Optex Systems Holdings, Inc. Announces Period Ended March 28, 2021 Financial Highlights

Rhea-AI Summary

Optex Systems Holdings reported a steep revenue decrease of $2.7 million (38.9%) and $4.1 million (32.1%) for the three and six-month periods ended March 28, 2021, respectively. The gross margin also declined significantly by $1.2 million (76.7%) and $1.9 million (60.7%). Operating income shifted to a loss of $0.4 million for the quarter and $0.3 million for six months. The company attributes these declines to reduced production volume and fixed manufacturing costs. Despite challenges, CEO Danny Schoening expressed optimism for improved margins as revenues rise following cost-reduction measures.

Positive

• Backlog remains stable at $16.0 million, slightly down by 1.8%.
• Cash balance of $3.9 million indicates liquidity for operational needs.
• Implementation of cost-saving initiatives including workforce reductions is expected to improve margins.

Negative

• Revenue declined by $2.7 million (38.9%) and $4.1 million (32.1%) year-over-year.
• Gross margin decreased by $1.2 million (76.7%) and $1.9 million (60.7%) year-over-year.
• Operating income swung to losses of $0.4 million and $0.3 million for three and six months respectively.
• New orders fell from $10.1 million to $8.5 million, indicating reduced demand.

RICHARDSON, TX / ACCESSWIRE / May 7, 2021 / Optex Systems Holdings, Inc. (OTCQB:OPXS), a leading manufacturer of precision optical sighting systems for domestic and worldwide military and commercial applications, announced financial highlights for its three and six-month period ended March 28, 2021.

During the three and six months ended March 28, 2021, revenue decreased from our prior year period by $2.7 million and $4.1 million, or 38.9% and 32.1%, and gross margin decreased from our prior year period by $1.2 million and $1.9 million, or 76.7% and 60.7%, respectively, Operating income for the three and six-month period ended March 28, 2021 decreased by $1.2 million and $1.8 million, to a ($0.4) million and ($0.3) million loss, from income of $0.8 million and $1.5 million during the prior year period, respectively.

The decrease in gross margin and operating profit during the three and six-month periods are primarily attributable to lower revenue and unfavorable manufacturing overhead on reduced production volume. Our operating segments have substantial fixed manufacturing costs that are not easily adjusted as production levels decline. We have implemented several cost-saving initiatives during the first half, including reductions in force and employee compensation combined with decreases in other discretionary spending. We anticipate the margins will improve as revenues increase and the impact of the first half cost reductions are fully realized.

As of March 28, 2021, the Company had working capital of $11.5 million, as compared to $11.7 million as of September 27, 2020. During the six months, we generated operating cash flow of $0.1 million, and spent $0.7 million for the purchase of 374,934 shares against our previously announced stock repurchase plan. We ended the quarter with a strong cash balance of $3.9 million as compared to $4.7 million as of the fiscal year end 2020. As of March 28, 2021, the Company had an outstanding payable balance of $0.4 million against our working line of credit. The line of credit allows for borrowing up to a maximum of $2.25 million. As of March 28, 2021, our outstanding accounts receivable was $2.0 million.

Danny Schoening, CEO of Optex Systems Holdings, Inc., commented, "During this period of reduced activity from our customer base Optex has taken the appropriate actions to correlate spending with sales. Our competitive position remains strong with zero lost sales giving us optimism that the run rates will return to the 2020 levels once the Government has worked through their COVID-19 response actions. The commercial side has already shown strong signs of recovery, so we believe this to be an excellent indicator that the Government side will follow."

Our key performance measures for the three and six-months ended March 28, 2021 and March 29, 2020 are summarized below.

		(Thousands)
						Three months ended																Six months ended
Metric		March 28, 2021				March 29, 2020				% Change				March 28, 2021				March 29, 2020				% Change
Revenue		$	4,246			$	6,947				(38.9	)		$	8,717			$	12,833				(32.1	)
Gross Margin		$	378			$	1,619				(76.7	)		$	1,213			$	3,086				(60.7	)
Gross Margin %			8.9	%			23.3	%			(61.8	)			13.9	%			24.0	%			(42.1	)
Operating Income		$	(414	)		$	781				(153.0	)		$	(335	)		$	1,499				(122.3	)
Gain (Loss) on Change Fair Value of Warrants		$	(169	)		$	1,332				(112.7	)		$	858			$	81				959.3
Net Income (Loss) Applicable to Common Shareholders		$	(602	)		$	1,311				(145.9	)		$	323			$	852				(62.1	)
Adjusted EBITDA (non-GAAP)		$	(292	)		$	871				(133.5	)		$	(93	)		$	1,681				(105.5	)

