Precision Optics at Lytham Partners: Strategic Moves in Optics

On Tuesday, 01 April 2025, Precision Optics Corporation (NASDAQ: POCI) participated in the Lytham Partners 2025 Industrials & Basic Materials Investor Summit. The company, led by CEO Joe Forkey, provided insights into its strategic operations and future plans. Precision Optics highlighted its strengths in micro optics and digital imaging, while also addressing challenges in production scaling and market competition.

Key Takeaways

• Precision Optics specializes in optical components for the medical device and defense aerospace industries.
• The company is a leader in miniaturized optical systems, with integrated engineering and production capabilities.
• Single-use endoscopes, driven by CMOS sensor technology, are a major growth area.
• The Unity platform aims to streamline product development and reduce time to market.
• Precision Optics is focused on expanding its engineering pipeline and updating facilities for future growth.

Company Overview and Strategy

Precision Optics, established in 1982, designs and manufactures optical components, subassemblies, and systems. The company targets the medical device and defense aerospace markets, leveraging its expertise in micro optics and digital imaging. Its business model emphasizes early collaboration with customers and a seamless transition from design to production.

Target Markets and Differentiation

In the medical device sector, Precision Optics uses micro optics for minimally invasive endoscopic systems, enabling procedures previously impossible. The shift towards single-use endoscopes is driven by cost-effective CMOS sensors, improving image quality and reducing hospital costs. In defense aerospace, the focus is on precision alignment and small, lightweight optical systems crucial for aircraft, drones, and satellites.

Product Development Process

• Initial customer discussions and technology presentations lead to prototype development.
• Development phases include minimum viable, alpha, and beta prototypes, followed by production setup.
• The typical timeline is 2-3 years for medical devices and 1-2 years for defense programs.
• Currently, 6-7 programs are in production, with 10-15 in the engineering pipeline.

Manufacturing Expertise

Precision Optics boasts vertically and horizontally integrated capabilities, co-locating engineering, production, and regulatory teams. The company excels in handling and aligning micro optics, a complex task requiring specialized tools and techniques. This expertise positions them ahead of competitors like Karl Storz and Olympus Medical.

Single-Use Endoscopes

• Growth is driven by CMOS technology, reducing costs and enhancing image quality.
• Benefits include improved patient safety and reduced hospital costs.
• The single-use endoscope market is growing at 15%-20%, outpacing the overall endoscopy market.

Unity Platform

The Unity platform, launched in January, incorporates common design elements for digital imaging endoscopes. It aims to reduce development costs, decrease time to market, and minimize regulatory risks by using pre-designed components that have already passed regulatory requirements.

Future Outlook

Precision Optics plans to execute large orders in aerospace and single-use endoscopes, expand its engineering pipeline through the Unity platform, and update facilities to accommodate growth. Monitoring backlog and new program entries remains a priority.

For a detailed understanding, refer to the full transcript of the conference call below.

Full transcript - Lytham Partners 2025 Industrials & Basic Materials Investor Summit:

Robert Blum, Managing Partner, Lithium Partners: Alright. Hello, and welcome, to the Precision Optics fireside chat.

My name is Robert Blum, managing partner of Lithium Partners. And today, I will be moderating a q and a discussion with Joe Forkey, CEO at Precision Optics, who trades under the, symbol POCI on the Nasdaq. Joe, welcome.

Joe Forkey, CEO, Precision Optics: Thanks, Robert. Nice to be here.

Robert Blum, Managing Partner, Lithium Partners: Fantastic. For those not familiar, let’s start with a few minutes on the history of the company.

Joe Forkey, CEO, Precision Optics: Sure. So Precision Optics, as the name implies, is a company that, designs and manufactures optical components, subassemblies, and entire systems. The company has been around since 1982. So we’re on our forty third year here. We’ve had a lot of ups and downs.

We’ve been involved in lots of different areas over the years. We’ve been involved in medical device since the very beginning. We’ve been involved with defense often, and we’re doing more and more with defense aerospace today. We’ve also been involved in telecom and other industrial applications in the past. The business model today is one that sounds very simple and one that we have come to after many years of trial and error.

