Precision Optics (NASDAQ:POCI) reported record revenue in its fiscal second quarter ended Dec. 31, 2025, as strong demand in two large production programs continued to build, though the company said manufacturing inefficiencies and yield issues weighed heavily on margins and profitability.
Record quarterly revenue driven by production programs
CEO Dr. Joe Forkey said second-quarter revenue reached a record $7.4 million. The company attributed the performance primarily to higher systems manufacturing output and “sustained strength” in its two largest production programs.
Program updates: aerospace, cystoscope, and an ophthalmic device ramp
Management highlighted performance and expectations across several key programs:
- Top-tier aerospace program: The company generated $2.7 million in revenue in Q2, matching the record levels set in Q1. Forkey described Precision Optics as a “trusted, strategic, sole source supplier” on the program, which involves a specialized optical assembly used in a next-generation aerospace platform. He said a joint forecast and capacity planning supports an increase from roughly $2.5 million in shipments in Q2 to “over $3.5 million” in Q4. He added that by the end of Q2 the operations team had updated the production line to enable more than 50% higher maximum throughput versus the end of Q1, with financial benefits expected to begin showing in Q3 and more substantially in Q4.
- Single-use cystoscope program (surgical robotics customer): Revenue was $2.0 million in Q2, up from $1.5 million in Q1, marking a sixth consecutive quarter of record revenue. However, Forkey said gross margins remained challenged due to below-expected yields and suboptimal labor utilization tied to training and other production inefficiencies. He said two updates—one to product design and one to the supply chain—are scheduled for implementation in the current quarter, after delays related to the complexity of making changes to an FDA-cleared product already used clinically. Forkey said the changes are expected to lift gross profit by about $150,000 to $200,000 per quarter at current production rates.
- Single-use ophthalmic device: The company said this third production program is ramping and should contribute to second-half growth. Forkey said 2025 revenue was limited as the company built only 1,000 units with “significantly negative” startup margins. He said the next order is expected to be 10,000 to 15,000 units supporting $2 million to $3 million in revenue in calendar 2026, with gross margin “greater than 30%.” He cited yields improving from about 60% in November to routinely above 90% currently, with production increasing from about six units per day to 20–25 per day.
Margins pressured by scrap, yields, tariffs, and underutilization
Despite the revenue growth, Coll said gross margin fell to 2.8% in Q2, compared with 14.2% in the prior quarter and 23.6% in the year-ago quarter. Management attributed the margin pressure to several factors, including high manufacturing scrap levels, tariff impacts, and yield and throughput challenges on the cystoscope line. Coll also said profitability in product development was negative due to underutilization, and that the optics lab experienced a delayed reorder of a key defense program that the company expects to begin building in the fourth quarter.
Coll noted that Precision Optics negotiated arrangements with key customers to pass through tariffs without markup, with tariffs recorded as both revenue and cost of goods sold. He said total revenue net of tariffs would have been $7.0 million, with aerospace revenue net of tariffs at $2.5 million and cystoscope revenue net of tariffs at $1.8 million.
Operational changes, Ross Optical rebound, and product development bookings
Forkey said the company has experienced “growing pains” as production programs ramped while it was under-resourced in line management and production support. He said the company added Joseph Traut as COO in October and has been building out operations staffing, including a new senior director of operations as well as quality and manufacturing engineers.
While saying Q2 gross margin and bottom-line performance were below expectations, Forkey said operations improved toward the end of the quarter, with measurable progress in December expected to carry into Q3 and expand in Q4. He characterized the timing as “approximately one-quarter shift to the right” versus original expectations, with positive Adjusted EBITDA now expected to begin in Q4.
Management also pointed to improving trends at Ross Optical, which Forkey said had been pressured by tariffs and changes in customer purchasing. He said Ross delivered revenue above $1 million for the second quarter in a row and entered Q3 with the highest backlog in more than three years, which he said supports expectations for improved second-half margins due to operating leverage.
On the engineering side, Forkey said product development revenue increased sequentially and is forecast to rise in Q3 and Q4, supported by a second consecutive quarterly increase in product development purchase order bookings in Q2, which he said were at the highest level in over a year. He tied the earlier decline in engineering activity to the accelerated development timeline for the single-use cystoscope product and its transfer to production about a year and a half ago.
Guidance raised for revenue; Adjusted EBITDA outlook revised downward
Given stronger-than-anticipated production demand, management raised full-year fiscal 2026 revenue guidance to $26 million to $28 million, up from the prior estimate of $25 million. Forkey said the higher order flow is coming primarily from the two major production programs, adding that the aerospace program is ramping faster.
However, due to the shift in the margin recovery timeline, the company revised its full-year Adjusted EBITDA outlook to a loss of $2.5 million to $3.0 million. Coll said year-to-date Adjusted EBITDA was already negative $2.7 million, implying roughly break-even Adjusted EBITDA for the remainder of the fiscal year based on the updated range.
For Q2, Coll reported operating expenses of $1.9 million, compared with $2.0 million a year ago, with SG&A of $1.7 million in both periods and R&D of $250,000 versus $318,000 a year earlier. The company posted a net loss of $1.8 million, compared with a net loss of $1.0 million in the year-ago quarter and $1.6 million in Q1. Adjusted EBITDA was -$1.5 million, compared with -$0.6 million in the year-ago quarter and -$1.2 million in Q1.
Coll said cash at the end of December was approximately $900,000 and bank debt was $1.6 million. He said Precision Optics is in negotiations to expand the use of debt capital to fund business expansion and working capital needs and expects to announce expanded loan facilities during the third quarter. In response to a question, management said the cystoscope design change has been approved by the customer and is expected to go into production “sometime in the next month or so,” while Coll added the company recently received grant funding from Massachusetts, though the impact was still being quantified.
About Precision Optics (NASDAQ:POCI)
Precision Optics Corporation, Inc designs, develops, manufactures, and sells specialized optical and illumination systems and related components primarily in the United States and the European Economic Area. It offers medical instrumentation products, including endoscopes and endocouplers, as well as other custom imaging and illumination products, such as Microprecision lenses and micro medical cameras, and 3D endoscopes for use in minimally invasive surgical procedures by hospitals and physicians.
