Core Viewpoint - Optex Systems Holdings, Inc. experienced a decline in share price of 8.5% following its earnings report for the quarter ended June 29, 2025, contrasting with a 1.2% gain in the S&P 500 index during the same period [1] Financial Performance - The company reported earnings per share of 22 cents, an increase from 18 cents in the prior-year quarter [1] - Revenues reached $11.1 million, reflecting a 22.6% increase from $9.1 million a year earlier [2] - Net income was $1.5 million, up 19.7% from $1.3 million in the same quarter last year [2] - Operating income rose 18.3% year over year to $1.9 million [2] Key Business Metrics - Gross profit for the quarter was $3.2 million, a 10% increase from the prior-year quarter, although gross margin decreased to 28.5% from 31.8% due to changes in product mix and cost dynamics [3] - Adjusted EBITDA increased by 15.7% to $2.1 million [3] Working Capital and Cash Flow - Working capital was reported at $19.4 million, up from $15.1 million at the end of fiscal 2024 [4] - Operating cash flow for the first nine months was $5.4 million, supported by improved net income and favorable working capital adjustments [4] - Cash on hand was $4.9 million at the quarter's close, with no outstanding borrowings on the revolving credit line [4] - Accounts receivable totaled $4.1 million, expected to be collected in the fourth quarter [4] Management Commentary - CEO Danny Schoening described the quarter as "record-breaking" for revenues, highlighting the company's commitment to operational excellence and customer support [5] - The CEO credited new program wins in both domestic and international markets as evidence of Optex's growing industry presence [5] - Management emphasized a focus on sustaining growth momentum through continued investment in innovation and customer value creation [5] Factors Influencing Results - Revenue growth was driven by higher periscope production at the Richardson, TX facility and increased customer demand across both Optex Richardson and Applied Optics segments [6] - The decline in gross margin was primarily due to product mix changes, partially offset by volume-driven profit gains [6] - The company sources most of its defense products domestically, which mitigates risks from tariffs or supply chain disruptions [6] Backlog and Future Orders - The backlog stood at $38.3 million at quarter-end, down 16% year over year, but subsequent contract wins increased it to $45 million as of August 5, 2025 [7] - New contracts included a $10.2 million five-year contract for optical sighting systems, a $2.8 million order for the XM30 program, and a $1.6 million order for laser filters [7] Other Developments - The company's new awards during the reported quarter expanded its footprint in domestic and international defense markets, supporting revenue visibility in future periods [8]

Company Overview - Optex Systems Holdings, Inc. is a leading manufacturer of precision optical sighting systems for military and commercial applications, founded in 1987 and based in Richardson, Texas [3] - The company is ISO 9001:2015 certified and primarily serves the Department of Defense (DOD) [3] - Optex's products are utilized in various U.S. military land vehicles, including the Abrams and Bradley fighting vehicles, and the Stryker family of vehicles [3] Upcoming Conference - Optex Systems is scheduled to present at the 2025 Annual Gateway Conference on September 4 at 11:30 a.m. Pacific Time [2] - The presentation will be webcast live and available for replay, with executives available for one-on-one meetings throughout the conference [2] Conference Details - The Gateway Conference provides a platform for public and private companies to connect with investors, analysts, and partners [4] - Attendees will have access to presentations and one-on-one meetings with senior executives from over 75 companies across various sectors, including technology, healthcare, and financial services [5]

PART I— FINANCIAL INFORMATION [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' equity, along with detailed notes explaining the company's organization, accounting policies, segment performance, commitments, debt, stock-based compensation, asset acquisitions, and subsequent events. The financial statements show significant growth in revenue, net income, and cash from operations for the nine months ended June 29, 2025 [Condensed Consolidated Balance Sheets](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The balance sheets reflect significant increases in cash and stockholders' equity, alongside a decrease in total liabilities | Metric | June 29, 2025 (Thousands) | September 29, 2024 (Thousands) | Change (Thousands) | % Change | | :-------------------------- | :-------------------------- | :----------------------------- | :----------------- | :------- | | Cash and Cash Equivalents | $4,871 | $1,009 | $3,862 | 382.8% | | Total Assets | $29,180 | $25,518 | $3,662 | 14.4% | | Total Liabilities | $6,046 | $6,710 | ($664) | (9.9)% | | Stockholders' Equity | $23,134 | $18,808 | $4,326 | 23.0% | | Retained Earnings (Accumulated Deficit) | $1,458 | ($2,664) | $4,122 | N/A | [Condensed Consolidated Statements of Operations](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The statements of operations show strong revenue and net income growth for both the three and nine months ended June 29, 2025 | Metric | Three months ended June 29, 2025 (Thousands) | Three months ended June 30, 2024 (Thousands) | % Change | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :------- | | Revenue | $11,110 | $9,060 | 22.6% | | Gross Profit | $3,168 | $2,881 | 10.0% | | Operating Income | $1,911 | $1,615 | 18.3% | | Net Income | $1,510 | $1,261 | 19.7% | | Basic income per share | $0.22 | $0.19 | 15.8% | | Diluted income per share | $0.22 | $0.18 | 22.2% | | Metric | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | % Change | | :-------------------- | :-------------------------------------- | :-------------------------------------- | :------- | | Revenue | $30,038 | $24,552 | 22.3% | | Gross Profit | $8,658 | $7,122 | 