We’ve been working on this business model now for about the last ten years, and it’s really starting to have come to fruition now. So the main approach here is that we focus on some very specialized technologies, micro optics, three d endoscopes, and digital imaging. And, we work with our customers on the front end, showing them our technology. If it, if it looks like it can help to enable their product, their their requirements, We’ll go through a design phase where we get paid on a time and materials basis. And then when the product is designed, we roll that into production, and we continue with production for many, many years.

Robert Blum, Managing Partner, Lithium Partners: Alright. So you just talked about two areas in particular, medical device, defense. Why these two areas? What is your key differentiator that, you provide to these markets?

Joe Forkey, CEO, Precision Optics: So so, two of the areas in particular, the micro optics and the digital imaging are quite relevant for medical devices. In particular, we work on medical imaging devices. Generally not generally, most of the time, we’re working on endoscopic systems, although there are non endoscopic systems as well. But endoscopic systems are all about minimally invasive surgery, minimally invasive diagnostics. And the smaller you can get with the endoscope, the more minimally invasive you can make it.

And so one part of the benefit to medical device is the very small sizes we can get to. So this allows us to get to places in the body that you just can’t get to otherwise. The best example of this that I like to tell people we have many examples. But the best example, I think, is an endoscope that we make that is small enough to go through the blood vessels in the leg and can be snaked up through the blood vessel into the heart so that our customer can add this to their system so that the surgeon can be doing ablation on the inside wall of the heart while the heart is beating. This is a perfect example where if the endoscope was larger, it wouldn’t mean that you just have a slightly larger hole or slightly larger incision.

It would mean that the procedure just wouldn’t be possible because you can’t go in and stretch blood vessels. So there are lots of places in the body where the small size can be very advantageous, things like the eyeball, otoscopy for the ear, brain surgery, ear, nose, and throat in general. The smaller size is really critical. Cardiac, I already mentioned spine, cystoscopy, urology, those sorts of things are the places where the micro optics have particular benefit for medical device. There’s a big move now in the endoscopy area to move from more traditional technologies to systems that use so called CMOS imagers.

There are significant image quality benefits as well as cost benefits, even to the point where we can get to single use endoscopes, which have lots of benefits that we can talk about. But being able to work with not only the small optics, but also to couple those with these new CMOS technologies that allow us to make these next generation scopes is very advantageous for the performance of the scopes. And this is really the digital imaging part of the technology that we’ve developed that also is very advantageous for the medical device side of things. For defense aerospace, the real benefit here has to do with the size of the optics that we can make and the precision with which we can align these optics. So both the small size and the precision are critical for defense and aerospace applications that are put into devices that are lifted off the ground.

So any time you come off the ground so you can think about aircraft or drones or satellites. The smaller the size, the smaller the weight, the more benefit it is to the system as a whole because you’re limited in terms of how much weight you can lift off given the amount of fuel that you have. So the very small size is really critical. The other benefit is that particularly for devices that are looking at sending signals or energy long distances, you can think about satellite networks and those sorts of things, having very high precision, which is part of the side effect of the development we’ve had in the microoptic space because small optics have to be aligned very precisely. That precision alignment capability has a great benefit when you’re trying to send signals or send energy over very long distances, which is a which is a big area in defense aerospace these days.

Robert Blum, Managing Partner, Lithium Partners: So I wanna come back to something also you mentioned at the beginning, which sort of presenting your your your solutions to these customers. Right? Go through and and go into as much detail as you you feel is appropriate here on what that process is to move from an initial discussion with a customer, transitioning it through that that pipeline, and then ultimately to production. Talk through that entire process, maybe the time that it takes from device, I assume, is one. Defense might be slightly different.

Help me understand.

Joe Forkey, CEO, Precision Optics: Yeah. Sure. So because the way I like to think about our our company is that we’re selling access access to technology. So we don’t have a bunch of finished products that have FDA approval on the shelf, and we go out and sell this finished optical device or medical device that’s ready to go into the hospital. What we sell is access to the technology that we have that nobody else has.

