Optex Systems (OPXS) - 2024 Q1 - Quarterly Report

Acquisition and Intellectual Property - Optex Systems, Inc. acquired certain intellectual property and technical information related to the Speedtracker Mach product line for $1 million in cash, with potential future payments based on milestones[108]. - The Company acquired certain intellectual property related to the Speedtracker Mach product line for$1 million in cash on January 18, 2024[146]. Financial Performance - Total revenues for the three months ended December 31, 2023, increased by $2.9 million, or 72.5$1.0 million, or 134.9%, with gross margins improving in both operating segments[116]. - Operating income for the three months ended December 31, 2023, increased by $0.8 million, driven by higher revenue and gross profit[117]. - Net income for the three months ended December 31, 2023, was$0.4 million, compared to a net loss of $(0.2) million for the prior year period[121]. - Adjusted EBITDA for the same period increased by$0.9 million to $0.8 million, compared to$(0.2) million for the prior year[121]. - Gross margin for the consolidated results was 24.2% for the three months ended December 31, 2023, compared to 17.7% for the prior year[116]. - For the three months ended December 31, 2023, total revenue increased by $2.9 million or 72.5$6.968 million[133]. - Operating income for the three months ended December 31, 2023, was $553 thousand, compared to an operating loss of ($282) thousand in the prior year[138]. Orders and Backlog - New orders booked during the three months ended December 31, 2023, totaled $10.1 million, representing a 9.8$11.2 million in the prior year[124]. - Backlog as of December 31, 2023, was $45.0 million, an increase of 12.2$40.1 million as of January 1, 2023[127]. - The Optex Systems Richardson backlog as of December 31, 2023, was $29.3 million, an increase of$7.3 million or 33.2% from $22.0 million as of January 1, 2023[129]. Segment Performance - Orders for the Optex Richardson segment decreased by$2.4 million, or 27.9%, primarily due to a significant prior year order for the Government of Israel[125]. - Orders for the Applied Optics Center increased by $1.3 million, or 50.0$1.8 million or 109.6% for the three months ended December 31, 2023, driven by higher orders and backlog[134]. - Applied Optics Center revenue increased by $1.2 million or 47.6$2.0 million to $3.0 million to meet working capital requirements due to increased backlog and revenue delays[111]. - As of December 31, 2023, the Company had working capital of$13.0 million, a slight decrease from $13.5 million as of October 1, 2023[139]. - The Company generated operating cash of$2.3 million during the three months ended December 31, 2023[140]. Supply Chain and Operational Challenges - Significant material shortages have been experienced, particularly affecting periscope products, which have negatively impacted production levels and delivery dates[110]. - The company anticipates continued market-wide material shortages for critical components, which may adversely affect profit margins over the next three years[109]. - Recent supply chain disruptions have extended supplier delivery lead times, impacting the company's ability to sustain operations[109]. - The company is actively seeking alternative suppliers and increasing recruitment efforts to mitigate risks associated with labor shortages and component delays[110]. Risks and Regulatory Environment - The company is both a prime and sub-prime contractor to the Department of Defense, with contracts subject to Federal Acquisition Regulation clauses[102]. - The company is subject to risks related to defense program funding, geopolitical unrest, and changes in technology and customer order patterns[99]. - The company has noted that inflation did not significantly affect operating results for the periods presented[96]. Warranty and Contract Reserves - As of December 31, 2023, the company accrued warranty costs of $48 thousand, down from$75 thousand as of October 1, 2023, due to lower shipments and favorable changes in estimates[154]. - The company had $308 thousand in contract loss reserves as of December 31, 2023, compared to$243 thousand on October 1, 2023, primarily related to older legacy periscope IDIQ contracts[155]. - During the three months ended December 31, 2023, the company recognized $90 thousand in loss reserves on new contract awards and reduced existing loss reserves by$25 thousand[155]. - 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 31, 2023[156].