Hello, everyone. Thank you all for joining us during the Lytham Partners Spring 2025 Investor Conference. My name is Robert Blum, Managing Partner here at Lytham Partners. Today, Joe Forkey, the Chief Executive Officer for Precision Optics, will be walking us through his slide presentation. If time permits, at the end, we'll engage in a short Q&A discussion. Precision Optics trades on the Nasdaq under the ticker symbol POCI. With that, Joe, welcome, and the floor is yours.
Thanks, Robert, and thanks, everyone, for tuning in today. I'm happy to be with you today and to be able to tell you a little bit about Precision Optics Corporation. As the name implies, Precision Optics is a company that works with optical systems, both designing and manufacturing systems. We focus on a few very specific sub-areas within optics. Optics is very broad, and we focus on some very specific areas. I'll talk about the specific technologies that we work in in just a minute. Let me start with the overall business model that we use in order to compete in the marketplace and create shareholder value. The business model is pretty straightforward. As I said, we're a technology company. We focus on some very specific technologies within the general optics area. We develop that technology ourselves, and then we show that technology to our customers.
If our customer and we agree that the technology we have can be turned into a product that can enable their next-generation procedure and medical device or their next-generation device or machine or approach in the defense aerospace side of things, then we'll engage with that customer. They'll pay us on a time and materials basis to take our technology, design it into a product. Once that product goes through all of the testing and regulatory requirements and goes into manufacturing, POCI is the company that does the manufacturing. The company will grow as we have more and more programs go through our product development pipeline and go into manufacturing because once a product gets into manufacturing in these markets, it tends to stay there for a pretty significant period of time.
Today, we are at a point where we have just recently moved a number of programs from the product development phase into manufacturing. Even in this quarter right now, we are upping the volume of manufacturing, and we expect this to have a significant impact in our overall revenue. We're really at an inflection point now and really excited about the way this business model is moving forward. This shows our revenue ramp. Over the last seven or eight years, we've had pretty continuous growth here. Most of this is organic. Some is from a couple of acquisitions that we made in 2019 and in 2022. We had a slight pullback from 2023 to 2024. We had a couple of legacy products that pulled back that went end of life. 2024 to 2025, our fiscal year runs from July 1st to June 30th.
Fiscal 2025 has been about flat compared to 2024. As I said just a minute ago, we have some programs going into production, and we expect that will start this upward trend running again towards the end of fiscal 2025, which we're in right now, and into 2026 and beyond. The three different technologies that we focus on are shown here. The first one is Micro-Optics. We make some optics that are as small as 50 microns. This is about the width of a human hair. We can then take those individual optics, design those into entire systems. Mostly, we use this technology for very small endoscopic systems for medical devices, which I'll talk about in a minute. There are some applications in the defense area and in the aerospace area as well. 3D imaging is the second area that we have focused on.
This really now is broadening a little bit to very high-precision imaging systems. This includes things like UHD, ultra-high definition or 4K imaging, as well as 3D imaging where we can make endoscopes that can allow the surgeon to see in three dimensions. The third area is a little bit broader and is an area of significant growth for us. This is in the area of digital imaging. This area basically is a place where we're taking the digital image sensor technology that was developed for cell phones and laptops and other consumer applications and partnering with some of the largest digital imaging manufacturers, so-called CMOS imager manufacturers in the world, we're bringing that technology to the medical device space and transforming the way that medical device endoscopes are being made today. As I've already mentioned, we have two key markets.
The first is in the area of medical device. This slide shows all of the specific areas within medical device areas in the body where we have programs that are running today. Those are the ones that are circled. All of the areas that are identified in here are places that we have worked on in the last 10 years or so. We have a very broad applicability of this technology. On the micro-precision side of things, our technology allows us to make endoscopes that are smaller than any endoscopes that have been made in the past. These have great applicability to places in the body where the incision size is really critical. You can think of things like cardiac, spine, brain. We do a lot with ophthalmology, ear, nose, and throat in general, and then cystoscopy, urology.
Those are the kinds of places where we find the best application for the micro-precision. 3D endoscopes and, again, more generally, sort of ultra-high definition and high-precision endoscopes are really pushing next-generation procedures. 3D endoscopes in particular are used in a number of sort of whole-body robotic systems like the system that Intuitive Surgical developed. We made the first 3D endoscopes for Intuitive Surgical many, many years ago. The idea here is that with the added resolution, the added perception you can get with 3D endoscopes and ultra-high definition endoscopes, you can see things and do things in the body, particularly with automated systems like robotic systems that would be difficult to do without that level of image quality.