And so the process of taking that technology and converting it into a product that can be used in a medical environment or in a defense aerospace environment obviously takes some time. These are all cutting edge products that we’re making. These are products that are not out there on the market today. These are advancements that are really pushing the envelope in terms of what’s possible. So there there has to be a development process that happens once we show our customer what the technology is that we can provide.

And, so we start the process by talking with our customers, showing them the technology, showing them what the technology can do. And and if if what we show them, fits with the kind of product that they believe they need in order to enable their next generation product or their next generation procedure, then we’ll enter into a process where we work with them to define what their requirements are. And then on a time and materials basis, they pay us to take our technology and turn it into the size, shape, and color that they may need. This generally so our ideal customer then comes to us very early in their development process so that they’re not coming to us with half of the product already designed. If they do that, oftentimes, we have to back up and start over.

Right? Because it’s our technology that’s really enabling it. So the the process that we go through is fairly standardized. It depends a little bit on how complex the product is. Some of the defense aerospace products were making smaller subassemblies, so sometimes they can move through the process a little faster.

But by and large, the process starts with us working with our customer to define the requirements that they have. They’ll often ask us for what we call a minimum viable prototype. This is sort of duct tape and bubble gum, not quite that bad, but it’s something that just demonstrates that the technology we have will satisfy the requirements that they need. This will take anywhere from three to six months, depending on how complex the system is. That’s often the time when we define what the entire development program will look like.

We give them some quotes and some proposals. We have some back and forth on what specifications are possible, what specifications aren’t possible. Once we get through that that process, then we go into what we call the alpha phase prototype. This takes anywhere from six to twelve months. This is where we put together the first prototype that satisfies all of the requirements that they have.

But it might not be the complete system that they ultimately will need. So this is the alpha prototype. They usually will take this alpha prototype. They’ll do either clinical trials with it, or they’ll do key opinion leader testing on these for the defense aerospace side of things. They would take them out into the field and try them and see if they work or put them on a benchtop.

They basically are proving out at this point that the specs they’ve given us and the first prototypes that incorporate all the requirements that they need are going to work. Usually after that phase, they’ll come back, they’ll tweak some of the specs a little bit. They may say we need to update this, we need to update that. But then we go through what we call the beta phase prototypes. These prototypes are intended to be exactly what the final design will be, but they’re still prototypes until verify that the prototype satisfies all the requirements.

This process for the beta prototype takes, again, anywhere from six to twelve months. Once we get that part done and, the customer goes out, tests it again, then we go through what we call the transfer phase. This is where we freeze the design, and we take the design in the beta prototype. We finish all the documentation. We do all the regulatory testing.

And then we put together the fixtures, and we start the production line going from there. So that last phase, that transfer phase usually takes about six to nine months. So if you roll the whole thing together, what it means is that a typical project that starts from the very beginning conception phase all the way through to the end will take somewhere around two to three years depending on how fast the various prototype phases take. Again, some of the defense aerospace programs, we’re doing a simpler subassembly because we’re not building the entire device. Those programs sometimes can go through the development phase as quickly as a year.

They’ll usually run a year to two years. The med device products usually run two to three years in order to get from the conception phase all the way to production.

Robert Blum, Managing Partner, Lithium Partners: So maybe just help people understand number of projects that are currently in production and sort of what that pipeline might look like.

Joe Forkey, CEO, Precision Optics: Yes. So typically, we’ll have an engineering pipeline that is anywhere from 10 to 15 programs running at any given time. Today, we have I’ve lost track a little bit because we’ve had three or four programs go into production in just the last few months. But we have somewhere around six or seven programs that are in production now. As I say, three or four of those just went into production.

Recently, we have two programs that are the largest production programs we’ve ever had that went into production over the last year or so, one in med device, one in defense. Today, our engineering pipeline is a little smaller than it has been historically, and that’s because a number of programs just went into production. But we are pulling some new programs into the front end of the engineering pipeline. So again, we like to be somewhere around 10 to 15 programs in the engineering pipeline. If you assume that those run for about three years, that would say that we have anywhere from three to five programs going into production.

Not every program that goes through the engineering pipeline makes it to production, right? There are sometimes programs where our customers say this isn’t working the way that we wanted it to. Or if it’s a start up company, they may not have funding to get all the way through. So instead of having three to five that go into production every year, we’re looking for two to three to go into every year from that steady state of 10 to 15 in the engineering pipeline.