21.6% | | Operating Income | $5,065 | $3,523 | 43.8% | | Net Income | $4,122 | $2,754 | 49.7% | | Basic income per share | $0.60 | $0.41 | 46.3% | | Diluted income per share | $0.60 | $0.40 | 50.0% | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The cash flow statements indicate a substantial increase in net cash provided by operating activities and a significant rise in cash and cash equivalents | Cash Flow Activity | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | Change (Thousands) | % Change | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------- | :------- | | Net Cash provided by Operating Activities | $5,368 | $1,028 | $4,340 | 422.2% | | Net Cash used in Investing Activities | ($463) | ($1,503) | $1,040 | (69.2)% | | Net Cash used in Financing Activities | ($1,043) | ($243) | ($800) | 329.2% | | Net Increase (Decrease) in Cash and Cash Equivalents | $3,862 | ($718) | $4,580 | N/A | | Cash and Cash Equivalents at End of Period | $4,871 | $486 | $4,385 | 902.3% | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) The statements of stockholders' equity detail changes in total equity, retained earnings, and additional paid-in capital | Metric | June 29, 2025 (Thousands) | September 29, 2024 (Thousands) | Change (Thousands) | | :-------------------------- | :-------------------------- | :----------------------------- | :----------------- | | Total Stockholders' Equity | $23,134 | $18,808 | $4,326 | | Retained Earnings (Accumulated Deficit) | $1,458 | ($2,664) | $4,122 | | Additional Paid in Capital | $21,669 | $21,465 | $204 | - The company issued **16,181 shares** for vesting of restricted stock units and restricted shares during the three and nine months ended June 29, 2025[95](index=95&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENT%20FOOTNOTES) These notes provide essential details on the company's organization, accounting policies, segment performance, and other financial commitments [Note 1 - Organization and Operations](index=9&type=section&id=Note%201%20-%20Organization%20and%20Operations) This note describes the company's primary business, customer base, and revenue sources - Optex Systems Holdings manufactures optical sighting systems and assemblies primarily for the U.S. Department of Defense, foreign military applications, and commercial markets[20](index=20&type=chunk) - For the nine months ended June 29, 2025, **94% of total revenue** was from domestic customers and **6%** from foreign customers (Canada and Israel)[20](index=20&type=chunk) - The company's revenue sources include the U.S. government (**32%**), four major U.S. defense contractors (**18%**, **7%**, **6%**, **5%**), and other customers (**32%**)[20](index=20&type=chunk) [Note 2 - Accounting Policies](index=9&type=section&id=Note%202%20-%20Accounting%20Policies) This note outlines the company's significant accounting policies, including inventory, accounts receivable, and various liabilities | Inventory Component | June 29, 2025 (Thousands) | September 29, 2024 (Thousands) | | :------------------ | :-------------------------- | :----------------------------- | | Raw Material | $7,536 | $9,460 | | Work in Process | $7,577 | $5,954 | | Finished Goods | $466 | $556 | | Gross Inventory | $15,579 | $15,970 | | Less: Inventory Reserves | ($1,065) | ($1,107) | | Net Inventory | $14,514 | $14,863 | - Accounts receivable as of June 29, 2025, are concentrated with U.S. government agencies (**17%**) and five major U.S. defense contractors (**26%**, **14%**, **13%**, **5%**, and **5%**)[25](index=25&type=chunk) | Metric | June 29, 2025 (Thousands) | September 29, 2024 (Thousands) | | :-------------------- | :-------------------------- | :----------------------------- | | Accrued Warranty Liability | $173 | $52 | | Contract Loss Reserves | $423 | $259 | | Deferred Tax Asset (Net) | $852 | $947 | | Service Contract Revenue | Three months ended June 29, 2025 (Thousands) | Three months ended June 30, 2024 (Thousands) | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | | :----------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Service Contract Revenue | $133 | $126 | $385 | $357 | [Note 3 - Segment Reporting](index=12&type=section&id=Note%203%20-%20Segment%20Reporting) This note details the company's two reportable segments, their operational differences, and revenue contributions - The company operates two reportable segments: Optex Richardson and Applied Optics Center (AOC), managed separately due to differences in manufacturing technology, equipment, and product mix[40](index=40&type=chunk) | Segment | Nine months ended June 29, 2025 External Revenue (Thousands) | % of Total Consolidated Revenue | | :-------------------- | :--------------------------------------------------- | :------------------------------ | | Optex Richardson | $16,572 | 55% | | Applied Optics Center | $13,466 | 45% | - Optex Richardson's external segment revenue for the nine months ended June 29, 2025, was approximately **89% domestic military** and **11% foreign military**[42](index=42&type=chunk) - Applied Optics Center's external segment revenue for the nine months ended June 29, 2025, was approximately **89% military** and **11% commercial**[44](index=44&type=chunk) [Note 4 - Commitments and Contingencies](index=15&type=section&id=Note%204%20-%20Commitments%20and%20Contingencies) This note describes the company's lease obligations and other potential liabilities - The company leases its office and manufacturing facilities for both Optex Richardson and Applied Optics Center locations, with leases extending to May 2028 and December 2028, respectively[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) | Metric | June 29, 2025 (Thousands) | | :-------------------------- | :-------------------------- | | Total Operating Lease Liability | $1,991 | | Short-term portion | $645 | | Long-term portion | $1,346 | | Right-of-use Asset | $1,836 | | Lease Expense | Three months ended June 29, 2025 (Thousands) | Three months ended June 30, 2024 (Thousands) | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | | :-------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Facility