RICHARDSON, TX --- When it comes to U.S. defense companies, majors like $45 billion General Dynamics typically spring to mind, but there are many actors on the stage. For instance, the U.S. periscopes and vision block market is valued between $8 million and $10 million and little-known Optex Systems Holdings, Inc. (OTCQB: OPXS) controls about 75 percent of that market. Worldwide, Optex has grown its market share to up to 30% of the $40-$50 million market and looking to add more.
Richardson, Texas-based Optex has grown its domestic footprint largely through manufacturing its optical sighting systems and assemblies for the U.S. Department of Defense. Orders, such as a $1.2 million award for periscopes for prime contractor General Dynamics Land Systems in February, have the company deeply entrenched in the armored vehicle space. Currently, Optex products are installed on many of the vehicles that protect U.S. soldiers, including Abrams and Bradley tanks and the Stryker family of vehicles. Further, Optex is the sole supplier of naval binoculars to the U.S. Navy.
While keeping its market share in this space, Optex is keenly aware that it stands to grow corporate value via expanding existing sales channels, establishing new ones and launching new products. In announcing a five-year, $6 million contract with the Defense Logistics Agency for his company's laser protected periscopes in July, Optex CEO Danny Schoening commented, "One of our priorities has been to increase our margins by securing more commercial contracts while maintaining our established footprint in the armored vehicle platforms."
This order was separate from $841,000 in orders from the U.S. Army Contracting Command for the same periscope in April and a $1.1 million purchase order in May to supply critical optical assemblies from Optex's Applied Optics Center (AOC) Division to Night Force Optics as part of a multi-year, $6 million supply agreement.
In a phone conversation with Schoening, he reiterated the company's initiatives to maintain its stronghold in the U.S. armored vehicle space, while generating additional revenues internationally, carving out new market share in the consumer space and increasing cash flow from services. This is because Optex is more than periscopes, the company also manufactures a variety of rifle and surveillance sights and night vision optical assemblies.
"Budget cuts and the sequester hurt many companies in our industry, but the effects are diminishing," said Schoening. "We see signs of resurgence considering that for the first time in over five years, it is expected that the government is going to increase defense spending and BAE is building a new AMPV (Armored Multi-Purpose Vehicle), amongst other things."
On the international front, Optex is increasing its presence, including $518,000 in shipments of its M17 day/thermal periscope to a Brazilian customer in June. Schoening said that international contracts are ramping up and that Optex expects expansion to keep growing across the next few years, partly because of geopolitical concerns, years of conservative spending and recognition of the quality of Optex products.
Elsewhere, Optex has a partnership with Night Force Optics that represents a substantial opportunity in the consumer market. Night Force is predominantly a supplier of high-end scopes for hunters and competitive shooters. Last June, Optex and Night Force partnered in the aforementioned $6 million agreement to supply critical optical assemblies through AOC, a division of L-3 Communications acquired by Optex in November 2015.
While this may not necessarily brand Optex on its own, Night Force products are widely recognized as some of the world's most accurate, durable and reliable scopes in the world. To bring its own brand to the consumer, Optex late last year struck a deal with the popular outdoors store Cabela's to offer Optex's new Red Tail Digital Spotting Scope and new Stabilized Monocular in stores and onlines. Priced for consumers, the spotting scope is for long-range, high-resolution observation that is already in use for military and border control applications. The scope offers 45x magnified image onto a 5 megapixel CMOS sensor and transmits the image via Wi-Fi to the user's mobile device.
With the announcement of the relationship, Cabela's Optics Specialist Kevin Wehrer commented, "Optex Systems shares Cabela's passion for providing quality technology and value in their products. This is a great partnership for both companies and Cabela's is excited to offer Optex System products to our customers."
The above are the qualities and business model that would be expected from at least a small capitalization company. However, and perhaps with a bit of irony, Optex has escaped the sights of Wall Street and still only commands a market capitalization of $2.71 million. This could be due to the fact that Optex only has 1.6 million shares outstanding after a reverse split in October. Most of these shares are controlled by insiders, leaving a miniscule float of only 112,000 freely tradable shares, which equates to a stock that can move back upwards as easily as shares have fallen since the split.