields all contributed to stronger gross profit performance. The gross margin was also impacted by the recording of a $225 thousand refundable credit from the Commonwealth of Massachusetts economic development incentive program which is earned by POC as we increase the number of employees at our Massachusetts locations. Given our anticipated growth, we expect additional refundable credits from the EDIP program in future periods. Total operating expenses were approximately $2.1 million during the third quarter compared to approximately $2.5 million in the year ago third quarter.

Breaking it down, SG&A expenses were $1.9 million during this quarter, compared to $2.2 million the year ago quarter. The decrease was primarily due to lower stock based compensation and recruiting costs partially offset by increased consulting, bonuses, and bad debt expense. R&D expenses were $267 thousand during the quarter, compared to $211 thousand in the year ago quarter an increase of $56 thousand. R&D expenses primarily represent employee related expenses to support product improvements, development of new technologies, and standardized approaches to address opportunities in our 3 primary markets.

As a result of the factors I have discussed, our net loss for the quarter was $108 thousand compared to a net loss of $2.1 million in the year ago third quarter compared to a net loss of $1.8 million in the sequential second quarter. Adjusted EBITDA, which excludes stock based compensation, interest expense, depreciation and amortization, was positive $300 thousand in the third quarter. Compared to negative $1.3 million in the year ago third quarter and negative $1.5 million in the sequential second quarter. This was a major milestone for the company and reflects the combination of record revenue, improved manufacturing performance, better yield, and continued operating expense discipline.

As Joe discussed, we believe the third quarter provides evidence that the investments we have made in operations, leadership manufacturing infrastructure, and production capacity are beginning to translate into improved profitability. Cash at 3/31/2026 was $10.7 million compared to approximately $900 thousand at 12/31/2025. During the quarter, we completed an oversubscribed $10 million public offering to support our growth plans, The offering included participation from both existing and new investors as well as participation from directors and officers. This financing significantly strengthened our balance sheet and provides additional flexibility as we continue to scale production support working capital needs, and invest in the growth opportunities Joe discussed earlier. Bank debt at 3/31/2026 was approximately $1.5 million.

We continue to engage in productive discussions with our current as well as alternate commercial banks. To improve our loan facilities commensurate with our growth plans. As Joe mentioned, based on the strength of our third quarter results, and our visibility into the remainder of the fiscal year, we are increasing our fiscal 26 revenue guidance to a range of $29 million to $31 million compared to our previous guidance of $26 million to $28 million. We are also increasing our fiscal 2020 adjusted EBITDA guidance to a range of negative $2.5 million to negative $2.7 million compared to our previous guidance of negative $2.5 million to negative $3 million.

With year to date revenue of $22.8 million and positive adjusted EBITDA achieved in the third quarter, our updated outlook reflects the improved operating performance of the business continued strength in our core production programs, and our expectation that the recent positive trends will continue into the fourth quarter. I will now turn the call back over to Joe for some final comments.

Joseph N. Forkey: Thank you, Wayne. Before we take questions, let me recap just a few points. First, Q3 revenue reached a new quarterly record of $8.7 million driven by continued strength in our core production programs. Second, we achieved positive adjusted EBITDA. Which is a major milestone for Precision Optics and demonstrates the impact of our strong production volumes, improved yields, better throughput, and the overall impact of the operational changes we have put in place. Third, with the ongoing strength of our base production programs, newer production programs ramping today, and a number of programs slated to move from development to production in fiscal 27, we anticipate continued profitable growth.

And finally, we strengthened the balance sheet through our oversubscribed $10 million public offering and increased our full year guidance based on the strength of our results and visibility into the fourth quarter. In many ways, this quarter demonstrates the business model we have been building towards. Our production programs are scaling, our operations are improving, Our pipeline remains active. And our financial performance is beginning to reflect that progress. We still have work ahead of us. But we are encouraged by the trajectory of the business and believe Precision Optics is well positioned to create significant long term value for shareholders. With that, we would be happy to take any questions.

Operator: Thank you. We will now begin the question-and-answer session. You are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, if you would like to ask a question on the phone, please press star. Then 1, and wait for your name to be announced.

Robert Blum: Alright, Darcy. This is Robert. While we wait to see if anyone queues up through the live teleconference line, we want to remind everyone that listening to the webcast, if you would like to ask a question and you are listening on the webcast player, again, you can type that into the ask a question box there on the player. We do have a couple of questions online, Joe and Wayne. So why do not we get to those first here? The first question here is, can you comment on revenue expectations in Q4 for aerospace and the cystoscope? And what do we expect in Q1 for this as well?