Leases | $233 | $223 | $703 | $681 | | Office Equipment | $6 | $6 | $20 | $19 | [Note 5 - Debt Financing](index=16&type=section&id=Note%205%20-%20Debt%20Financing) This note provides information on the company's revolving credit facility and outstanding debt balances - The company renewed its **$3 million** revolving credit facility with Texas Capital Bank, extending the commitment period to May 22, 2027[65](index=65&type=chunk) - The outstanding balance under the Texas Capital Facility was **zero** as of June 29, 2025, compared to **$1.0 million** as of September 29, 2024[67](index=67&type=chunk) - The interest rate on advances is a variable rate equal to SOFR plus a specified margin, currently **7.10% per annum**[65](index=65&type=chunk) [Note 6 - Stock Based Compensation](index=16&type=section&id=Note%206%20-%20Stock%20Based%20Compensation) This note details the company's stock-based compensation plans, outstanding awards, and related expenses - As of June 29, 2025, there were **75,000 unvested restricted stock units** and **22,800 unvested restricted shares** outstanding[75](index=75&type=chunk)[78](index=78&type=chunk) - All performance shares granted on May 3, 2023, to the CEO and CFO have fully vested as of June 29, 2025[83](index=83&type=chunk) | Stock Compensation Expense | Three months ended June 29, 2025 (Thousands) | Three months ended June 30, 2024 (Thousands) | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | | :------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total Stock Compensation | $83 | $90 | $247 | $360 | [Note 7 - Asset Purchase of Intellectual Property](index=20&type=section&id=Note%207%20-%20Asset%20Purchase%20of%20Intellectual%20Property) This note describes the acquisition of intellectual property and its impact on intangible assets - On January 18, 2024, the company acquired intellectual property for the Speedtracker Mach product line for **$1 million cash**[87](index=87&type=chunk) - The company decided to move the manufacturing operations for Speedtracker Mach products in-house, discontinuing orders for assembled units from RUB Aluminium s.r.o[87](index=87&type=chunk)[155](index=155&type=chunk) - The potential earnout payment of **$238 thousand** was deemed unachievable as of September 29, 2024, and its fair value was set to **zero**[88](index=88&type=chunk)[156](index=156&type=chunk) | Intangible Assets | June 29, 2025 (Thousands) | September 29, 2024 (Thousands) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Intangible Assets – Intellectual Property Acquisition | $1,030 | $1,030 | | Software App Development | $30 | $20 | | Amortization of Intangible Assets | ($215) | ($99) | | Net Intangible Assets | $845 | $951 | [Note 8 - Stockholders' Equity](index=21&type=section&id=Note%208%20-%20Stockholders'%20Equity) This note provides details on changes in common shares outstanding and dividend policies - No dividends were declared or paid during the three and nine months ended June 29, 2025, or the twelve months ended September 29, 2024[92](index=92&type=chunk) - Total outstanding common shares increased to **6,912,919** as of June 29, 2025, from **6,873,938** as of September 29, 2024[96](index=96&type=chunk) [Note 9 - Subsequent Events](index=22&type=section&id=Note%209%20-%20Subsequent%20Events) This note reports significant events occurring after the balance sheet date, including executive appointments - Effective August 10, 2025, the Board amended the company's Bylaws to create a new Chief Executive Officer position, allowing for separate CEO and President roles[97](index=97&type=chunk) - Effective August 11, 2025, Chad George was appointed as the new President, while Danny Schoening continues as Chairman and Chief Executive Officer[98](index=98&type=chunk) - Mr. George's employment agreement includes an initial annual base salary of **$300,000**, eligibility for a performance bonus, and a grant of **10,000 restricted shares** vesting on January 1, 2026[99](index=99&type=chunk)[100](index=100&type=chunk)[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, liquidity, and capital resources. It highlights significant increases in revenue, net income, and Adjusted EBITDA, driven by increased customer demand and improved production. Challenges include commodity cost increases and past supply chain issues, but the company is actively managing these. New orders and backlog have seen some fluctuations, with a decrease in overall orders but strategic new contract awards. The company maintains a strong liquidity position and has renewed its credit facility [Cautionary Note Regarding Forward-Looking Information](index=23&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Information) This note advises readers about forward-looking statements, their inherent risks, and uncertainties that could affect actual results - The report contains forward-looking statements about future events, including growth strategy, financial performance, orders, and product development[107](index=107&type=chunk) - These statements involve risks and uncertainties, such as defense funding, economic conditions, competition, supply chain challenges, and integration of acquisitions, which could cause actual results to differ materially[108](index=108&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements and are advised to review the 'Risk Factors' section in the Annual Report on Form 10-K[108](index=108&type=chunk)[109](index=109&type=chunk) [Background](index=24&type=section&id=Background) This section provides an overview of Optex Systems' core business, its primary customers, and the regulatory environment for its contracts - Optex Systems, Inc. manufactures optical sighting systems and assemblies primarily for the Department of Defense, serving as both a prime and sub-prime contractor[110](index=110&type=chunk) - Products are installed on U.S. military land vehicles (e.g., Abrams, Bradley, Stryker) and supplied to foreign governments (e.g., Israel, Australia)[110](index=110&type=chunk)[111](index=111&type=chunk) - Contracts are subject to Federal Acquisition Regulation (FAR) clauses, including