Precision Optics (NASDAQ:POCI) is seeking to build on recent production ramps in satellite laser communications and single-use endoscopy while expanding its sales and marketing efforts in defense, aerospace and medical-device markets, Chief Executive Officer Joe Forkey said during a fireside chat hosted by Lytham Partners.
Forkey described the company as an optics technology developer and manufacturer focused on imaging and communications systems. Its business model centers on working with customers to develop products enabled by its optical technology and subsequently manufacturing those products when they enter production.
Core Optical Capabilities
The company’s technology focus includes micro-optics, ultra-high-precision optical systems and digital imaging. Forkey said the company makes some of the smallest optical components in the world, including an individual optic measuring 50 microns, or approximately the width of a human hair.
Precision Optics combines its design capabilities with manufacturing engineering, specialized tools and fixtures, and production operations to bring products from development through volume manufacturing, Forkey said. The company’s micro-optics and high-precision capabilities can be used in both medical applications, such as small endoscopes, and aerospace applications that require low weight and precise optical alignment.
The company historically concentrated on medical devices, but it has increasingly pursued defense and aerospace opportunities over the past several years. Forkey said industry participants in those fields initially approached the company after seeing its technology at optics trade shows.
Satellite Communications Program and Market Opportunity
Forkey identified satellite laser communications as a major growth area. He said the expansion of satellite networks is increasing the need for communications systems that can transmit data among satellites, between satellites and the ground, and from the ground to satellites.
Laser-based optical communications can support significantly more bandwidth than traditional radio-wave or microwave communications, Forkey said. He noted that the U.S. Space Development Agency has standardized requirements for optical laser systems used for satellite-to-satellite communications.
Precision Optics supplies highly precise optical and mechanical subassemblies used within Optical Communication Terminals, or OCTs. These systems require components to be aligned precisely so laser beams can be directed and focused across hundreds or thousands of miles, according to Forkey. He said the company aligns certain components within five microns in three dimensions and designs assemblies to withstand launch-related stresses.
The company has one primary satellite communications customer whose production volumes have increased substantially from initial commitments, Forkey said. He said Precision Optics is the customer’s sole supplier and expects the relationship to continue, though the customer has excess inventory that is expected to reduce revenue from that program for roughly six months.
Forkey said he expects demand to recover as the customer continues building its network and considers further expansion. He also pointed to recurring replacement demand, noting that satellites operating in low Earth orbit typically remain in service for three to five years before re-entering the atmosphere.
Defense and Single-Use Endoscopy
Beyond satellite communications, Precision Optics has one major defense contract that it has worked on for five or six years, Forkey said. The company has also built prototypes for laser-weapons applications and sees potential in drones, where smaller and lighter optical systems may provide benefits.
Forkey said the existing defense program has experienced delays but remains active, and the company expects to receive a purchase order “almost any day now.” He said the company sees increased defense spending and longer-term procurement commitments as favorable trends for its business model.
In medical devices, the company is focused on the shift toward single-use endoscopes. Forkey said disposable devices can reduce the risk of patient cross-contamination and simplify inventory management for hospitals, while providing surgeons with a new imaging device for each procedure.
Precision Optics works with CMOS imaging technology supplied through its partnership with OmniVision, Forkey said. The company’s first single-use endoscopy production program, for cystoscopy, increased from an annual run rate of about 1,000 units two years ago to nearly 45,000 to 50,000 units currently.
A second single-use program for an ophthalmic surgery application is beginning to ramp this fiscal year, according to Forkey. He said the company believes single-use endoscopy is growing two to three times faster than the broader medical-device market, though it continues to pursue reusable-device opportunities as well.
Sales and Marketing Expansion
After investing in manufacturing capacity and production infrastructure over the past two years, Precision Optics is shifting more of its attention toward marketing its technologies and developing new programs, Forkey said.
The company recently hired Peter Thier as senior vice president of sales and marketing. Forkey said Thier has experience selling engineering services for products that move from development into production.
Over the next six to 12 months, Forkey said investors should expect further sales and marketing developments and additional information regarding the company’s expansion beyond medical devices into space communications and defense applications.
About Precision Optics (NASDAQ:POCI)
Precision Optics Corporation, Inc designs, develops, manufactures, and sells specialized optical and illumination systems and related components primarily in the United States and the European Economic Area. It offers medical instrumentation products, including endoscopes and endocouplers, as well as other custom imaging and illumination products, such as Microprecision lenses and micro medical cameras, and 3D endoscopes for use in minimally invasive surgical procedures by hospitals and physicians.
