Precision Optics (POCI) Q1 2026: Aerospace Backlog Tops $9M, Anchoring Multiyear Production Ramp
Precision Optics extended its record production streak as aerospace and surgical robotics programs drove a 46% underlying revenue surge, but gross margin gains remain a work in progress amid scaling challenges. The company’s $9 million-plus aerospace backlog and new defense wins signal durable demand, while operational upgrades and pricing resets are set to unlock margin expansion through fiscal 2026. Management’s confidence in pipeline recovery and capacity investments points to a multiyear step-change in scale, with program diversity and manufacturing discipline now in sharper focus.
Summary
- Backlog Expansion: Aerospace backlog surpasses $9 million, supporting sustained high-volume production.
- Margin Leverage in Focus: Pricing resets and process upgrades are expected to drive sequential margin improvement.
- Pipeline Recovery: New defense and AR programs mark a rebound in product development, broadening end-market exposure.
Performance Analysis
Precision Optics delivered record quarterly revenue, with aerospace and surgical robotics manufacturing programs each notching all-time highs. The aerospace segment, now producing at volumes 10 to 100 times historic levels, generated $2.5 million in net revenue and maintains a backlog exceeding $9 million. The single-use cystoscope, surgical visualization device, contributed $1.5 million, up 180% year over year and 85% sequentially, reflecting both end-market demand and successful resolution of earlier output constraints.
The company’s gross margin improved modestly to 14.4% but remains well below prior-year levels due to the cost of scaling production and under-absorption in engineering and micro-optics. Tariff pass-through agreements with key customers insulated margins from external cost shocks, while recent pricing renegotiations and line efficiency gains are expected to further lift profitability in coming quarters. Product development revenue hit a multi-year low, but management anticipates a 50% to 75% rebound in Q2 as new defense and AR contracts ramp.
- Production Ramp Drives Revenue: Aerospace and cystoscope programs now anchor more than half of total sales, with both posting record quarters.
- Margin Recovery Underway: Tariff reimbursements, pricing resets, and process upgrades set the stage for sequential margin gains.
- Product Development Trough: Engineering revenue bottomed in Q1 but is forecast to rebound sharply as new programs enter the pipeline.
With a strong backlog and operational upgrades in motion, Precision Optics expects higher revenue to increasingly flow through to the bottom line as fiscal 2026 progresses.
Executive Commentary
"With ongoing higher top-line revenue, a growing engineering pipeline, and improving gross margins, we believe we are now operating at a new level for precision optics and expect the gains we are experiencing in top-line revenue will increasingly flow through to the bottom line throughout fiscal 26 and beyond."
Dr. Joe Forkey, Chief Executive Officer
"Based on the expected growth in revenue for the year, improved gross margins, and efficient management of our operating expenses, it remains our expectation that adjusted EBITDA for the year will be approximately $500,000."
Mr. Wayne Cole, Chief Financial Officer
Strategic Positioning
1. Aerospace as a Structural Growth Engine
The aerospace manufacturing program has become a cornerstone of the business, with fourth consecutive record quarters and a backlog exceeding $9 million. Recent line expansions will boost throughput by up to 50%, positioning POCI to meet ongoing customer requests for increased output. The company’s technology, miniaturized optical systems, is increasingly recognized by major aerospace and defense players, supporting long contract lifecycles and high switching barriers.
2. Margin Expansion via Pricing and Process Discipline
POCI has renegotiated pricing and secured tariff pass-throughs with major customers, retroactive to August, to offset lower yields and higher touch labor on the cystoscope line. Operational investments, including dedicated manufacturing engineering and KPI-driven process monitoring, are designed to drive yield and efficiency improvements. These changes are expected to deliver meaningful quarter-over-quarter margin improvements through the remainder of fiscal 2026.
3. Product Development Pipeline Rebuild and Diversification
After a trough in Q1, the product development pipeline is rebounding, with two new large contracts in augmented reality and jet engine inspection. These wins not only add revenue but also diversify POCI’s end-market exposure, reducing reliance on medical devices. Management expects a 50% to 75% sequential revenue increase in product development for Q2, with additional growth in subsequent quarters as new programs move toward production.
4. Capacity Investments Support Multiyear Scale
Facility upgrades and headcount additions have been prioritized to support current and anticipated production volumes. Once the final phase of facility modernization is complete, management believes existing infrastructure can support up to double current company size before requiring further significant expansion, enabling operating leverage as programs scale.
Key Considerations
This quarter marks a transition for Precision Optics, as it operationalizes a higher-volume, multi-program manufacturing model while rebuilding its product development funnel. Investors should weigh both the near-term margin headwinds and the structural improvements underway.
Key Considerations:
- Backlog Depth: Aerospace and cystoscope programs provide multiquarter revenue visibility, anchoring production scale.
- Margin Leverage: Tariff pass-throughs and pricing resets are critical to turning top-line growth into bottom-line gains.
- Pipeline Diversification: New defense and AR contracts reduce medical device concentration risk and broaden addressable markets.
- Capacity Readiness: Facility upgrades and workforce expansion position POCI for further scaling without near-term infrastructure bottlenecks.
- Automation Potential: Management is developing automation plans, but volume thresholds for ROI are still one to two years out.
Risks
Execution risk remains high as POCI transitions to higher-volume manufacturing, with margin recovery dependent on successful process upgrades and yield improvements. Delays in key reorder programs, especially in defense, could impact resource utilization and gross margin. The company’s exposure to customer concentration and regulatory cycles in medical devices and defense also presents ongoing risk factors, as does the timing and sustainability of recovery in the optical components market.
Forward Outlook
For Q2 2026, POCI expects:
- Significant quarter-over-quarter margin improvement across major programs as process changes take hold.
- Product development revenue to rebound by 50% to 75% sequentially, with further growth in Q3 and Q4.
For full-year 2026, management reaffirmed guidance:
- Revenue in excess of $25 million
- Approximately $500,000 in positive adjusted EBITDA
Management highlighted several factors that support this outlook:
- Backlog strength and customer demand in aerospace and surgical robotics
- Operational improvements and pricing resets driving margin expansion
- Product development pipeline recovery with new, diversified contracts
Takeaways
Precision Optics is executing a step-change in scale, driven by aerospace and surgical robotics production, but must continue to deliver on margin improvement and pipeline diversification to sustain value creation.
- Structural Growth Anchored by Backlog: Aerospace and cystoscope programs provide durable revenue and visibility, supporting long-term scaling.
- Margin Recovery Trajectory: Tariff pass-throughs and process upgrades are critical to translating top-line gains into sustainable profitability.
- Pipeline and Capacity as Catalysts: New program wins and facility investments position POCI for multi-year growth, but execution discipline remains essential.
Conclusion
Precision Optics is capitalizing on robust demand in aerospace and surgical robotics, with a record backlog and operational upgrades underpinning a new scale of business. The company’s ability to convert revenue growth into margin expansion and diversify its pipeline will determine the durability of this transition in fiscal 2026 and beyond.
Industry Read-Through
POCI’s results reinforce a broader industry trend of increasing demand for miniaturized optical systems in both aerospace and medical device markets. The willingness of customers to absorb tariff costs and support pricing resets highlights the strategic value of specialized manufacturing partners. For peers in precision optics, scaling production while maintaining margin discipline is a central challenge, and end-market diversification is emerging as a key differentiator amid cyclical swings in medical and defense procurement. Automation remains a future lever, but only at higher sustained volumes, signaling a continued premium on process engineering and operational agility across the sector.