those for termination for convenience or default[113](index=113&type=chunk)[114](index=114&type=chunk) [Material Trends and Recent Developments](index=24&type=section&id=Material%20Trends%20and%20Recent%20Developments) This section discusses key operational trends, including commodity cost impacts, past supply chain issues, and improvements in production levels - Increased costs of aluminum, steel, and acrylic commodities since 2021 have negatively affected Optex Richardson segment margins for older fixed-price contracts, with impacts expected through **Q1 2026**[115](index=115&type=chunk) - Past material and labor shortages in fiscal year 2023 and early 2024 impacted periscope production and delivery dates[116](index=116&type=chunk) - Periscope production levels increased by **74%** in the first nine months of fiscal year 2025 compared to the prior year, due to improvements in supplier performance and increased labor force[117](index=117&type=chunk) - The company does not anticipate significant material risks from recent tariff uncertainties, as defense products are primarily domestically sourced or duty-free[118](index=118&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, gross profit, operating income, and net income trends [Non-GAAP Adjusted EBITDA](index=25&type=section&id=Non-GAAP%20Adjusted%20EBITDA) This section presents Adjusted EBITDA as a non-GAAP measure to evaluate business performance, excluding specific non-cash and financing items - Adjusted EBITDA is used as a supplemental measure to evaluate business performance, excluding non-cash compensation, depreciation, amortization, interest, and taxes[120](index=120&type=chunk) | Metric | Three months ended June 29, 2025 (Thousands) | Three months ended June 30, 2024 (Thousands) | % Change | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :------- | | Net Income (GAAP) | $1,510 | $1,261 | 19.7% | | Adjusted EBITDA (Non-GAAP) | $2,125 | $1,837 | 15.7% | | Metric | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | % Change | | :-------------------- | :-------------------------------------- | :-------------------------------------- | :------- | | Net Income (GAAP) | $4,122 | $2,754 | 49.7% | | Adjusted EBITDA (Non-GAAP) | $5,698 | $4,224 | 34.9% | [Selective Financial Information](index=26&type=section&id=Selective%20Financial%20Information) This section provides a detailed breakdown of key financial metrics, including revenue, gross profit, and operating income, for specific periods | Metric | Three months ended June 29, 2025 (Thousands) | Three months ended June 30, 2024 (Thousands) | % Change | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :------- | | Total Revenue | $11,110 | $9,060 | 22.6% | | Gross Profit | $3,168 | $2,881 | 10.0% | | Gross Margin % | 28.5% | 31.8% | (3.3) pp | | Operating Income | $1,911 | $1,615 | 18.3% | | Metric | Nine months ended June 29, 2025 (Thousands) | Nine months ended June 30, 2024 (Thousands) | % Change | | :-------------------- | :-------------------------------------- | :-------------------------------------- | :------- | | Total Revenue | $30,038 | $24,552 | 22.3% | | Gross Profit | $8,658 | $7,122 | 21.6% | | Gross Margin % | 28.8% | 29.0% | (0.2) pp | | Operating Income | $5,065 | $3,523 | 43.8% | - Optex Richardson revenue increased by **46.3%** for the three months and **34.3%** for the nine months ended June 29, 2025, primarily due to increased periscope production[141](index=141&type=chunk)[146](index=146&type=chunk) - Applied Optics Center revenue decreased by **2.6%** for the three months but increased by **10.3%** for the nine months ended June 29, 2025, driven by military filters, day windows, and other products, partially offset by lower optical assembly demand[142](index=142&type=chunk)[147](index=147&type=chunk) [New Orders and Backlog](index=29&type=section&id=New%20Orders%20and%20Backlog) This section discusses trends in new customer orders and the company's total backlog, highlighting segment-specific changes and recent contract awards - New orders for the nine months ended June 29, 2025, decreased by **14.8%** to **$24.1 million** compared to the prior year period[135](index=135&type=chunk)[136](index=136&type=chunk) - The decrease in new orders was primarily due to a **43.2% decrease** in Optex Richardson segment orders, partially offset by a **38.8% increase** at the Applied Optics Center[135](index=135&type=chunk) | Metric | June 29, 2025 (Millions) | June 30, 2024 (Millions) | % Change | | :-------------------- | :----------------------- | :----------------------- | :------- | | Total Customer Orders | $24.1 | $28.3 | (14.8)% | | Total Backlog | $38.3 | $45.6 | (16.0)% | - Optex Richardson backlog decreased by **21.4%** to **$25.7 million**, while Applied Optics Center backlog decreased by **2.3%** to **$12.6 million**[138](index=138&type=chunk) - The company announced a **$2.8 million order** for the XM30 combat vehicle and a five-year requirement-type contract for Abrams-based optical sighting systems in July 2025[136](index=136&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's working capital, cash flow generation, available credit, and future capital allocation plans - Working capital increased to **$19.4 million** as of June 29, 2025, from **$15.1 million** as of September 29, 2024[150](index=150&type=chunk) - The company generated **$5.4 million** in operating cash flow for the nine months ended June 29, 2025, driven by increased net income, inventory reductions, and higher accounts payable[150](index=150&type=chunk) - As of June 29, 2025, the company had **$4.9 million in cash** and no outstanding draws against its **$3 million revolving credit line**, which was renewed until May 22, 2027[153](index=153&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk) - Future plans include utilizing cash and credit for inventory purchases, potential product line acquisitions, and common stock repurchases[154](index=154&type=chunk) [Critical Accounting Estimates](index=33&type=section&id=Critical%20Accounting%20Estimates) This section explains the company's critical accounting