The third area in digital imaging, really, as I already mentioned, is an area where we are bringing the advancements that were developed for consumer electronics and consumer imaging into the medical device world. This means that we can take CMOS sensor digital imagers, put them on the distal end of an endoscope, and get better image quality than some of the more traditional technologies that have been used for endoscopes. Very importantly, we can impact the cost of these endoscopes in a very dramatic way. In particular, we can get the cost of these endoscopes low enough that we can work with our partners, our customers, to provide single-use endoscope systems. What this means is that the endoscope now is used once and then discarded.
The big benefit here, of course, is that you don't have to worry about sterilizing the endoscope, which is the way things have been done for the entire history of minimally invasive surgery. You don't have to sterilize it when you take it from being used with one patient and then using it with the second. You don't have to worry about cross-contamination. Unfortunately, there are cases with reusable scopes where a patient will go into the hospital for one issue, and they'll contract a disease while they're in the hospital because of an imperfectly sterilized endoscope. Going to single-use has great safety benefits. It turns out single-use endoscopes are easier for the hospital because it's easier for them to track. Surgeons love them because they get a brand new image out of each endoscope that they use for each procedure.
There is a whole bunch of ways that our technology really impacts medical device. This is why this is the biggest focus and the biggest contributor to our overall revenue. We do work in defense aerospace. This represents about 30% of our revenue these days. The real focus here is on the micro-optics and smaller sizes. There is a big push in the military and in the aerospace community to reduce size, weight, and power. Particularly, anything that you lift off the ground is going to be benefited by having lower weight and lower power. It turns out that satellites are one of the places where our smaller size and high-precision alignment can be very, very useful. We have some programs running in that area today. Drones are lifted off the ground. There is a big push on size, weight, and power there.
It also turns out that the countermeasure to drones, which are directed energy weapons and, in particular, laser weapons, have some requirements for some very, very small optics in order to achieve the kinds of performance that they need. These are areas that we are engaged in. We have not put as much effort into the marketing into this area as we have in medical device, but we're moving in that direction. We believe that there are some prime opportunities here to expand our footprint in defense aerospace. Importantly, we have, over the years, developed internally and then through a critical acquisition a few years ago, expanded the technical capabilities so we can now design and manufacture the entire imaging system. This has great benefit to our customers because typically, our customers come to us because they don't have in-house optical or imaging expertise.
We can be their one-stop shop to be able to design the system from the front end where you're generating the light that goes into the body, the imaging system, the digital CMOS, and then the processing of the image electronically. We present the image to the end user as an HD coming off of an HDMI cable. This is really a critical part of what makes our offering very unique. On the digital imaging side, I mentioned in the beginning our business model is we develop technology, then show that technology to our customers. We've done a number of digital imaging systems now over the last 5 to 10 years. We've recognized that many of these systems have common elements within the design that is used for all of the digital imaging systems.
Now, to be clear, there are always differences between the final product that we're making for each customer because they have different procedures and different sizes and shapes. Much of the core underlying functionality of the system is the same. Over the last year, we have taken what we have learned about these commonalities, and we have put those commonalities into baseline platform designs. Now we're going to our customer not just with the technology, but with a baseline design from which we can customize sub-assemblies or sub-systems very quickly in order to accommodate the specific needs of our customer. This Unity Platform does a number of things. The first thing, and probably most importantly, is it reduces time to market, which our customer cares a lot about and we care a lot about. We want to get to manufacturing.
The second is that it reduces costs because we're using design elements that we've already used. Thirdly, it reduces the risk that there's going to be some issue with the design, particularly when we're looking at regulatory requirements and regulatory testing for the FDA. We just launched this a couple of months ago. The response from the market has been really spectacular. Also, in addition to being integrated across all of the technical disciplines for digital imaging, we're also vertically integrated in terms of being able to start with a concept with our customer, do all the design work, do all the testing, do all the validation and verification of the design, and then roll the product into production. We help our customers with the regulatory requirements. We're often on the phone with the FDA, with our customer, to get through the regulatory requirements.