Robert Blum, Managing Partner, Lithium Partners: All right. That’s helpful. You know, the your expertise clearly on sort of that that engineering side of the equation, it moves to to production where I I think there might be maybe a misunderstanding of of really your expertise on that side of the equation as well. And and I recall a conversation where I I think it was sort of the the the customer said, okay. Great.

Joe, get us to the production phase. We’ve got excess capacity. Go ahead and sort of you know, we’ll we’ll take it over at that point. We’ll we’ll we’ll give you a royalty. You sort of hand over everything to them, the designs and such.

So here you go. They came back and said, yeah. We we can’t do it. The folks that POC does. Yeah.

Why why is it so difficult to manufacture what it is that that that you’re ultimately bringing to the market for these customers?

Joe Forkey, CEO, Precision Optics: Yeah. So the the capabilities of POC really are are horizontally integrated is the way I like to think of it. They’re vertically integrated because we have multiple disciplines in the engineering team to be able to put together these kinds of systems, electrical engineering, mechanical engineering, optical engineering, systems engineering. But in addition, we’re what I like to call horizontally integrated because we have the engineering team that’s sitting right next to the production team. And they’re sitting next to the regulatory team, and they’re sitting sitting next to the machine shop and the optic shop that are making the components that go into some of these things.

Right? So when we design a product, we design it with an eye towards manufacturing. But we design it in a way that we can use our proprietary manufacturing capabilities in order to manufacture the product. And the place where this shows up most often is in the very small size, systems that we make. So, it’s very easy to look at a set of prints that are put up on the screen that show the shape of the lenses, the shape of the tubes that they go into, the electronic connections, and all the rest of it, and look at them and say, well, these look like circles and squares that you just pick them up and you put them together, it’s like a LEGO set.

But the the perspective of our customers, and in some cases, manufacturers who our customers have asked to take a look at doing these things, when they’re looking at the prints on the screen, it’s one thing. When we hand them the box of parts and they can’t see it without looking at them under a microscope, their perception of this changes quite dramatically. And so there’s a whole host of the technology that we bring to the table that has to do with the tools and fixtures that we use to handle these parts. I like to say for the micro optics, the optics that we make are anywhere from 50 microns on the smallest side, which is about the width of a human hair, up to generally three or four millimeters. You look at a one millimeter optic and you look at a one millimeter CMOS sensor and you have to figure out how to put those together so that they’re aligned to within 10 microns, this can be very challenging if you don’t have the experience of working on systems like this for decades.

And so part of it is understanding the tools and fixtures because the light that we’re working with, the light that is forming the images doesn’t care that the lens is only microns or 200 microns. That’s still orders of magnitude larger than the wavelength of light. The material properties don’t care about the fact that the lens is only zero five millimeter. The atoms and the molecules are much, much smaller than that. The reason that the micro optics can be challenging is because of the size of our fingers and the resolution of our eyeballs.

So a whole bunch of the technology that we bring to bear on this is the tools and fixtures that we’ve developed over many, many years to know how to handle these small parts and to know how to work with them. On top of that, we have manufacturing techs who have been working with these small parts under microscopes with the tools and fixtures that we’ve set up for many, many years. And when you go to a company that’s used to building lenses and imaging systems that are an inch in size or they’re used to building other medical devices that are half an inch or an inch in size and you show them something that’s oneten or oneone hundred the size of what they’re working on, it’s a whole different ballgame in terms of how you handle those parts when you’re manufacturing them. So that really is the answer to why it’s not unusual for customers to say to us, well, you know, this seems pretty straightforward. We’re gonna design it or we’re gonna put it together.

And then they come back to us six months later and say, yeah. It wasn’t quite as easy as we thought, so we’d like you to to pick it up.

Robert Blum, Managing Partner, Lithium Partners: So and thanks for running through that. And so, I mean, given that process of of what you just described described in the difficulties, you know, talk about what what is the competition out there? I I have to imagine pretty limited.