estimates, including warranty costs, contract loss reserves, and deferred tax asset valuation - Critical accounting estimates include warranty costs, contract loss reserves, and deferred tax asset valuation[164](index=164&type=chunk) - Accrued warranty costs increased to **$173 thousand** as of June 29, 2025, primarily due to a potential warranty issue on Applied Optics Day Windows[165](index=165&type=chunk) - Contract loss reserves increased to **$423 thousand** as of June 29, 2025, due to inflationary pressures on material and labor, increased manufacturing overhead, rework, and labor inefficiencies on older fixed-price contracts[167](index=167&type=chunk) - A deferred tax asset valuation allowance of **($0.8) million** is maintained against deferred tax assets of **$1.6 million** due to historical losses and IRS Section 382 limitations[168](index=168&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that this item is not applicable, indicating no material quantitative or qualitative disclosures about market risk are required - This section is not applicable to the company[169](index=169&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of June 29, 2025. No material changes in internal control over financial reporting occurred during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 29, 2025[170](index=170&type=chunk) - There were no material changes in internal control over financial reporting during the three months ended June 29, 2025[171](index=171&type=chunk) PART II— OTHER INFORMATION [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any material litigation pending or threatened against it - The company is not aware of any material litigation pending or threatened[172](index=172&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended September 29, 2024 - No material changes in risk factors since the Form 10-K filed for the year ended September 29, 2024[173](index=173&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no purchases of equity securities by the issuer or any affiliated purchaser during the three months ended June 29, 2025 - No purchases of equity securities by the issuer or any affiliated purchaser during the three months ended June 29, 2025[174](index=174&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities[175](index=175&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine safety disclosures are not applicable to the company[176](index=176&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company - This item is not applicable to the company[177](index=177&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including the Business Loan Agreement, certifications, and XBRL documents - Key exhibits include the Business Loan Agreement (effective May 22, 2025), Certifications pursuant to Section 302 and 906 of Sarbanes Oxley Act of 2002, and Inline XBRL documents[178](index=178&type=chunk)

Core Insights - Optex Systems Holdings, Inc. (OPXS) shares have increased by 19.1% following the earnings report for the quarter ended March 30, 2025, significantly outperforming the S&P 500's 1% change during the same period [1] - The stock has surged 42.9% over the past month, compared to the S&P 500's 11.4% rise, indicating strong investor enthusiasm driven by robust quarterly results and management commentary [1] Financial Performance - For the fiscal second quarter ended March 30, 2025, Optex reported earnings per share of 26 cents, up from 16 cents a year earlier [2] - Revenue increased by 25.9% year-over-year to $10.7 million, up from $8.5 million [2] - Net income rose by 66.5% to $1.8 million, compared to $1.1 million a year ago [2] - Gross profit increased by 31.4% to $3.4 million, with gross margin expanding by 130 basis points to 31.3% [2] - Operating income climbed 65% to $2.2 million, reflecting improved efficiency across both segments [2] Operational Metrics - For the six months ended March 30, 2025, revenues increased by 22.2% year-over-year to $18.9 million, while net income grew by 74.9% to $2.6 million [3] - Gross margin for the six-month period rose to 29%, up from 27.4% in the previous year [3] - Adjusted EBITDA for the six-month period increased by 49.6% to $3.6 million, indicating strong underlying profitability [3] Backlog and Contracts - As of March 30, 2025, the backlog stood at $41.1 million, down 7% from $44.2 million as of March 31 and September 29, 2024 [4] - Management secured a $5.7 million laser filter contract for the Applied Optics Center, scheduled for delivery between August 2025 and December 2026 [4] Management Insights - CEO Danny Schoening attributed the strong quarterly performance to enhanced periscope production capacity and increased demand for laser filters [5] - The company emphasized operational execution and alignment with customer expectations as key factors in its recent success [5] Revenue Drivers - Revenue growth was primarily driven by increased periscope production and heightened customer demand for laser filter products [6] - Improved absorption of fixed costs on a higher revenue base contributed to the increase in gross profit [6] - The manufacturing facilities in Richardson played a crucial role in scaling production efficiently [6] Financial Strategy - During the quarter, Optex repaid $1 million against its credit facility, reducing outstanding debt to zero as of March 30, 2025 [7] - The company ended the quarter with $3.5 million in cash and a working capital position of $17.9 million, up from $15.1 million at the end of fiscal 2024 [7] - These actions reflect a conservative financial strategy aimed at maintaining liquidity and funding operational needs internally [7]

