Optex Systems' Q1 Earnings Slump Y/Y Due to Rising Gold Costs

Shares of Optex Systems Holdings, Inc. OPXS have declined 2.9% since the company reported results for the quarter ended Dec. 28, 2025, underperforming the S&P 500 index, which fell 1.6% over the same period. Over the past month, however, the stock has edged down 0.9%, outperforming the broader market’s 1.9% decline.

For the fiscal first quarter of 2026, Optex Systems reported net income of 3 cents per share compared with 12 cents per share in the prior-year quarter.

Revenues rose 11.6% year over year to $9.1 million from $8.2 million. The increase was driven primarily by higher production levels and deliveries at the Optex Richardson segment, partially offset by lower sales at the Applied Optics Center. 

Despite the revenue growth, profitability weakened. Gross profit slipped 1.5% to $2.1 million, and gross margin contracted to 22.9% from 26% a year earlier. Operating income declined sharply to $0.1 million from $0.9 million, while net income fell 71.3% to $0.2 million. Adjusted EBITDA decreased 36% to $0.7 million from $1.1 million.

Optex Systems Holdings, Inc. Price, Consensus and EPS Surprise

Optex Systems Holdings, Inc. price-consensus-eps-surprise-chart | Optex Systems Holdings, Inc. Quote

Segment Performance and Orders

Optex Richardson posted a 55.9% increase in revenue, or $1.9 million, reflecting increased periscope production, XM30 display periscope assemblies and higher demand for muzzle reference systems and binoculars. In contrast, the Applied Optics Center saw revenue decline 20.1%, or $1 million, due primarily to lower customer demand for laser filters and optical assemblies.

Order activity improved during the quarter. The company booked $7.9 million in new orders, up 31.7% from $6 million in the year-ago period. Of the total, $3.8 million was attributable to Optex Richardson and $4.1 million to the Applied Optics Center. Subsequent to quarter-end, the Applied Optics Center received a $2.2 million order for laser interface filters, with deliveries scheduled to begin in the third fiscal quarter of 2026 and extend into the second quarter of fiscal 2027.

Margin Pressure and Cost Drivers

Management cited a combination of legacy contract dynamics and input cost pressures as key factors affecting margins. Gross margin compression was attributed in part to shipments under long-term loss contracts and increased cost of sales at the Applied Optics Center related to contract loss reserves tied to higher gold usage and pricing. The consolidated gross margin declined from 26% to 22.9% year over year.

Operating expenses rose 58.3% to $1.9 million from $1.2 million, driven by higher labor and fringe costs, increased stock compensation and elevated legal and IT service expenses. The company also incurred $0.3 million in non-recurring general and administrative costs associated with a CEO transition and overlapping staffing during senior-level retirements. These higher expenses contributed to an 83.7% drop in operating income.

Management Commentary and Outlook

CEO Chad George said sales growth was supported by increased periscope demand and new product development activities for the XM30 program. He acknowledged margin pressure stemming from elevated gold prices on a legacy Abrams day window contract, but indicated that older contracts are rolling off and being replaced with more favorably priced backlog.

The company expects higher revenues and gross profits in the second through fourth quarters of fiscal 2026 as legacy loss contracts near completion and revenue shifts toward more profitable product lines. Management also anticipates additional contract awards following the February 2026 passage of a federal funding bill.

Balance Sheet and Capital Allocation

As of Dec. 28, 2025, Optex Systems reported working capital of $21.2 million compared with $21.1 million as of Sept. 28, 2025. Cash stood at $5.8 million, with no outstanding borrowings under its revolving credit facility. The company used $0.1 million in operating cash during the quarter.

OPXS invested $0.5 million during the quarter and plans total capital expenditures of $2.4 million in fiscal 2026 to expand capacity and develop new capabilities.

Other Developments

On Feb. 9, 2026, the board terminated the existing stock repurchase program and authorized a new program allowing the company to repurchase up to $10 million of its common stock. The timing and amount of repurchases will depend on market conditions and other factors.

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This article originally published on Zacks Investment Research (zacks.com).

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