During the previous twelve months, we have experienced a significant reduction in new orders and ending customer backlog across all but one of our product lines. We attribute the lower orders to a combination of factors including a COVID-19 driven slow-down of contract awards for both U.S. military sales and foreign military sales (FMS), combined with some shifting in defense spending budget allocations in US military sales and FMS away from Army ground system vehicles toward other military agency applications. Due to the significant level of uncertainty surrounding the pandemic and its impact to our customers and the defense supply chain, we are unable to ascertain the impact further delays in contract awards and customer orders may have on our total fiscal year 2021 revenues but are anticipating an annual reduction in the range of 26-32% compared to fiscal year 2020 revenues. We have experienced a recent increase in proposal requests, and anticipate an increase in orders over the next six to twelve months, however the timing and nature of new orders in the near term cannot be determined. Any continued delays in customer orders over the next three months could further impact our total fiscal year 2021 revenue and profitability during the second half. We are reviewing additional cost reductions during the next sixty to ninety days as required to further minimize the impact of any sustained delays in customer orders beyond the first six months of fiscal year 2021.

Backlog as of March 28, 2021 was $16.0 million as compared to a backlog of $16.3 million as of September 27, 2020, representing a decrease of 1.8%. During the six months ended March 28, 2021 the Company booked $8.5 million in new orders as compared to $10.1 million during the six months ended March 29, 2020. On January 11, 2021, the Company announced a contract for Laser Protected Periscopes for a base period of three years plus two one-year option years, not to exceed $14.4 million pursuant to an Indefinite Delivery - Indefinite Quantity (IDIQ) contract. We anticipate additional periscope contracts in addition to task order awards against our existing nine active IDIQ contracts for delivery in 2021 and beyond.

		(millions)
		March 28, 2021				September 27, 2020				%Change
Backlog as of period end		$	16.0			$	16.3				(1.8									)

We use adjusted earnings before interest, taxes, gains/losses on changes in fair values, depreciation and amortization (EBITDA) as an additional measure for evaluating the performance of our business as "net income" includes the significant impact of non-cash valuation gains and losses on warrant liabilities, noncash compensation expenses related to equity stock issuances, as well as depreciation, amortization, interest expenses and federal income taxes. We believe that adjusted EBITDA is a meaningful indicator of our operating performance because it permits period-over-period comparisons of our ongoing core operations before certain excluded items. Adjusted EBITDA is a financial measure not required by, or presented in accordance with, U.S. generally accepted accounting principles ("GAAP").

The table below summarizes our three and six-month operating results for periods ended March 28, 2021 and March 29, 2020, in terms of both the GAAP net income measure and the non-GAAP adjusted EBITDA measure. We believe that including both measures provides information that is useful in evaluating our financial results across periods.

		(Thousands)
		Three months ended								Six months ended
		March 28, 2021				March 29, 2020				March 28, 2021				March 29, 2020
Net Income (Loss) (GAAP)			(602	)			1,944				485				1,265
Add:
Loss (Gain) on Change in Fair Value of Warrants			169				(1,332	)			(858	)			(81	)
Federal Income Tax Expense			17				163				33				304
Depreciation			65				59				128				125
Stock Compensation			57				31				114				57
Interest Expense			2				6				5				11
Adjusted EBITDA - Non-GAAP			(292)				871				(93)				1,681

Our adjusted EBITDA decreased by $1.2 million and $1.8 million, to a loss of ($0.3) million and ($0.1) million during the three and six-months ended March 28, 2021, as compared income of $0.9 million and $1.7 million during the three and six-months ended March 29, 2020. The decrease in EBITDA is primarily driven by decreased revenue and gross margin.

Highlights of the unaudited Condensed 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 period ended March 28, 2021 filed with the SEC on May 7, 2021, and our Annual Report on Form 10-K for the year ended September 27, 2020 filed with the SEC on December 17, 2020.

Optex Systems Holdings, Inc.
Condensed Consolidated Statements of Operations

		(Thousands, except share and per share data)
		Three months ended								Six months ended
		March 28, 2021				March 29, 2020				March 28, 2021				March 29, 2020
Revenue		$	4,246			$	6,947			$	8,717			$	12,833
Cost of Sales			3,868				5,328				7,504				9,747
Gross Margin			378				1,619				1,213				3,086
General and Administrative Expense			792				838				1,548				1,587
Operating Income (Loss)			(414)				781				(335)				1,499
Gain (Loss) on Change in Fair Value of Warrants			(169	)			1,332				858				81
Interest Expense			(2	)			(6	)			(5	)			(11	)
Other Income (Expense)			(171)				1,326				853				70
Income (Loss) Before Taxes			(585)				2,107				518				1,569
Income Tax Expense, net		$	17			$	163				33				304
Net Income (Loss)		$	(602)			$	1,944			$	485			$	1,265
Deemed dividends on participating securities			-				(633	)			(162	)			(413	)
Net income (loss) applicable to common shareholders		$	(602)			$	1,311			$	323			$	852
Basic income (loss) per share		$	(0.07)			$	0.15			$	0.04			$	0.10
Weighted Average Common Shares Outstanding - basic			8,214,481				8,549,437				8,256,879				8,522,653
Diluted income (loss) per share		$	(0.07)			$	0.15			$	0.04			$	0.10
Weighted Average Common Shares Outstanding - diluted			8,214,481				8,604,446				8,369,763				8,607,460

The accompanying notes in our Quarterly Report on Form 10-Q for the period ended March 28, 2021 filed with the SEC on May 7, 2021 are an integral part of these financial statements.