Financial Performance - For the three months ended March 30, 2025, revenue increased by $2.2 million, or 25.9%, compared to the prior year period, reaching $10.73 million[3] - For the six months ended March 30, 2025, total revenues increased by $3.4 million, or 22.2%, compared to the prior year period, totaling $18.93 million[3] - Consolidated gross profit for the three months ended March 30, 2025, increased by $0.8 million, or 31.4%, reaching $3.36 million[4] - Operating income for the three months ended March 30, 2025, increased by $0.9 million, or 65.0%, totaling $2.24 million[5] - Net income for the three months ended March 30, 2025, increased by $0.7 million, or 66.5%, reaching $1.77 million[12] - Adjusted EBITDA for the three months ended March 30, 2025, increased by $0.8 million, or 49.4%, totaling $2.44 million[12] Backlog and Working Capital - As of March 30, 2025, the company had a backlog of $41.1 million, a decrease of $3.1 million, or 7.0%, from the previous year[2] - Working capital as of March 30, 2025, was $17.9 million, an increase from $15.1 million as of September 29, 2024[6] - The company generated operating cash of $4.0 million during the six months ended March 30, 2025[6] - Cash and cash equivalents as of March 30, 2025, were approximately $3.5 million, with no draws against its revolving credit line[7] Company Overview - Optex Systems manufactures optical sighting systems primarily for Department of Defense applications, with products installed on various U.S. military vehicles[23] - The company is ISO 9001:2015 certified, indicating a commitment to quality management standards[23] - Optex's product offerings include periscope configurations, rifle and surveillance sights, and night vision optical assemblies[23] - The company delivers products directly to military services and prime contractors, indicating a strong position in the defense supply chain[23] Forward-Looking Statements and Risks - Forward-looking statements highlight expectations for growth strategy and financial performance, including revenue and net income[25] - Risks include potential funding issues for defense programs and competition in the market, which could impact financial results[26] - The company anticipates challenges related to supply chain and labor shortages, which may affect production timelines[26] - Optex is focused on technological advancements and delivering innovations to maintain market competitiveness[26] - The company does not assume the obligation to update forward-looking statements, emphasizing the uncertainty in predicting future results[27] Investor Relations - Contact information for investor relations is provided, indicating openness to communication with stakeholders[28]

Financial Performance - Net income for the three months ended March 30, 2025, increased by $0.7 million to $1.8 million compared to $1.1 million for the prior year period[113] - Adjusted EBITDA for the three months ended March 30, 2025, increased by $0.8 million to $2.4 million compared to $1.6 million for the prior year period[113] - Net income for the six months ended March 30, 2025, increased by $1.1 million to $2.6 million compared to $1.5 million for the prior year period[114] - Adjusted EBITDA for the six months ended March 30, 2025, increased by $1.2 million to $3.6 million compared to $2.4 million for the prior year period[114] - For the three months ended March 30, 2025, total revenues increased by $2.2 million, or 25.9%, compared to the prior year period[119] - For the six months ended March 30, 2025, total revenues increased by $3.4 million, or 22.2%, compared to the prior year period[120] - Consolidated gross profit for the three months ended March 30, 2025 increased by $0.8 million, or 31.4%, compared to the prior year period[121] - Operating income for the three months ended March 30, 2025 increased by $0.9 million, or 65.0%, compared to the prior year period[122] - The gross margin for the three months ended March 30, 2025 was 31.3%, compared to 30.0% in the prior year period[121] - The operating income margin for the three months ended March 30, 2025 was 20.8%, compared to 15.9% in the prior year period[122] - For the six months ended March 30, 2025, total revenue was $18.93 million, an increase of $3.4 million or 22.2% from $15.49 million in the prior year[138] - The gross margin for the six-month period ended March 30, 2025, improved to 29.0%, up from 27.4% in the prior year, with gross profit increasing to $5.5 million[141] Revenue and Orders - The increase in net income and adjusted EBITDA is primarily driven by increased revenue and gross profit[115] - During the six months ended March 30, 2025, the company booked $15.7 million in new orders, representing a 12.3% decrease over the prior year period[125] - Optex Richardson segment orders decreased by $2.2 million, or 19.8%, compared to the prior year period[125] - The company experienced a 500.0% increase in Day Windows orders during the six months ended March 30, 2025[127] - The Applied Optics Center orders remained flat compared to the prior year period[125] - As of March 30, 2025, total backlog was $41.1 million, a decrease of $3.1 million or 7.0% from $44.2 million as of March 31, 2024[128] - Optex Richardson revenue increased by $2.0 million or 47.8% for the three months ended March 30, 2025, driven by increased production volume in the periscope product line[133] Production and Supply Chain - The company has increased periscope production levels by 50% over the fiscal year 2024 level due to improvements in labor market and supplier performance[106] - Significant material shortages were experienced during the fiscal year ended October 1, 2023, affecting production levels and delivery dates[105] - Approximately 7% of the Optex Richardson segment backlog consists of items priced prior to 2021, which has been affected by rising costs of aluminum, steel, and acrylic commodities[104] - The company does not anticipate significant material risks from recent tariff uncertainties, as most defense products are sourced domestically[107] Contracts and Opportunities - The company is both a prime and sub-prime contractor to the Department of Defense, with contracts covering various military applications[99] - The Company announced a $5.7 million award for laser filter units for the Applied Optics Center, expected to increase total backlog to $46.8 million[129] - The Company is pursuing international and commercial opportunities while reviewing potential new products to utilize existing production capacity[131] Financial Position and Cash Flow - As of March 