Optex Systems (OPXS) Q2 2026 Earnings Transcript

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DATE

Thursday, May 14, 2026 at 2 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Chad George
• [Unspecified Financial Presenter]
• Operator

TAKEAWAYS

• Revenue -- $600 thousand, sharply lower than $10.7 million in the prior-year quarter due to government funding delays.
• First-Half Revenue -- $18.8 million, essentially flat against $18.9 million the previous year.
• Gross Profit -- $3.4 million for the quarter, $5.5 million for the first half; both consistent with prior years despite lower revenue for the quarter.
• Gross Margin -- 35.2% for the quarter versus 31.3% prior year; 29.2% for the first half versus 29% prior year, reflecting legacy contract completion and improved pricing.
• Operating Expenses -- $1.7 million for the quarter (up $600 thousand), $3.7 million for the first half (up $1.4 million), mainly from leadership transitions, R&D, and compliance investments.
• Net Income -- $1.3 million or $0.19 per diluted share, compared to $1.8 million prior year quarter.
• First-Half Net Income -- $1.6 million or $0.23 per diluted share versus $2.6 million prior year.
• Adjusted EBITDA -- $2 million for the quarter, $2.8 million for six months; down from $2.4 million and $3.6 million respectively year over year.
• Cash and Equivalents -- $4.2 million at quarter end, down from $6.4 million at fiscal year end; no outstanding debt on revolving credit facility.
• Operating Cash Flow -- Used $1.3 million, compared with $4 million generated in the prior year quarter, driven by spending on inventory and higher expenses.
• Working Capital -- $22.6 million, up from $21.1 million at fiscal year end.
• Orders and Backlog -- New orders up 3.8% to $16.3 million first half; ending backlog of $36.6 million gives solid revenue visibility.
• 2026 Outlook -- Management confirms expected full-year revenue of $43 million to $45 million and adjusted EBITDA of $7.5 million to $8.5 million.
• Capital Expenditures -- $800 thousand invested first half; $1.1 million additional committed, with expected full-year spending of $2 million to $2.5 million aimed at capacity and R&D.
• Operating Expenses Guidance -- Anticipated to stay elevated as R&D, cybersecurity, and internal systems investments continue.
• Management Commentary -- Chad George stated, "We remain encouraged by the strength of our backlog, improving gross margins and continued demand across our core defense programs."
• Book-to-Bill -- Bookings for defense programs described as steady, supporting backlog levels.

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RISKS

• Quarterly revenue materially impacted by "the federal government shutdown and delays in approval of the fifth fiscal year 26 appropriations bill," shifting contract awards and depressing results.
• Operating expenses increased by $600 thousand for the quarter and $1.4 million for the six months due to organizational costs, with management expecting these higher levels to persist.
• Net income and adjusted EBITDA declined for both periods reviewed, reflecting both decreased revenue and increased fixed costs.
• Cash usage from operations was $1.3 million, contrasting with cash generation of $4 million prior year, driven by spending ahead of expected contract activity that has not yet materialized.

SUMMARY

Optex Systems Holdings (NASDAQ:OPXS) reported a significant revenue decline for the quarter, citing government funding delays as the primary cause. Despite the top-line impact, management delivered margin expansion to 35.2% on the completion of legacy loss contracts and operational improvements. Elevated operating expense levels persisted, with further increases expected due to investments in research, compliance, and infrastructure. The company emphasized its $36.6 million backlog and maintained full-year revenue and adjusted EBITDA guidance, anticipating a stronger second half as delayed awards are executed.

• Management flagged $800 thousand invested in capital improvements with $1.1 million more committed, underscoring a focus on manufacturing and R&D capabilities.
• Gross profit remained steady in the face of revenue volatility, demonstrating cost containment on newer programs.
• Book-to-bill performance and a year over year 3.8% order increase support management’s outlook for improving demand conditions in the coming periods.
• The cash balance of $4.2 million and absence of revolver debt suggest current liquidity is adequate, even as operating cash flow has turned negative ahead of projected second-half activity.

INDUSTRY GLOSSARY

• Backlog: The total dollar value of orders received but not yet fulfilled, representing future revenue visibility.
• Book-to-Bill: Ratio measuring the relationship between the amount of new orders (bookings) to the revenue billed during the period, serving as an indicator of demand trends.

Full Conference Call Transcript

For the 2026, revenue was $600 thousand 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. The first half of the year was impacted by the federal government shutdown and delays in approval of the fifth fiscal year 26 appropriations bill. These factors put 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.

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% in the prior year period. This improvement was driven by completion of legacy loss making periscope contracts, improved pricing on newer programs, continued operational efficiencies. Operating expenses were $1.7 million for the quarter compared to $1.1 million last year, an increase of $600 thousand.

For the first 6 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. Higher stock-based compensation, increased research and development investments, 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 enhanced internal reporting systems. 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 3 months, 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 million for the quarter versus $2.4 million last year. And $2.8 million for the 6 months 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 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 million generated in the prior year period.

This reflects higher operating expenses, increased inventory and input inventory purchases to support the expected second half 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 first half. Ending backlog was approximately $36.6 million providing good visibility into the remainder of fiscal year 26. We continue to see steady bookings tied to defense programs. We invested $800 thousand in capital equipment during the first half and have $1.1 million in additional committed investment.

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 capability. That concludes the financial portion of our remarks. I will now turn the call back over to Chad for closing comments.

Chad George: Thank you, Karen. While Q2 2026 was impacted by delays in government funding and 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 opportunity. As government procurement 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, and we are confident in the long term direction of the business.

With that, I would like to open it up for questions.

Operator: Thank you. And once again, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We will pause for just a moment to allow everyone an opportunity to signal for questions. I am currently showing no questions in the queue at this time.

Chad George: Okay.

Operator: Any closing remarks?

Chad George: No. Thank you. I appreciate it. Thanks for your time.

Operator: Thank you. That brings us to the end of today's meeting. Appreciate your time and participation. May now disconnect.

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