Precision Optics Balances Record Growth With Margin Strain

Precision Optics Corporation, Inc. ((POCI)) has held its Q2 earnings call. Read on for the main highlights of the call.

Precision Optics Corporation, Inc. delivered a mixed earnings call, pairing record revenue with sharply weaker margins and deeper losses. Management struck a cautiously optimistic tone, highlighting strong demand, program ramps, and operational fixes, while openly acknowledging cash constraints, delayed margin recovery, and the need for additional financing in the near term.

Record Revenue and Production Growth

Q2 revenue reached a record $7.4 million, up from $4.5 million a year ago and $6.7 million in Q1, underscoring strong top-line momentum. Production revenue drove the surge at roughly $6.4 million, or about $6.0 million net of tariffs, marking around 105% year-over-year growth and a solid 9% sequential increase on a net basis.

Aerospace Program Provides Strong Backbone

The company’s flagship aerospace program contributed about $2.7 million in Q2, or $2.5 million net of tariffs, and remains a key growth driver. Operations increased maximum throughput by more than 50% versus the end of Q1, and management expects shipments to climb from roughly $2.5 million in Q2 to more than $3.5 million in Q4.

Single-Use Cystoscope Ramp Continues

Precision Optics’ single-use cystoscope program delivered about $2.0 million in Q2, or $1.8 million net of tariffs, marking its sixth straight quarter of record revenue. The program rose from $1.5 million in Q1, reinforcing its status as one of the company’s most important production engines and a central pillar of its growth story.

Ophthalmic Program Shows Rapid Operational Gains

The single-use ophthalmic program has seen striking yield and output improvements, with yields moving from roughly 60% in November to consistently above 90%. Daily production climbed from about six units per day to 20–25, targeting 35, and management expects the next 10,000–15,000 unit order to support $2–3 million of revenue at gross margins above 30%.

Engineering and Product Development Rebound

Engineering revenue reached $1.0 million in Q2, up 47% from $0.7 million in Q1, signaling a rebound in project activity. Bookings for product development hit their highest level in more than a year, suggesting a recovering pipeline, even though revenue in this segment still runs about 29% below last year and profitability remains pressured.

Ross Optical Benefits From Market Recovery

Ross Optical posted more than $1.0 million of revenue for the second consecutive quarter, reflecting a steadily improving market backdrop. The unit enters Q3 with its strongest backlog in over three years, positioning it as a meaningful contributor to future variable-margin upside as orders convert to shipments.

Operational Leadership and Margin Repair Efforts

A new COO and an expanded operations team, in place since October, have stabilized key production lines and increased throughput on a second partial line. Design and supply-chain updates are underway and are expected to materially improve yields and gross margins, supporting management’s goal of returning to positive adjusted EBITDA by Q4, albeit later than first planned.

Severe Gross Margin Compression

Despite record sales, Q2 gross margin slid to just 2.8%, down sharply from 14.2% in Q1 and 23.6% a year earlier. Management cited high scrap, yield shortfalls, tariff pass-through distortions, and underutilized engineering capacity as the main culprits, all of which weighed heavily on profitability in the quarter.

Negative EBITDA and Softer Profit Outlook

Adjusted EBITDA came in at a loss of $1.5 million, worse than the $0.6 million loss a year ago and the $1.2 million loss in Q1, underscoring the impact of margin pressure. The company cut its full-year adjusted EBITDA outlook from a modest profit to a loss of $2.5–3.0 million, with year-to-date adjusted EBITDA already at roughly negative $2.7 million.

Net Loss and Tight Liquidity

The net loss expanded to $1.8 million from $1.0 million in the prior-year quarter, reflecting higher operating strain. Cash stood at about $900,000 with $1.6 million in bank debt at quarter end, and management made clear that near-term financing is needed, pointing investors to an expected expansion of loan facilities in Q3.

Yield and Throughput Issues Weigh on Margins

Cystoscope yields and labor utilization lagged expectations, dragging on gross margins despite rising volumes. Management expects design and supply changes now being implemented to add roughly $150,000–$200,000 of gross profit per quarter at current production rates once fully ramped.

Delayed Margin Recovery and Tariff Noise

Management acknowledged that margin recovery has slipped by about one quarter, pushing sustainable positive adjusted EBITDA into the next fiscal year rather than this year. Tariff pass-through, booked as both revenue and cost of goods sold, also adds volatility and can mask underlying product performance, with reported Q2 revenue of $7.4 million versus about $7.0 million net of tariffs.

Concentration and Engineering Underperformance Risks

A large share of growth is tied to a few high-volume programs, particularly aerospace and cystoscope, leaving Precision Optics exposed to concentration risk if customers or operations stumble. Engineering revenue, though improving sequentially, remains significantly below last year and has been underutilized, contributing to ongoing negative profitability in that segment.

Guidance and Outlook Emphasize Growth Over Near-Term Profits

Management raised full-year FY26 revenue guidance to $26–28 million from $25 million, reflecting stronger-than-expected production demand across aerospace, cystoscope, ophthalmic, and Ross Optical. At the same time, the outlook for adjusted EBITDA was cut to a loss of $2.5–3.0 million, with executives targeting continued operational progress in Q3 and positive adjusted EBITDA in Q4, contingent on successful execution and incremental financing.

Precision Optics’ earnings call painted a story of strong demand and improving operations battling against acute margin pressure and tight liquidity. Investors following the stock will watch closely to see whether the company can convert its robust backlog and program ramps into sustainable profitability next year while managing financing and customer concentration risks.