Optex Systems Holdings, Inc. Announces Financial Highlights for the Three Months Ended December 31, 2023

Rhea-AI Summary

Optex Systems Holdings, Inc. (OPXS) reports strong financial results for the three months ended December 31, 2023, with significant revenue and gross profit increases. The company's operating income improved, and it maintained a healthy working capital. Despite a decrease in new orders, the backlog increased, indicating future growth potential. The acquisition of intellectual property and agreements with RUB Aluminium s.r.o. further enhance the company's capabilities.

Positive

• Significant revenue and gross profit increases for the three months ended December 31, 2023.
• Operating income improved from the previous year.
• Working capital remained healthy at $13.0 million.
• Backlog increased to $45.0 million, showing growth potential.
• Acquisition of intellectual property and agreements with RUB Aluminium s.r.o. enhance capabilities.

Negative

• None.

Insights

Financial Analyst

The financial results reported by Optex Systems Holdings, Inc. indicate a robust increase in total revenues and gross profit, with a significant shift from an operating loss to operating income. The 72.5% revenue growth and 134.9% rise in gross profit compared to the previous year highlight a strong period of performance, likely reflecting successful management of supply chain issues and effective backlog execution. The company's ability to increase fixed cost absorption through higher production volumes suggests improved operational efficiency, which is a positive sign for investors.

The reported increase in working capital, despite a slight decrease from the previous quarter, combined with the generation of operating cash and repayment of credit line obligations, demonstrates a healthy liquidity position. However, the decline in new orders may raise concerns about future revenue sustainability. The acquisition of intellectual property and technical information could represent strategic expansion, but the impact on the company's financials would depend on the successful integration and realization of the defined milestones associated with the additional cash payments.

Market Research Analyst

Optex Systems Holdings' performance in the precision optical sighting systems market is notable, with a backlog increase of 12.2% suggesting a strong demand for their products. This backlog, along with the reported increase in inventory to support new program awards, indicates that the company is anticipating continued revenue growth in the near term. The military and commercial applications sectors are likely contributing to the sustained demand.

While the company's growth is impressive, the decrease in new orders could indicate a potential slowdown or increased competition in the market. The acquisition of the Speedtracker Mach product line and subsequent agreement with RUB Aluminium s.r.o. may be an attempt to diversify the product portfolio and enter new market segments, which could help mitigate the risks associated with the decline in new orders. The market will be watching closely to see how these strategic moves play out.

Legal Expert

The acquisition of assets related to the Speedtracker Mach product line and the contract manufacturing agreement with RUB Aluminium s.r.o. are significant legal undertakings that could have substantial implications for Optex Systems Holdings' future operations. It is essential to consider the terms of the asset purchase agreement and the contract manufacturing agreement, as these will define the scope of the relationship between the parties, the responsibilities and the potential liabilities involved.

Furthermore, the contingent nature of additional future cash payments based on milestone completions introduces elements of performance-based contracting that require careful monitoring and legal oversight to ensure compliance and to manage expectations of both parties. The legal structure of these agreements can significantly affect the financial health of the company depending on the successful fulfillment of the milestones and the management of intellectual property rights.

RICHARDSON, TX / ACCESSWIRE / February 12, 2024 / Optex Systems Holdings, Inc. (Nasdaq:OPXS), a leading manufacturer of precision optical sighting systems for domestic and worldwide military and commercial applications, announced financial results for the three months ended December 31, 2023.

Danny Schoening, CEO of Optex Systems Holdings, Inc., commented, "We are off to a great start in 2024. Our results clearly show that the supply chain is strengthening and we are successfully executing on the historically high backlog. Demand remains high as Optex and our customers continue to achieve wins in the marketplace. The future is very exciting."

For the three months ended December 31, 2023, our total revenues increased by $2.9 million, or 72.5%, compared to the prior year three-month period. The Optex Systems segment realized a $1.8 million, or 109.6% increase, and the Applied Optics Center segment realized an increase of $1.2 million, or 47.6%, in external revenue compared to the prior year three-month period.

