Optex Systems (OPXS) - 2024 Q3 - Quarterly Report

Financial Performance - For the three months ended June 30, 2024, net income increased by $0.7 million to$1.3 million compared to $0.6 million for the same period last year [100]. - Adjusted EBITDA for the three months ended June 30, 2024, rose by$0.9 million to $1.8 million, up from$0.9 million in the prior year period [100]. - Net income increased by $1.9 million to$2.8 million for the nine months ended June 30, 2024, compared to $0.8 million for the prior year period [101]. - Adjusted EBITDA rose by$2.7 million to $4.2 million for the nine months ended June 30, 2024, compared to$1.5 million for the prior year period [101]. - Total revenues increased by $1.9 million, or 26.3$7.0 million, or 39.6%, for the nine months ended June 30, 2024, compared to the prior year periods [102]. - Consolidated gross profit for the three months ended June 30, 2024, increased by $1.2 million, or 68.3$3.1 million, or 78.8%, for the nine months ended June 30, 2024, compared to the prior year periods [103]. - Operating income for the three months ended June 30, 2024, increased by $0.9 million, or 114.8$2.4 million, or 224.4%, for the nine months ended June 30, 2024, compared to the prior year periods [103]. Revenue and Orders - The company booked $28.3 million in new orders during the nine months ended June 30, 2024, representing a 7.6$0.1 million, or 0.5%, compared to the prior year period, primarily due to a prior year award for sighting systems [106]. - Orders for the Applied Optics Center segment increased by $2.1 million, or 27.3$1.6 million or 52.3% for the three months ended June 30, 2024, driven by higher customer demand for various products [110]. - Applied Optics Center revenue increased by $2.4 million or 24.1$3.599 million for the nine months ended June 30, 2024, compared to $2.897 million for the prior year period [102]. - Cost of sales for the nine months ended June 30, 2024, increased to$17.4 million from $13.6 million in the prior year period [116]. Supply Chain and Operational Challenges - Recent supply chain disruptions have led to extended delivery lead times and increased costs for aluminum, steel, and acrylic commodities, negatively impacting net income for the year ended October 1, 2023 [93]. - The company has experienced significant material shortages affecting periscope products, which have delayed production and delivery dates [94]. - The company anticipates continued negative effects on margins from material shortages and increased costs over the next two years [93]. - The company is actively seeking alternative suppliers and increasing recruitment efforts to mitigate risks associated with labor shortages and supply chain issues [94]. Financial Position and Liabilities - As of June 30, 2024, the company had working capital of$14.2 million, up from $13.5 million as of October 1, 2023 [118]. - As of June 30, 2024, the Company had$1.0 million borrowed under the Credit Facility, which has a principal amount of $3 million [127]. - The interest rate on the Credit Facility is currently at 8.07$36 thousand as of June 30, 2024, down from $75 thousand as of October 1, 2023 [130]. - As of June 30, 2024, the Company had$101 thousand in contract loss reserves related to older legacy contracts [131]. - The deferred tax asset valuation allowance was ($0.8) million against deferred tax assets of$1.6 million as of June 30, 2024 [132]. - The Company has an authorized balance of $560 thousand remaining for its stock repurchase program as of June 30, 2024 [128]. - 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 [127]. Future Outlook - The Company expects to generate net income and positive cash flow from operating activities over the next twelve months [125]. - The fair value of a contingent liability related to an earnout agreement was determined to be zero as of June 30, 2024, indicating low likelihood of achieving revenue milestones [92]. - The initial term of the contract manufacturing agreement for Speedtracker Mach products is one year, with potential for renewal [91]. - The Company intends to utilize government contract financing benefits to minimize potential negative impacts on working capital [124].