30, 2025, working capital was $17.9 million, an increase from $15.1 million as of September 29, 2024[143] - The Company expects to generate net income and positive cash flow from operating activities over the next twelve months, but uneven revenue levels could create a working capital shortfall[152] - The Company entered into a Business Loan Agreement for a revolving line of credit of $3 million, with an interest rate of 7.07% per annum as of March 30, 2025[153] - The Credit Facility replaced a prior $2 million line of credit, and as of March 30, 2025, there was zero borrowed under the Credit Facility[155] - The Company is in compliance with all covenants under the Credit Facility as of March 30, 2025[154] Acquisitions and Costs - On January 18, 2024, the Company acquired intellectual property related to the Speedtracker Mach product line for $1 million, with potential future payments based on milestones[149] - The acquisition included transaction costs of $30 thousand, with a total earnout payment of $238 thousand contingent on achieving revenue milestones[150] - As of March 30, 2025, the Company had accrued warranty costs of $106 thousand, an increase of $54 thousand from $52 thousand as of September 29, 2024[157] - The Company recognized $11 thousand and $18 thousand in loss reserves on new contract awards during the three and six months ended March 30, 2025[158] - The Company had $226 thousand and $259 thousand of contract loss reserves as of March 30, 2025, and September 29, 2024, respectively[158] - The Loan Agreement requires the Company to maintain a fixed charge coverage ratio of at least 1.25:1 and a total leverage ratio of 3.00:1[154]

Company Overview - Optex Systems Holdings, Inc. is based in Richardson, Texas, and was founded in 1987. The company is ISO 9001:2015 certified and specializes in manufacturing optical sighting systems and assemblies primarily for Department of Defense (DOD) applications [4] - The company's products are utilized in various U.S. military land vehicles, including the Abrams and Bradley fighting vehicles, Light Armored and Armored Security Vehicles, and the Stryker family of vehicles. Additionally, Optex produces periscope configurations, rifle and surveillance sights, and night vision optical assemblies [4] Event Participation - Optex Systems Holdings, Inc. will participate in the 15th Annual LD Micro Invitational on April 9th and 10th, 2025, at the Westin Grand Central in New York [1] - CEO Danny Schoening expressed enthusiasm about attending the LD Micro event, highlighting the opportunity to connect with investors, showcase company progress, and discuss future growth [2] Industry Context - LD Micro, founded in 2006, serves as an independent resource in the micro-cap space, providing valuable insights through the LD Micro Index and annual investor conferences [3]

Core Insights - Optex Systems Holdings, Inc. (OPXS) reported a decline in share price of 3.9% following its earnings report for the quarter ended December 29, 2024, contrasting with a 0.6% growth in the S&P 500 index during the same period [1] - The company achieved earnings per share of 12 cents for the first quarter of fiscal 2025, a significant increase from 6 cents in the prior-year period, with revenues rising to $8.2 million, marking a 17.7% increase from $7 million year-over-year [2] - Gross profit increased by 26.4% year-over-year to $2.1 million, with an improved gross margin of 26% compared to 24.2% in the previous year, driven by a favorable product mix and higher revenue against a relatively fixed cost base [3] - Net income nearly doubled, rising 95.8% to $0.8 million compared to $0.4 million in the prior-year quarter, while adjusted EBITDA increased by 50% year-over-year to $1.1 million [4] Business Metrics - As of December 29, 2024, Optex reported a backlog of $42 million, down 6.7% from $45 million at the end of December 2023, attributed to the timing of customer orders, with new orders expected to contribute to fiscal 2025 revenues [5] - The company generated $2.8 million in operating cash flow during the quarter, primarily due to increased net income and accounts receivable collections, and held $2.5 million in cash at quarter-end, up from $1 million as of September 29, 2024 [6] Management Outlook - CEO Danny Schoening emphasized the company's growth trajectory, noting a four-year compounded annual revenue growth rate exceeding 20%, and expressed confidence in maintaining this momentum through strong customer engagement [7] - For fiscal 2025, Optex expects revenues to exceed $38 million, supported by its backlog and anticipated new orders, with a focus on profitable and sustainable growth through operational efficiencies and customer collaboration [8] Other Developments - During the quarter, Optex continued investments in working capital and infrastructure, reflected in higher cash balances and improved accounts receivable collections [9]

Financial Performance - Total revenues for the three months ended December 29, 2024, increased by $1.2 million, or 17.7%, compared to the prior year period, primarily driven by increased revenue at the Applied Optics Center[111]. - Consolidated gross profit for the same period increased by $0.4 million, or 26.4%, primarily due to changes in product mix and higher revenue against a fixed cost base at the Applied Optics Center segment[112]. - Operating income for the three months ended December 29, 2024, increased by $0.4 million compared to the prior year period, driven by higher revenue and gross profit[113]. - Net income for the three months ended December 29, 2024, increased by $0.4 million to $0.8 million, compared to $0.4 million for the prior year period[119]. - Adjusted EBITDA for the same period increased by $0.4 million to $1.1 million, compared to $0.8 million for the prior year period[119]. - For the three months ended December 29, 2024, total revenue increased by $1.2 million or 17.7% to $8.2 million compared to $6.97 million in the prior year period[132]. Orders and Backlog - The company booked $6.0 million in new orders during the three months ended December 29, 