Joseph N. Forkey: So generally speaking, we expect both of those programs to continue at similar levels that we saw in Q3. With the 1 caveat that the aerospace program, our customers asked us to pull back a bit in Q1 and Q2. So for that particular program, we may see oh, I do not know, 15% to 20% pullback in Q1 and Q2. We expect that some of these other programs that are coming online will make up that difference But generally speaking, over the long run, we expect both of those programs to continue at the same levels and even to continue growing.

Robert Blum: All right. Very good. The next question here is can you discuss more about the customer requested slowdown and what happens if it moves to a license model.

Joseph N. Forkey: So the customer requested slowdown is for the aerospace program for which there is no licensing model. And I guess what I can say is that we have heard from our customer that they take the assembly that we make, and then they combine it with components from many other suppliers and build it into satellites. And that process of combining it and building it into satellites is running slower than they anticipated. So they have had some challenges on their side. And because of that, they have excess inventory of the parts that we are building. And that is the reason for the slowdown.

They have also said very clearly that they expect to be back up to similar levels as before. Once we get through these next couple quarters. So we see this as a bit of a blip and not a long term issue. And then maybe just on the licensing side? So there is no licensing for the for the aerospace program. I am sorry. I think he was referring to the medical device. Side. Oh, to the to the other to the other program. I am sorry.

So there is a licensing option for both of our single use programs, and that licensing option is that we will stand up we will duplicate our production line in our customer's facility or another facility of their choice. We did not talk about it today, but the cystoscope customer has funded us to build out another production line in our facility and has asked us to build a production line in their facility. We have been working on that. We see this as a positive for a couple of reasons. The first 1 is they invoke this clause by building the production line in their facility and not a third party.

We always expected that they would wanna have duplication of supply for this critical component. So duplicating it within their own facility is the ideal situation for us as opposed to going to a competitor. And the third piece is that for the units that they build in their facility, we will collect the royalty. So at the end of the day, we benefit financially when we are either building things in our facility or when they are building things in their facility, We have always known that there would be some mix. Right now, we will be running basically 3 shifts on 2 lines. They will be running 1 shift, maybe 1.5 shifts. On the airline.

So that ends up being a pretty good mix. And so we see this as a way of that product continuing the impact from that product continuing to grow even as our production levels stay the same or grow by just a small amount.

Robert Blum: Alright. Very good. Today, investor, question needs to be expanded upon. Please let us know. Again, if you are in the webcast portal there, please type your question into the ask a question feature there on the screen. Next question pertains to Unity with the adoption of Unity, is the time frame for conversion of R&D into production shortened.

Joseph N. Forkey: It is. So that is 1 of the main benefits of the Unity program, the Unity platform. And that is that is 1 of the reasons that we put Unity together. Because we expected that the reduction in time to market would be attractive to our customers. And certainly, it is attractive to us. We wanna move things through the engineering pipeline and into production. We are starting to see this bear out. We only have 1 program right now in the engineering pipeline that is using Unity. It has benefited from the Unity platform, so the time to production is shorter.

I guess I would expand on this answer a little bit and say that we launched Unity a little over a year ago, about 15 months ago. And I have to say, I expected that by now, we would have a product development pipeline full of Unity projects. And we do not. We have 1. But the good news is that our sales and marketing team, I think, has done a good job. We frankly had to figure out the best way to market the Unity platform because it is a little bit different than simply going out and saying, we can design an endoscope and then build it for you.

Going out and saying we are starting with a platform is a slight different message. And so the way that we bring that messaging to the market took us a little while to figure out. The good news is that, as I mentioned in the in the comments today, we have 4 now that our sales team is talking to about potential Unity projects. there is no guarantee that they will all come into the engineering pipeline. But we are starting to see some more traction with Unity.

And so we do expect that as we move forward, it will contribute to an increase in the programs in the product development pipeline, and it will have that benefit of moving things through the pipeline and into production faster than we have been able to do in the past. Alright.

Robert Blum: Very good. Next question here is on Ross Optical. Do you view the significant increase in sales for Ross Optical this quarter as sort of a new run rate for that business?

Joseph N. Forkey: Yes, that is a great question. I wish I had a very precise and certain answer. We have been having discussions internally about what the causes are. So there are a couple of things we are thinking about. 1 is that we know that people were holding back earlier in this fiscal year and really over the last 12 months because of uncertainty surrounding the tariffs. With the Supreme Court ruling, there seems to be some settling of where the tariffs are going to be. And people can only customers can only hold out so long before their inventory gets to a level where they have to reorder.

So we think some of it is coming from that, that there is some dip because people were holding back because of the tariffs. And now they are coming back online. There is some thought that there could be some folks who are doing what we saw after the pandemic when there were supply chain disruptions because of the war in Ukraine, that we could be seeing some people building excess inventory because of the concerns over supply chain. That 1, we think, is a little less likely because the supply chain disruptions, of course, are specific to The Middle and not a lot of optics come through The Middle East.