Gross profit increased $1.0 million, or 134.9%, from $0.7 million for the three months ended January 1, 2023 to $1.7 million in the three months ended December 31, 2024. Optex Systems gross profit increased by $0.4 million and the Applied Optics Center gross profit increased by $0.6 million. The increase is primarily due to higher revenue combined with higher fixed cost absorption at both the Applied Optics Center and Optex Richardson segments related to increased production volume.

For the three months ended December 31, 2023, we recorded operating income of $0.6 million as compared to an operating loss of $0.3 million during the three months ended January 1, 2023. The $0.8 million increase in operating income is primarily due to higher revenue and gross profit, partially offset by increased general and administrative expenses.

As of December 31, 2023, Optex Systems Holdings had working capital of $13.0 million, as compared to $13.5 million as of October 1, 2023. During the three months ended December 31, 2023, we generated operating cash of $2.3 million, paid $1.0 million against our line of credit and spent $0.1 million on acquisitions of property and equipment. During the period, our inventory increased $0.5 million in support of new program awards and increasing revenues anticipated over the next nine months.

At December 31, 2023, the Company had $2.4 million in cash and an outstanding payable balance of zero against its line of credit. At December 31, 2023, our outstanding accounts receivable balance was $2.4 million.

Our key performance measures for the three months ended December 31, 2023 and January 1, 2023 are summarized below.

		(Thousands) Three months ended
Metric		December 31, 2023				January 1, 2023				% Change
Revenue		$	6,968			$	4,040				72.5
Gross Profit		$	1,684			$	717				134.9
Gross Margin %			24.2	%			17.7	%			36.7
Operating Income (Loss)		$	553			$	(282	)			-
Net Income (Loss)		$	431			$	(223	)			-
Adjusted EBITDA (non-GAAP)		$	758			$	(166	)			-

During the three months ended December 31, 2023, the Company booked $10.1 million in new orders, representing a 9.8% decrease over the prior year period orders of $11.2 million. The orders for the most recently completed three months consist of $6.2 million for our Optex Richardson segment and $3.9 million attributable to the Applied Optics Center segment.

Backlog as of December 31, 2023 was $45.0 million as compared to backlog of $40.1 million as of January 1, 2023 and $41.8 million as of October 1, 2023, representing an increase of 12.2% and 7.7%, respectively.

The table below summarizes our three-month operating results for the periods ended December 31, 2023 and January 1, 2023, in terms of both the GAAP net income measure and the non-GAAP Adjusted EBITDA measure. We believe that including both measures allows the reader to better evaluate our overall performance.

		(Thousands) Three months ended
		December 31, 2023				January 1, 2023
Net Income (Loss) (GAAP)		$	431			$	(223	)
Add:
Depreciation and Amortization			92				81
Federal Income Tax Expense (Benefit)			115				(59	)
Stock Compensation			113				35
Interest Expense			7				-
Adjusted EBITDA - Non GAAP		$	758			$	(166	)

Adjusted EBITDA has limitations and should not be considered in isolation or a substitute for performance measures calculated under GAAP. This non-GAAP measure excludes certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate Adjusted EBITDA differently than we do or may not calculate it at all, which limits the usefulness of Adjusted EBITDA as a comparative measure.

During the three months ended December 31, 2023, we recorded net income of $0.4 million as compared to a net loss of $0.2 million during the three months ended January 1, 2023. The increase in net income of $0.7 million is primarily attributable to the increase in operating profit, partially offset by an increase in federal income tax expense of $0.2 million over the prior year period.

Our Adjusted EBITDA increased by $0.9 million to $0.8 million during the three months ended December 31, 2023 as compared to ($0.2) million during the three months ended January 1, 2023. The increase in EBITDA is primarily driven by increased revenue and operating profit during the current year three-month period as compared to the prior year three-month period.