Once we go into production, we become their source for the lifetime of the product. This vertical integration has big benefits to our customer because they come to us at the beginning of their program, and they know that they have a partner that will be able to stay with them all the way through to the mass manufacture of their product in the end. This is a representation of our product development pipeline. You may remember in the first slide, I showed you the business model, which is that we develop the technology, and then we go through a development phase, a product development phase or a design phase. It's critical to our business model that we get these programs through the product development pipeline and into production.
You can see here, these two orange lines on the top are the two programs that are our largest manufacturing programs that started in the last 12 months. The rest of these programs that have the long lines have gone into production. Three of them have been in production for a number of years. Most of the rest of them have gone in in the last 6 to 12 months. It really is a time when we're going through this inflection from mostly product development to a much larger manufacturing component. Importantly, you also see towards the bottom of this slide, there are a number of programs with arrows that are short of manufacturing. This is really the pipeline. These are the programs that will go into production in the next 6 to 12 months.
A number of these will go into production 12 to 24 months. With the Unity platform in particular, we're bringing new programs into the bottom of this pipeline so that we'll have a pipeline that will run three years out, four years out, five years out. Typically, we are targeting programs that will go into production with a $1 million-$3 million a year run rate. We're targeting a pipeline size that will allow us to get somewhere between two and four programs going into production each year. I mentioned these two large orders. These are really a big part of the growth that we are experiencing right now. The first is a single-use cystoscopy program. This program went into production about six to nine months ago. We received a production order about a year ago for $9 million.
It was our largest production order that the company's ever received. Our customer has been increasing the rate at which they want us to deliver these products over the last six to nine months because the delay they have been experiencing with their product has accelerated even beyond where they thought it would be. This program is moving very quickly to becoming one of our two top programs. The second big program is our aerospace program. We started production about a year and a half ago, but this program has really started to ramp in the last six to nine months. We, after many months of negotiation, signed a main purchase agreement with this customer just a couple of months ago. In this agreement, they have agreed to a forecast of at least $4 million per year.
They've been running at a much higher rate than that over this past year. Today, we have a backlog of over $6 million. We just recently doubled the size of our clean room and doubled the size of our production capability for this product. This one is moving forward very quickly and driving a lot of the overall revenue growth that we expect this quarter and beyond. Very quickly, the go-forward strategy is kind of obvious given our business model. We need to continue to expand the production lines, particularly for these two very large programs that I just talked about. We have to continue to have pipeline projects go to commercialization. We do believe that we have two, three, four programs that should go into commercialization, into production in the next 12 months.
We continue to expand the pipeline, particularly with this Unity Platform, so we continue to backfill that pipeline as programs go into production. Obviously, as a technology company, we have to continue to support and advance the technologies themselves. We're always hiring new high-quality engineers in order to be able to do that. We'll continue to invest in sales and marketing as well as engineering for all of those reasons. Finally, we need to expand and update our facilities. We've been talking about this for 6 to 12 months. We just announced that we signed continuation of a lease in one of our facilities in Texas. We signed a new lease on a facility in Maine. We're working on an update to our facilities in Massachusetts. As the company grows, we have to update the infrastructure and the facilities.
We're in the process of doing that now. I didn't talk very much about acquisitions. We have made two acquisitions over the last five to six years. We really see acquisitions as an opportunistic opportunity for us. We continue to look at potential opportunities here. We'll take advantage of acquisitions if and when we find those that make sense in terms of the technical synergies between the companies. Very quickly, just to summarize the financials, we already talked about the revenue growing quite substantially over the last seven to eight years. It's leveled off a little bit, but it will start to grow again with these new programs going into production. Gross margins, you can see, have hovered around the 30%-40% range. Recently, they've been a little bit lower as we get these new programs into production.
There's always some startup challenges, but we're getting through those. Our target margin is to get to 40% on a blended basis. We expect we'll get back there as we get these programs firmly into production. Adjusted EBITDA is showing similar kinds of things. You see that we were hovering around break-even, adjusted EBITDA, even as we were making some investments over the years and the company was getting larger. In 2024, we made some significant investments because we saw the increase in manufacturing coming. We added a Chief Operating Officer role, a number of other operations roles, really in anticipation of the production that we're just starting to see now. We expect this adjusted EBITDA to recover.
