Optex Systems (NASDAQ:OPXS) reported first-quarter fiscal 2026 results marked by higher revenue and order growth, alongside margin pressure tied to legacy programs and higher costs. Management also disclosed a new stock repurchase authorization and outlined continued capital spending plans aimed at expanding capacity and supporting new product development.
Quarterly financial results
For the three-month period ended Dec. 28, 2025, Optex Systems posted revenue of $9.1 million, up 11.6% year over year. Gross profit was $2.1 million, and gross margin declined to 22.9%.
General and administrative expenses increased to $1.9 million, which Hawkins attributed primarily to higher labor costs, stock compensation, and professional services. She said about $0.3 million of the increase was related to leadership transition and temporary overlap of senior roles, and management does not expect those elevated transition-related costs to continue beyond the first quarter.
Operating income was $0.1 million compared with $0.9 million in the prior-year period. Net income was $0.2 million, and adjusted EBITDA was $0.7 million. Hawkins said the first quarter is expected to represent the company’s lowest profitability of the fiscal year, with operating results improving sequentially as margins recover and revenue increases.
Segment performance and operational updates
Optex-Richardson revenue increased 55.9% year over year, driven by higher periscope production, increased XM30 activity, and stronger demand for muzzle reference systems and binocular products. AOC revenue declined 20.1%, primarily due to lower laser filter and optical assembly volumes.
CEO Chad George, who said this was his first earnings call with the company, described AOC’s thin-film optical coating capabilities and noted the segment supplies coatings to customers including Trijicon, Vortex, Elbit, and L3Harris, as well as internally to Optex-Richardson for armored vehicle periscopes. George said the company expanded and upgraded optical assembly operations during the quarter, adding enhanced environmental controls intended to support capacity and quality requirements for future demand.
Within Optex-Richardson, George highlighted periscopes and sighting systems for armored vehicle prime contractors and repair and replacement services for the Defense Logistics Agency. He said the segment was recently awarded a driver periscope assembly design and development contract for the XM30 vehicle, calling it a meaningful opportunity because it is a larger and more sophisticated system than traditional periscopes. To support that program, management said it invested in additional machining and assembly equipment to strengthen the ability to deliver complex assemblies and rapid prototypes.
Balance sheet, cash flow, and contract reserves
Optex ended the quarter with $5.8 million in cash, compared with $6.4 million at fiscal year-end. Accounts receivable were $4.4 million, down slightly from $4.6 million at year-end.
Inventory increased to $15.0 million from $14.3 million as the company ramped up production for the XM30 program and prepared for higher anticipated revenues in coming quarters. Accounts payable decreased to $1.4 million from $1.5 million, which Hawkins said reflected timing differences between inventory receipts and vendor payment terms. Total working capital was $21.2 million, which management described as stable.
Operating cash flow was a use of $0.1 million, compared with operating cash generation of $2.8 million in the prior-year quarter. Hawkins attributed the shift primarily to lower profitability, increased inventory, and payments on accounts payable. Capital investments were $0.5 million in the quarter, up from $0.3 million in the prior-year period.
Hawkins also said the company increased contract loss reserves by $0.2 million, primarily related to the Applied Optics Day Window program due to higher gold prices and a final award on a legacy Optex-Richardson IDIQ contract. She said both programs are now closed to new orders, with remaining backlog extending into the first quarter of fiscal 2027. The company applied $0.1 million of reserves against shipments during the quarter, and accrued contract loss reserves totaled $0.2 million at period-end, up from $0.1 million in September. Management expects most of the reserves to be utilized during the current fiscal year.
Orders, backlog, and post-quarter developments
New orders totaled $7.9 million, up 31.7% year over year. Optex-Richardson orders rose 46.2% on increased periscope demand, while AOC orders increased 20.6%, led by optical assemblies. Hawkins said the company anticipates additional laser filter awards over the next several quarters as government funding resumes and outstanding proposals convert.
Backlog was $37.9 million, down from $42.0 million in the year-ago period, which management attributed primarily to program delays stemming from the 2025 government shutdown. After quarter-end, the company announced a $2.2 million optical assembly award supporting an enhanced night vision program, with deliveries beginning in the third quarter of fiscal 2026.
The company also disclosed in an 8-K filing that its board approved a new stock repurchase program on Feb. 9, 2026, authorizing up to $10 million in common stock purchases and replacing the prior program. Management said the timing and volume of repurchases will depend on market conditions and share price.
Capital investment outlook and share count
Looking ahead, Hawkins said the company expects to generate net income and positive operating cash flow over the next nine months. In the near term, management plans to fund capital equipment, inventory, engineering resources, and research and development through existing cash, an available line of credit, and operating cash flow.
As previously disclosed, the company expects to invest about $2.4 million of excess cash in capital improvements during fiscal 2026, with an additional $0.5 million already committed. Hawkins said the spending is focused on expanding capacity, developing new capabilities, replacing obsolete equipment, and supporting new product lines at AOC, as well as enhancing research and rapid prototyping at Optex-Richardson.
Outstanding shares totaled 6,937,358 at the end of the period, compared with 6,920,658 at fiscal year-end. During the quarter, the company issued 16,700 restricted shares to four board members that vest on Jan. 1, 2027.
During the call, George said he expects margin performance to improve as older programs wind down and newer backlog converts to revenue, and he emphasized a focus on execution, operational discipline, and innovation. No questions were asked during the Q&A session.
About Optex Systems (NASDAQ:OPXS)
Optex Systems Holdings, Inc (NASDAQ: OPXS) is a technology company specializing in infrared sensing systems for defense and homeland security applications. The company engineers, designs and manufactures electro-optical and infrared (EO/IR) payloads and sensors used across a range of surveillance and targeting platforms. Its core focus areas include mission-critical solutions for unmanned aerial vehicles (UAVs), rotary- and fixed-wing aircraft, and ground-based observation systems.
Optex Systems’ product portfolio consists of high-resolution thermal imaging cameras, infrared seekers, laser designators and multispectral platforms.