Joe Forkey, CEO, Precision Optics: Yeah. So so from a technical standpoint, there are only a couple of other companies that I know of that can do everything that we do in terms of designing and fabricating and manufacturing a fully qualified medical device of these sizes. And I’ll be very specific here. Those companies are Karl Storz and Olympus Medical. And interestingly, both of those companies are optics companies first.

And medical device companies, they’re very large medical device companies. But they have a bigger of base or corporate umbrella, which is an optics technology company. So from a technology standpoint, those are our biggest competitors. But of course, our customers are their competitors. So it’s very it’s very unlikely that those companies are gonna service the companies that that we would consider our our customers.

So beyond that, there are some other companies who can who can design optical systems. There are some other companies who can fabricate individual, lenses that are very small. There are some other companies out there that do contract manufacturing, you know, do manufacturing of endoscopes. But I don’t know of of any other company that can put all of those pieces together and be able to handle the very small sizes we have and, importantly, the digital imaging that we do. From that standpoint, I think we’re quite unique.

Robert Blum, Managing Partner, Lithium Partners: That’s very, good for people to understand that. I I wanna come back to something you’ve you’ve talked to a couple times about, which is single use. Right? It’s a rapidly growing market. Companies are trying to transition away from the reusables to single use.

You know, the benefits are are probably obvious to most, but I’ll maybe talk about those in in just a minute. But, you know, the offset is you need to drive down the cost. So so talk about both sides of that equation, you know, how you’re sort of positioned to to drive growth in this going forward, be able to bring down your cost to meet the needs in the marketplace, but also provide a a return to to to precision optics.

Joe Forkey, CEO, Precision Optics: Yeah. So we’ve been looking at developing capabilities to support single use endoscopes for many, many years, really over a decade. The industry as a whole has been interested in single use endoscopes for many, many decades. The thing that really has changed over the last five or six years is the advent of the so called CMOS image sensors. And really, the market leader in making CMOS image sensors that are useful or usable in medical devices and endoscopes, and particularly making some that are very, very small that we can use in the smallest applications that we work on, is Omnivision.

And we started working with Omnivision about eight or ten years ago. When they were developing their very first CMOS sensors that were very, very small, they needed a company to build a lens to go on those sensors, and we were the company that they found. So we have a whole bunch of joint press releases that we did way back then when they were developing it. So the advent of the CMOS sensor reduces the cost dramatically as compared to the technologies that were used previously, predominantly for our rigid endoscopes. It was a series of relay lenses.

And for flexible endoscopes, it was a bundle of optical fibers, so called image guide or coherent fiber bundle. Just to give you a sense of this, the set of relay lenses or the coherent fiber bundle would cost somewhere around $500 to $1,000 just cost. The the CMOS sensor is something like 20 or $30 because the CMOS sensor is made with the same technology that’s used to make computer chips on wafers massively in parallel. So it’s really the advent of the CMOS sensor. We have a great partnership with Omnivision.

We’ve developed a whole bunch of approaches to being able to take those small CMOS sensors, couple those with the optics that we can design and build along with the electronics that we can manage on the backside of the image forming process when the electrons and the electrical signals come off of the back of the CMOS sensor. We can handle all of the image processing and the changing of formats and all of those things. That really was added to our company when we acquired what I call our friendly competitor, Lighthouse Imaging, about three years ago. That allows us to do the entire design and the entire fabrication of these endoscopes that require the use of these small CMOS sensors in order to be used with a low enough cost to be able to make them single use. The single use has great benefits.

The obvious one that everyone was very interested in is the patient safety benefit. This is because you don’t have to sterilize the scope, and so you don’t have to worry about cross contamination between one patient and another. But it turns out it has great benefits to the hospital because they don’t have to track these endoscopes as they go through reprocessing or sterilization or if they’re being repaired outside the hospital. They just look at their inventory list. They know that they have And then the surgeons love it because the image quality is better than what we had with the Coherent Fiber bundle, number one.