We've talked publicly about the expectation that we'll get to $6 million a year, $6 million in this quarter that we're in now, which would be a $24 million revenue run rate, and that that will get us firmly beyond adjusted EBITDA break-even. Very finally, on the balance sheet, all the details are here. The one point I do want to make is that we closed on a $5 million financing in February of this year. It was supported almost entirely by existing shareholders with a 20% discount to market of straight stock. We're quite grateful for the support of our long-term shareholders. I think they understand the vision and they understand where we're going. We were pleased to be able to close that financing in February.
We anticipate that will be used in part to help with the updates to the facilities that I mentioned and also for general working capital as the volume of work that we do continues to increase. With that, I will thank you all for tuning in and for going through the slide deck with me. Robert, I'd be happy to take any questions.
All right. Fantastic. Joe, thank you so much for that. Let's dive into some more maybe near-term items. You completed your conference call here just a couple of weeks ago for the third fiscal quarter. Again, that's the quarter ending in March. You've talked during this presentation about a number of programs that are ramping up. The offset of that is some sort of challenges that you talked about in the manufacturing where you experienced some lower initial yields, specifically on the one single-use cystoscope production line. You actually sort of paused production just a little bit. Talk about how production is going right now, specifically on the cystoscope line.
Yeah, sure. So just to sort of put this all in context, POCI has been manufacturing products for decades. So we know how to do manufacturing. The thing that is changing is that, particularly for these two large programs, the volumes are much larger by factors of 10 than the volumes that we have produced before. So we are in a situation where we are sort of changing the nature of the manufacturing that we're doing. Now, we've hired people who have lots of experience with that. But getting those kinds of volumes up and running at the rates that our customers are asking for, even as our customers are increasing their forecasts and pushing us to do more and more, has been a bit of a challenge. And so we talked about this on the earnings call.
We ended up in a place where whenever you have startup of these large production lines, large volume production lines, there are always going to be issues with yield not being quite as good as we expected and with training of new operators and hiring new operators. We ended up in February with a situation where the yield had dropped precipitously and low enough that we actually stopped production. That had a big impact on the third quarter numbers. The good news is we've done a root cause analysis. We've gotten through the issues. We have corrected the issues. For that program in particular, we're running today at a rate, after you take into account the yield, that's more than double the rate that we were running before we had to shut down the line in February.
More than double the rate that we had in January. Similarly, for the aerospace program, the other big program I talked about, we have not had yield issues. We did back in the first quarter. It turned out it was an issue on our customer side, not on our side, but that did stop the line in the first quarter. Since then, that line has been increasing continuously. In that case, we had to expand our clean room facility. We had to do some build-out. We finished that in March. We have doubled the tools and fixtures. Today, on that line as well, we are running at twice the rate that we were running even as recently as February or March. In both of these cases, there have been some challenges getting to the volumes that we need.
The good news is I think we're through a bunch of those challenges. The proof is in the pudding. Today, we are manufacturing in both cases at double the rate that we were manufacturing just a few months ago. I think we'll continue to see that increase pretty smoothly now as we go through the next few quarters.
All right. Very good. As it relates to sort of reaching profitability or at least break-even on an EBITDA basis here, you talked about some of your targeted gross margin numbers, where sort of OPEX is at, and obviously with the expected revenue growth here in the fourth quarter. Talk through sort of the sequencing from revenue through margins down to OPEX and profitability.
Yeah. The first piece is OPEX. That's pretty straightforward. OPEX, if you look at our income statement, you'll see that over the last couple of years, our OPEX has increased. That's because we were anticipating some of these programs going into production. We have already sort of taken a hit on the OPEX side. I mentioned we added a Chief Operating Officer and a number of other positions within the operations of the company. We also have been updating the facilities. I mentioned some of that. A bunch of the increase in OPEX that's required to support the higher revenue is already built into the numbers that we've seen on the OPEX line for the last few quarters. We don't expect that that's going to continue to increase in the near term as we see the revenue increase.
Really, getting to adjusted EBITDA break-even is all about the top line and about the gross margin. As we've talked about publicly, we expect with these two big programs, these customers will take product as fast as we can build it. It's really been all about getting these production lines up and running, getting through the startup challenges, getting through the yields that we've had to get through. We've talked about the fact that we expect our break-even revenue to be somewhere between $5.5 million-$5.7 million. That range depends a lot on what the gross margin is and the yields on these two particular lines. We expect that this quarter will be at $6 million. We expect that we'll be beyond break-even. The key after that, of course, is to stay at that level and to continue to grow.