2024, representing a 40.6% decrease from $10.1 million in the prior year period[122]. - Orders for the Optex Richardson segment decreased by $3.6 million, or 58.1%, primarily due to order timing[124]. - Backlog as of December 29, 2024, was $42.0 million, a decrease of 6.7% from $45.0 million as of December 31, 2023[126]. - Orders for the Applied Optics Center decreased by $0.5 million, or 12.8%, from the prior year period, primarily due to order timing[125]. - Optex Richardson backlog increased by $1.7 million or 5.8% to $31.0 million as of December 29, 2024, driven by higher customer demand for periscopes[128]. - Applied Optics Center backlog decreased by $4.7 million or 29.9% to $11.0 million as of December 29, 2024, attributed to the timing of customer orders[129]. Supply Chain and Labor Issues - Optex Systems, Inc. reported significant increases in the costs of aluminum, steel, and acrylic commodities, negatively impacting net income for the quarter ended December 29, 2024[104]. - The company experienced material shortages affecting periscope products, which have delayed production and delivery schedules[106]. - The fiscal year ended October 1, 2023, and the first half of the fiscal year ended September 29, 2024, were marked by significant supplier delays and labor shortages[106]. - Forward-looking statements indicate expectations of continued challenges due to supply chain issues and material costs, impacting future financial performance[96]. - Improvements in the local labor market since 2023 have allowed Optex to increase its direct labor force and employee overtime, contributing to better supplier performance[107]. Contracts and Government Relations - Optex Systems, Inc. primarily manufactures products for the Department of Defense, with less than 1% of revenue related to resale of products manufactured by others[99]. - The company is both a prime and sub-prime contractor to the Department of Defense, with contracts also serving foreign governments[100]. - The U.S. military spending trends indicate a significant reduction in spending for ground system military programs, directly impacting revenue for the Optex Systems Richardson segment[108]. Financial Position and Assets - As of December 29, 2024, the company had working capital of $15.9 million, an increase from $15.1 million as of September 29, 2024[137]. - The company acquired certain intellectual property related to the Speedtracker Mach product line for $1 million, with potential additional payments based on future milestones[143]. - The company has a deferred tax asset valuation allowance of ($0.8) million against deferred tax assets of $1.7 million, resulting in a net deferred tax asset of $0.9 million as of December 29, 2024[155]. - The valuation allowance for deferred tax assets is due to historical losses and may not be fully recognized due to IRS Section 382 limitations related to a change in control[155]. Warranty and Loss Reserves - As of December 29, 2024, the company accrued warranty costs of $22 thousand, down from $52 thousand as of September 29, 2024, due to lower-than-expected warranty returns[153]. - The company had contract loss reserves of $213 thousand as of December 29, 2024, compared to $259 thousand as of September 29, 2024, primarily related to older legacy periscope IDIQ contracts[154]. - During the three months ended December 29, 2024, the company recognized $7 thousand in loss reserves on new contract awards and reduced existing loss reserves by $53 thousand[154]. - The company monitors actual warranty costs incurred against expected values on a quarterly basis and adjusts estimates accordingly[153]. - The company has not experienced significant changes to warranty trends in the past three years and does not anticipate significant impacts in the near term[153]. - Future taxable income forecasts related to deferred tax assets are subject to change due to market conditions and profitability uncertainties[155]. General and Administrative Expenses - General and administrative expenses increased by 7.2% to $1.2 million for the three months ended December 29, 2024, compared to $1.1 million in the prior year[135]. - The company generated operating cash of $2.8 million during the three months ended December 29, 2024, primarily driven by higher net income and collections against accounts receivable[137]. Accounting Estimates - The company’s accounting estimates involve significant estimation uncertainty and may materially impact financial condition or results of operation[156].

Core Viewpoint - Optex Systems Holdings, Inc. reported strong financial performance for the fiscal year ended September 29, 2024, with significant revenue and profit growth, despite a decline in stock price. Financial Performance - Total revenues increased by 32.5% to $34 million from $25.7 million in fiscal 2023, driven by higher demand for military products [2] - Operating income rose by 73% to $4.8 million, with adjusted EBITDA increasing by 69.7% year over year to $5.7 million [3] - Earnings per share (EPS) increased by 61.8% to 55 cents from 34 cents in fiscal 2023 [6] - Gross profit improved by 44% year over year to $9.5 million, with gross margins increasing by 220 basis points to 28% [7] Demand and Orders - The backlog reached $44.2 million, a 5.7% increase from $41.8 million at the beginning of the fiscal year, with new orders booked at $36.4 million, a 5.2% rise compared to $34.6 million in fiscal 2023 [8] - CEO Danny Schoening highlighted the company's ability to secure multi-year contracts for key products, contributing to operational efficiencies [5] Operational Efficiency - Revenue growth was primarily attributed to strong demand for military optical products, which offset reduced orders for optical assemblies [9] - The Applied Optics Center segment's margin expanded from 29.3% in fiscal 2023 to 34.1% in fiscal 2024 due to significant upgrades [11] Financial Position - As of September 29, 2024, the company had $1 million in cash and no outstanding balance on its $3 million credit facility, with working capital improving to $15.1 million from $13.5 million [10]