Highlights of the Consolidated and Segment Results of Operations have been prepared in accordance with GAAP. These financial highlights do not include all information and disclosures required in the consolidated financial statements and footnotes and should be read in conjunction with our Quarterly Report on Form 10-Q for the three months ended December 31, 2023 filed with the SEC on February 12, 2024.

Subsequent to the end of the quarter, on January 18, 2024, the Company acquired certain intellectual property and technical and marketing information relating to the Speedtracker Mach product line and entered into an asset purchase agreement and a contract manufacturing agreement with RUB Aluminium s.r.o. ("RUB"). The Company acquired the assets using $1 million cash on hand, with potential additional future cash payments based on successful completion of defined milestones. The initial term of the contract manufacturing agreement is one year, subject to additional one-year renewal terms.

Optex Systems Holdings, Inc.
Condensed Consolidated Balance Sheets

		(Thousands, except share and per share data)
		December 31, 2023 (Unaudited)				October 1, 2023
ASSETS
Cash and Cash Equivalents		$	2,373			$	1,204
Accounts Receivable, Net			2,430				3,624
Inventory, Net			12,685				12,153
Contract Asset			258				336
Prepaid Expenses			154				219
Current Assets			17,900				17,536
Property and Equipment, Net			964				998
Other Assets
Deferred Tax Asset			887				922
Right-of-use Asset			2,615				2,740
Security Deposits			23				23
Other Assets			3,525				3,685
Total Assets		$	22,389			$	22,219
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable		$	1,796			$	810
Operating Lease Liability			625				620
Federal Income Taxes Payable			326				247
Accrued Expenses			992				1,265
Accrued Selling Expense			280				336
Accrued Warranty Costs			48				75
Contract Loss Reserves			308				243
Customer Advance Deposits			481				481
Current Liabilities			4,856				4,077
Other Liabilities
Credit Facility			-				1,000
Operating Lease Liability, net of current portion			2,156				2,282
Other Liabilities			2,156				3,282
Total Liabilities			7,012				7,359
Commitments and Contingencies			-
Stockholders' Equity
Common Stock - ($0.001 par, 2,000,000,000 authorized, 6,823,693 and 6,763,070 shares issued and outstanding, respectively)			7				7
Additional Paid in Capital			21,371				21,285
Accumulated Deficit			(6,001	)			(6,432
Stockholders' Equity			15,377				14,860
Total Liabilities and Stockholders' Equity		$	22,389			$	22,219

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FAQ

What were Optex Systems Holdings, Inc.'s total revenues for the three months ended December 31, 2023?

Optex Systems Holdings, Inc.'s total revenues for the three months ended December 31, 2023, were $6,968 thousand.

What was the percentage change in gross profit for Optex Systems Holdings, Inc. for the three months ended December 31, 2023, compared to the previous year?

The gross profit for Optex Systems Holdings, Inc. increased by 134.9% for the three months ended December 31, 2023, compared to the previous year.

What was the operating income recorded by Optex Systems Holdings, Inc. for the three months ended December 31, 2023?

Optex Systems Holdings, Inc. recorded operating income of $0.6 million for the three months ended December 31, 2023.

What was the working capital of Optex Systems Holdings, Inc. as of December 31, 2023?

Optex Systems Holdings, Inc. had working capital of $13.0 million as of December 31, 2023.

What was the backlog amount for Optex Systems Holdings, Inc. as of December 31, 2023?

The backlog for Optex Systems Holdings, Inc. was $45.0 million as of December 31, 2023.

What did Optex Systems Holdings, Inc. acquire subsequent to the end of the quarter on January 18, 2024?

Subsequent to the end of the quarter, on January 18, 2024, Optex Systems Holdings, Inc. acquired certain intellectual property and entered into agreements with RUB Aluminium s.r.o.