With these two programs that I've talked about a number of times, willing to take product as fast as we can make it, we're going to continue to see that as a good solid base. There are three or four other programs that have gone into production in the last six months that are just getting up and running. Those are going to support the continued growth that we expect and need to see in coming quarters to keep us above EBITDA break-even.
All right. Very good. A few minutes we have here. You showed the pipeline earlier. You talked about sort of programs that have moved rapidly from the pipeline into production. Obviously, a positive on the one side. The offset is that you got to refill that pipeline with programs that are the next generation or the next ones to move forward. Talk just a little bit further on the pipeline and maybe what's close to commercialization here.
Yeah, sure. I mentioned that we're always looking for two, three, four programs to come out of the product development pipeline into production each year. We have a number that are targeted to go into production in the next 12 months. It's not all under our control, right, because our customers have to be ready with their part of the system. They have to get through FDA clearance and all of the regulatory requirements on their side. There are a couple of programs that our customers are pushing very aggressively on. Two in particular I can just comment on briefly. One is another single-use program, which we're quite excited about. It's for a very specific arthroscopic application with a very small endoscope, similar to some of these other single-use endoscopes that have gone into production in the last year. That's one of them.
The second one is an otoscopy application that actually relies on some of our ultra-high-definition sort of 3D applications where the customer is developing an otoscope that can use some algorithms to determine a bunch of information about ear infections. They are pushing very aggressively, and we're pushing very aggressively with them. There are a couple other ones. In the interest of time, I won't go through all of them. We do have specific programs earmarked and sort of expectations that they will go into production in the next 12 months. That part of the model that we have two to four programs going into production every year is solidly intact. We already have the programs identified for the next couple of years.
On the flip side, as you said, as programs go into production, that means that they come out of the product development pipeline. We are always out there working and looking for new programs. We had a fairly significant change in the product development pipeline and the product development revenue when one of these two programs, the large cystoscopy program, went into production in the June, July, August timeframe. We have been working to recover that. We are making some good progress on that. The Unity platform came out at just the right time to sort of expand the interest in the market. We have had a big marketing campaign around Unity. People can go to our website and see the interviews that our VP of Sales and Marketing did with a number of people in the company, including myself.
You can get online, and you can see the podcast that we've been doing. There has been a big push from our sales team on that side. We've had a great response to that effort. We have five potential customers that we're talking to who came to us because of the Unity platform. We are quite confident that we are going to see a recovery of the product development pipeline. With the Unity platform, I expect that is going to drive the programs into the product development pipeline for the indefinite future.
All right. Very good, Joe. I got less than two minutes left here. Final closing comments, takeaways, outlook for the quarter, reminding folks there in the backlog.
Yeah, sure. This is an exciting time for our customer, for our company. I've been thinking about this a lot over the last few weeks and looking at how the third quarter came out and how the fourth quarter is shaping up. A number of years ago, three, four years ago, we were all about getting enough customers. About two years ago or so, as I think about it, it was about getting our customers to take product as fast as we wanted to build it. We're now in a unique situation for us, which is we're in a place where our customers will take the product as fast as we can. Really, it's all about executing on the manufacturing side. I'm quite confident we have the right group of people. We've gotten through some of these hiccups in the beginning.
We really do see this as an inflection point in the company's history where we start to see that last piece of the overall business model where programs go into production and the production revenue starts to increase and continue to increase on a continuous basis going forward. We are pretty excited. We think that the company has a bright future, and we are anxious to demonstrate that with some great results in this quarter.
All right. Very good. Joe, thanks so much for the time, as always. Thank you, everyone here who's watching. If I can help coordinate any introductions to management here, schedule a meeting, let me know. Send me an email, Blum, blum@lythampartners.com. Again, like to learn more about Lytham, you can visit our website or follow us on LinkedIn to make sure events like this one here with Joe, you get made aware of going forward here. Joe, thanks again for the time. Greatly appreciate it. Enjoy the conference. To everyone watching, have a great rest of your day.
Thanks, Robert. Thanks, everyone, for joining us.