Optex Systems Holdings, Inc.
Condensed Consolidated Balance Sheets

		(Thousands, except share and per share data)
		March 28, 2021 (Unaudited)				September 27, 2020
ASSETS
Cash and Cash Equivalents		$	3,880			$	4,700
Accounts Receivable, Net			2,031				2,953
Inventory, Net			8,993				8,791
Prepaid Expenses			158				229
Current Assets			15,062				16,673
Property and Equipment, Net			1,005				1,006
Other Assets
Deferred Tax Asset			1,195				1,227
Right-of-use Asset			3,842				1,416
Security Deposits			23				23
Other Assets			5,060				2,666
Total Assets		$	21,127			$	20,345
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable		$	537			$	833
Operating Lease Liability			477				417
Accrued Expenses			812				1,077
Warrant Liability			1,686				2,544
Accrued Warranty Costs			63				83
Customer Advance Deposits			-				1
Current Liabilities			3,575				4,955
Other Liabilities
Credit Facility - Long Term			377				377
Operating Lease Liability, net of current portion			3,374				1,037
Other Liabilities			3,751				1,414
Total Liabilities			7,326				6,369
Commitments and Contingencies
Stockholders' Equity
Common Stock - ($0.001 par, 2,000,000,000 authorized, 8,854,261 and 8,795,869 shares issued, and 8,373,594 and 8,690,136 outstanding, respectively)			9				9
Treasury Stock (at cost, 480,667 shares and 105,733 shares held, respectively)			(930	)			(200	)
Additional Paid in capital			26,346				26,276
Accumulated Deficit			(11,624	)			(12,109	)
Stockholders' Equity			13,801				13,976
Total Liabilities and Stockholders' Equity		$	21,127			$	20,345

The accompanying notes in our Quarterly Report on Form 10-Q for the period ended March 28, 2021 filed with the SEC on May 7, 2021 are an integral part of these financial statements.

ABOUT OPTEX SYSTEMS

Optex, which was founded in 1987, is a Richardson, Texas based ISO 9001:2015 certified concern, which manufactures optical sighting systems and assemblies, primarily for Department of Defense (DOD) applications. Its products are installed on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, Light Armored and Armored Security Vehicles, and have been selected for installation on the Stryker family of vehicles. Optex also manufactures and delivers numerous periscope configurations, rifle and surveillance sights, and night vision optical assemblies. Optex delivers its products both directly to the military services and to prime contractors. For additional information, please visit the Company's website at www.optexsys.com.

Safe Harbor Statement

This press release contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including those relating to the products and services described herein. You can identify these statements by the use of the words "may," "will," "could," "should," "would," "plans," "expects," "anticipates," "continue," "estimate," "project," "intend," "likely," "forecast," "probable," and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, continued funding of defense programs and military spending, the timing of such funding, general economic and business conditions, including unforeseen weakness in the Company's markets, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in the U.S. Government's interpretation of federal procurement rules and regulations, changes in spending due to policy changes in any new federal presidential administration, market acceptance of the Company's products, shortages in components, production delays due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions and restructurings or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, changes to export regulations, increases in tax rates, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, unanticipated costs under fixed-price service and system integration engagements, changes in the market for microcap stocks regardless of growth and value and various other factors beyond our control.

You must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. You should carefully evaluate such statements in light of factors described in the Company's filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In various filings the Company has identified important factors that could cause actual results to differ from expected or historic results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.

Contact:
IR@optexsys.com
1-972-764-5718

SOURCE: Optex Systems Holdings, Inc.

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FAQ

What were Optex Systems' revenue results for the three months ended March 28, 2021?

Optex Systems reported revenue of $4.246 million, a 38.9% decrease from the previous year's $6.947 million.

What is the current backlog for Optex Systems as of March 28, 2021?

The backlog stood at $16.0 million, a slight decrease of 1.8% from $16.3 million as of September 27, 2020.

How did Optex Systems' operating income change in the latest report?

The company reported an operating loss of $0.4 million for the three-month period, down from a gain of $0.8 million the previous year.

What cost-saving measures has Optex Systems implemented recently?

Optex has enacted workforce reductions and cut discretionary spending to align costs with lower sales volumes.

What outlook did Optex Systems' CEO provide regarding future orders?

CEO Danny Schoening indicated optimism for recovering sales as they anticipate increased orders in the next six to twelve months.