And every time they open a package, they get the image of a brand new scope, whereas scopes that were reusable, there would be a degradation in the image, and you’d never know until you took off the sterilization drapes whether or not you had a good image or not. So there’s been a real push in the industry to move in this direction. Boston Scientific showed about five or six years ago that they were the first big company to demonstrate a single use product that was called LithoVue. And once that happened, the floodgates opened and everyone realized that this was possible from an economic standpoint. And we’ve seen a number of programs in our pipeline, and now we have two that have just gone into production recently that are really accelerating our growth because one of them is associated with the largest production order that we’ve ever had.

So we see this as a high growth area. The estimates of the growth rates of endoscopy in general is somewhere around 5% to 7%. The growth rate of single use endoscopes is estimated to be somewhere between 1520%. So there’s a great opportunity here, and we’re well positioned, especially having brought these first couple of units through the development stage and now into production.

Robert Blum, Managing Partner, Lithium Partners: That’s great to understand there. We we got just a couple minutes left here. I I do wanna touch on the Unity platform. Right? Because it it really helps.

What we started at the very beginning was accelerating that timeline or that timeline in general from discussion to production. Talk about Unity briefly and and how it helps to accelerate those timelines.

Joe Forkey, CEO, Precision Optics: Yeah. Sure. So so one of the things that we are very adamant about when we do our our development work is that we maintain ownership of the of the intellectual property that comes out of the design work that we do. Sometimes we have to negotiate specific licenses for fields of use and such. But by and large, we maintain ownership of all of the IP.

What we’ve discovered over the last year, having done a number of these programs, is that even though every customer has a different set of requirements for their ultimate system, their endoscope, there are a number of features of the endoscopes, particularly with digital imaging and these CMOS sensors, that are common to all of the scopes. And so what we have done is we’ve taken the common aspects of the designs, and we put those into a platform product that we call the Unity platform. And what this means now is that when we start the design process for the next generation scope for the next customer, we’re not starting from a blank sheet of paper. We’re starting with design elements that that we’ve already worked on before and that we’ve already proven. And then if from the platform design, a customer needs one piece that’s a little different, maybe they need a different illumination system instead of LEDs, they want fiber optic.

Well, we have another system where we’ve done fiber optic. So we can sort of plug that piece into this platform design. And both of those things, having the platform design to start from and being able to plug in pieces that we’ve designed for other systems in the past, both of those things do a do an have a number of benefits for us and for our customer. So the first one is it reduces the cost because we don’t have to design from the ground up. We can we can start with some things that are already finished.

The second thing is it reduces the time to market because we don’t have to redesign all those pieces that are already in the platform. And then thirdly, it reduces the risk because whenever we’re developing a new system, we have to pass all the regulatory requirements. And some of those are pretty challenging. If we have a system and we have pieces that have already passed those regulatory requirements, there’s a high likelihood that this new system is with which incorporates those pieces is also gonna satisfy those requirements. So the, the platform product we call Unity, it’s a Unity platform.

We just launched it in, January of this year. We’ve gotten a great response, and we expect that this is going to help to draw more people into our engineering pipeline and help us to move products through the engineering pipeline even faster, which is critical for our customers and a great benefit to us as well.

Robert Blum, Managing Partner, Lithium Partners: Joe, as usual, we’re running short on time. Thirty seconds. What are the top couple of things that people should be paying attention to going forward here?

Joe Forkey, CEO, Precision Optics: Yeah. So I alluded to the fact that we have a couple of our biggest orders ever. One’s in aerospace. The other is a single use endoscope. People should be watching to see how we execute on the ramping and production of those programs and what the backlog start to look like.

You should also be watching the engineering pipeline. They’ll be hearing about more programs coming into the engineering pipeline based on Unity. With all of this growth, we’re looking at updating our facilities so people will want to hear about how we’re planning for the future and all the growth that we’re seeing. Those are the things that I think are most exciting and that people will be able to hear about in our upcoming announcements.

Robert Blum, Managing Partner, Lithium Partners: Fantastic. Joe, thank you so much, for to to for joining us here today and and to everyone for watching. If you do have additional questions or would like to schedule a meeting, with management here, shoot me an email, bloom@lithiumpartners.com. We have additional presentations and fireside chats coming up next, so stick around for more. Thank you, and enjoy the conference here and the rest of the day.

Joe Forkey, CEO, Precision Optics: Thanks, everyone. Thanks, Robert.

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