Optex Systems (US:OPXS)2026-02-11 14:00Cost Increases and Financial Impact - The company has experienced substantial increases in the costs of aluminum, steel, gold, and acrylic commodities since fiscal year 2021, affecting segment margins for deliveries against orders during the year ended September 28, 2025, and the first fiscal quarter of 2026[99]. - Approximately 3% of the contract backlog is for items priced prior to fiscal year 2021, which are currently in a loss condition due to cost increases[99]. - Consolidated gross profit for the same period was $2.096 million, with a gross margin percentage decrease from 26.0% to 22.9% due to higher costs in the Applied Optics Center segment[108]. - Operating income decreased by $0.8 million to $149,000, primarily due to lower gross profit and increased general and administrative spending of $0.7 million[109]. - Net income decreased by $0.6 million to $242,000 for the three months ended December 28, 2025, compared to $844,000 for the prior year period[113]. - Adjusted EBITDA decreased by $0.4 million to $728,000 for the three months ended December 28, 2025, compared to $1.137 million for the prior year period[113]. - The Company recognized $174,000 in new loss reserves against long-term IDIQ contracts during the three months ended December 28, 2025[151]. - The Company had contract loss reserves of $185,000 as of December 28, 2025, related to older legacy contracts affected by inflationary cost increases[151]. Revenue and Orders - Total revenues for the three months ended December 28, 2025, increased by $0.9 million, or 11.6%, compared to the prior year period, driven by increased revenue at the Optex Richardson segment[107]. - The company booked $7.9 million in new orders during the three months ended December 28, 2025, representing a 31.7% increase over the prior year period[118]. - Orders for the Optex Richardson segment increased by $1.2 million, or 46.2%, primarily due to increased demand for periscope products[120]. - For the three months ended December 28, 2025, total revenue increased by $0.9 million or 11.6% to $9.145 million compared to $8.198 million in the prior year period[127]. - Optex Richardson revenue increased by $1.9 million or 55.9% due to higher production levels and customer demand for various products[129]. - Applied Optics Center revenue decreased by $1.0 million or 20.1% primarily due to lower demand for laser filters and optical assemblies[130]. Backlog and Future Expectations - Backlog as of December 28, 2025, was $37.9 million, a decrease of 9.8% from $42.0 million as of December 29, 2024[121]. - Optex Richardson backlog decreased by $3.1 million or 10.0% to $27.9 million due to lower customer demand for periscopes[122]. - Applied Optics Center backlog decreased by $1.0 million or 9.1% to $10.0 million, attributed to lower demand for laser filters[123]. - The company anticipates new contract awards against current outstanding proposal requests for laser filters due to approved funding following the government shutdown[101]. - The company anticipates an increase in laser filter awards over the next three quarters due to approved government appropriations and outstanding proposals[120]. Government Contracts and Risks - A significant portion of revenue is derived from U.S. Government contracts, which are subject to annual congressional appropriations; the company did not experience a slowdown in total consolidated contract awards during the first three months of fiscal year 2026[101]. - The federal government was in a shutdown from October 1, 2025, to November 12, 2025, which affected contract awards for laser filters at the Applied Optics Center[101]. - The company does not foresee significant material risks from recent tariff uncertainties, as defense products are primarily sourced domestically and existing customer backlog is covered with inventory[102]. - The company is both a prime and sub-prime contractor to the U.S. Department of Defense, with contracts issued through major defense contractors[94]. - The company has not experienced any material pending terminations for convenience or default on existing contracts[96]. Financial Management and Expenses - General and administrative expenses increased by $0.7 million, driven by higher labor costs and additional staffing during the transition of executive leadership[109]. - General and administrative expenses increased by 58.3% to $1.9 million due to higher labor costs and increased legal and IT service costs[132]. - The company plans to utilize current cash and available credit to fund capital equipment purchases and R&D for new programs[138]. - As of December 28, 2025, the outstanding balance under the Texas Capital Facility was zero, with total interest expense also at zero for the quarter[147]. - The Company declared and paid no dividends during the three months ended December 28, 2025, and there are no outstanding declared and unpaid dividends[147]. - A new stock repurchase program was approved, allowing the Company to purchase up to $10,000,000 in shares of its common stock[148]. Warranty and Tax Assets - As of December 28, 2025, the Company had accrued warranty costs of $168,000, an increase from $162,000 as of September 28, 2025, primarily due to estimated warranties for optical assemblies[150]. - The Company monitors actual warranty costs against expected values quarterly and adjusts estimates accordingly[150]. - The net carrying value of deferred tax assets as of December 28, 2025, was $1.2 million, with a valuation allowance of $800,000 against those assets[154]. Loan Agreement and Obligations - The Loan Agreement requires maintaining a fixed charge coverage ratio of at least 1.25:1 and a total leverage ratio of 3.00:1[146]. - The Company is obligated to accept new task awards against certain loss contracts until contract expiration, which may lead to material losses if costs continue to rise[151].