But there is a concern that could be part of it as well, that people could be building up their inventory to an excessive amount. So could be either of those things. We also are seeing, however, that we are getting new customers with meaningful size new orders. So given everything that we are seeing and especially because we are seeing some new customers with new orders, we are seeing some customers who have been ordering at small volumes starting to pick up their volumes because their business is starting to grow some more We do believe that the majority of it is coming from an increase in the need in that marketplace.

And so we do believe that this is sustainable and that it will continue. All right.

Robert Blum: Very good. Next question here is about sort of manufacturing capacity. Can you talk more about growing out the facilities, where the company stands now square footage wise or other? And where we will be roughly a year from now. And as an extension of that, what is the capacity utilization currently and where can we get to on that?

Joseph N. Forkey: Yeah. that is a great question. So we have talked in previous calls about the facilities updates that we have already made. So a facility update in Massachusetts moving the professional roles, if you like, the roles other than manufacturing to a new facility closer to Boston. We made a move of a similar nature in Portland to a new facility in South Portland for the engineering team. We moved the production from Wayne down to our Massachusetts facilities a little farther West of Massachusetts in Gardner, Mass. Where our headquarters was. And we have talked a couple times about the need to update the facilities that are in Gardner. And so we are the manufacturing facilities.

And we are looking at multiple options now for what the best approach is to update those facilities. In terms of capacity, we have today, we are in 3 buildings in that location in Gardner. 1 of those buildings has an enormous amount of space. That our landlord rents out to various different people. And there is there is always additional space available for us. So instead of giving a capacity number today, what I would say is if we decided to and we needed to, we could expand the footprint of the Gardner facility to double the size that it is today.

So we do not expect that the facility question will impede our ability to continue to roll out the new production programs. Having said that, being in 3 buildings in Gardner is not ideal. Some of the space in the facilities that we are in Gardner is not quite at the level that we would like it to be in terms of the modernness of the clean room air handlers, and those sorts of things. So there clearly needs to be some update. The big question is, how do we do the update? Do we keep everything in Gartner? Do we move to a different facility? Do we pull it all together into 1 building?

And those are exactly the questions that we are looking at now. Again, we do not expect the answer to any of these questions to delay us. In being able to roll the new programs into production. But it is part of what we will be looking at over the next 12 months in order to update the facility so we will be ready for the ongoing continuous growth in the long run. That we continue to expect.

Robert Blum: All right. Very good. Quick reminder, everyone. Again, you are listening to the traditional teleconference line and would like to ask a question, press star then 1 on your telephone keypad. Again, if you are listening to the webcast player, type your question into the ask a question box there on the player. The next question here is regarding pipeline. It says here, you mentioned 4 projects in the pipeline. Is that correct? Over what time frame will you get answers on these? And where in magnitude of revenue potential do these projects fit compared to other projects?

Joseph N. Forkey: So I think this question is referring to the 4 programs that I mentioned are in the sales prospects, sales pipeline. Pipeline. Differentiated from our engineering pipeline, which is robust and moving programs into production. Assuming I have that right, these 4 programs are the 4 Unity programs There are many more programs beyond that are in our sales funnel, our sales pipeline, if you like. And our general target when we look at new programs coming into the engineering pipeline or that we are targeting with our sales team.

Is that these programs, particularly when they are a Unity program, would be programs that ultimately in production would lead to $1 million to $3 million a year in revenue when they get into production. As they go through the engineering pipeline, they typically run anywhere from $1 million to $2 million over a couple of years. As they move through the engineering pipeline.

Robert Blum: Alright. Very good. The next question here is regarding tariffs. What is the scale of tariff refunds you expect? And will those be passed on to customers?

Wayne Coll: Yes. So we are still in the process of reviewing what that all looks like. There is a part of those tariff refunds, for instance, in the situations where we have negotiated agreements with our customers both for the cystoscope and the satellite line where we will be refunding those tariffs We do expect to not have to refund all of those tariff refunds. And so we think it will be a net positive in terms of the bottom line. But it will, of course, reduce sales at the time those credit memos are issued.

Robert Blum: Alright. Next question here. I guess more of a comment here, but maybe a question here. When will you be able to talk more about specific customers and projects in order to, as other optics companies are able to highlight specifically the contracts to a greater degree, when you are able to provide more color to attract investor and customer interest. So I think specifically is reference the ability to name customers and projects here.

Joseph N. Forkey: Yeah. We would love to name specific customers. And we talk with our customers about that routinely. The challenge we have, particularly with our very large customers, that they are always hesitant and frankly, do not allow us to do that. I think as we move forward, in some cases, it becomes obvious to everyone in the industry because of the characteristics of the product. And the ramp in the timing of the ramp that we are going through and that our customers are going through. Sometimes, it becomes fairly general knowledge, and I think we can probably confirm things when we get to that level.

We will continue to work with our customers to be able to name specific names. But as of right now, we have not been able to do that. We would love to do it. We will continue pushing on it. But I do not I do not have any prediction for when we will be successful.

Robert Blum: Alright. Next question here regarding the cystoscope line. You mentioned in previous calls pending improvements in the cystoscope line. Have all of these improvements been realized in the third quarter?

Joseph N. Forkey: They have not been. So as I said in my comments, we have made significant progress on that line, in particular with the yield now at over 90% consistently and continuing to grow. that is compared to previous times when we have had yields typically in the 80% range, sometimes even below that. So getting to 90% in the third quarter was a huge accomplishment. But we have a whole series of additional improvements that we are looking at and that our customer is looking at with us It really is a great partnership. To be able to get us consistently above 95%, and I think there is a good chance we could even get to 97% to 98%.

So there are plenty of improvements from a yield standpoint. The other thing we continue to look at, and, you know, we have not emphasized this as much, but it certainly is part of what is been happening, is that there are updates to the procedures that we are using to the tools and to the fixtures. These things take a little bit longer. To update because it is not simply training people better. it is it is actually changing the process a little bit. And so there are a series of updates to the to the procedures that we are using and the tools and the fixtures.

That we expect will continue to allow us to reduce the touch time. Or the other way to say it is to increase the throughput with the same number of technicians. And so we have seen some improvements there again, there is more to be done. I think we will see significant increase again in Q4. into next year. and then I think we will continue to see increase even beyond that into Q1, Q2, The other thing is as the volumes continue to increase, we will get to points where the volumes are high enough that the return on investment for more significant changes in the tools and fixtures again to drive down the touch time even more.

Will become possible. So I think this is 1 of those cases where we will see continuous improvement over the long run.

Robert Blum: Alright. Very good. This will be my final reminder. If you would like to ask a question online, ahead and type that into the ask a question box on the webcast player. Question here is, does the industry recognize your momentum And if so, at what point do you expect revenue to, quote, hockey stick?

Joseph N. Forkey: I am not going to predict when the hockey stick will come. We are focused on continuing to drive programs into the engineering pipeline and continue to drive the engineering pipeline programs into production. We see revenue continuing to increase in a nice, healthy way as we move forward. The question about whether the industry recognizes us is an interesting 1. I think that with some of the marketing work that we have done around Unity, we are getting we are getting better exposure out there in the marketplace.

I also think that with the new facilities that we have in Portland and the new facilities that we have in Massachusetts, having customers come and see us here helps with the impression that they get of the company. Having them see the production lines that we already have running, gives us added credibility that we can not only do the top notch engineering, which we have been known for many years, But now customers can see that we can roll those into production and be very successful. With production. So all of these improvements that we talked about here from a financial standpoint also roll into improvements in our ability to market ourselves to the to the industry.

So I cannot give specific predictions on hockey sticks or specific numbers on how much better we are being recognized today. But we do see that. We do sense the momentum in the marketplace that people will come and talk to us and talk about things that we are talking about publicly. And recognize that we have made progress. So I think all of those things are just going to help to accelerate the rate at which we can pull new programs into the engineering pipeline and, of course, those rolling through into production to help grow their revenue. So we are pretty excited about it.

Robert Blum: Alright. Very good. A question here. And more broadly, talk about expectations for profitability here.

Joseph N. Forkey: So I guess what I would say is this quarter was basically breakeven. A little bit positive from breakeven. At the same revenue levels that we are at now with the improvements that we continue to make, we would expect that would continue to grow in the positive direction. We have that little bit of slowdown on the aerospace program that we have to manage through. We have got some other programs coming online. So I think we will see things continue to grow there, but it will be close to breakeven.

But in general, as we have new programs going into production, and as we have more programs coming into Ross Optical, those will have a very high variable margin. So I think getting to breakeven is 1 thing. Moving beyond breakeven I think, can accelerate pretty quickly because of the fact that we are leveraging the infrastructure that we have already put in place. So we do see this quarter that we are reporting on here is really an inflection point, and we expect to see growing profitability as we move forward.

Robert Blum: All right. Very good. Well, with that, Joe, I will turn it over to you for any closing remarks.

Joseph N. Forkey: Thank you, Robert. Thanks, everyone, for joining us on the call today. We will look forward to speaking with you again in a couple of months. Everyone. Have a good evening.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may disconnect.

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