We are also carefully considering the need to refill the engineering pipeline as programs move to production. Our experience in the marketplace confirms our belief that POC’s unique technologies are ideally suited to segments of the medical device market that are experiencing high growth rates. With our increasing understanding of the defense aerospace market, we believe there are more opportunities in that industry as well. By continuing to support and expand our sales resources, and given the high quality and quantity of potential new customers we have today, we are confident we will have plenty of opportunity to continue to grow our engineering pipeline even as programs move to production. At our size, the timing of specific programs moving in and out of production can cause some ups and downs in quarterly revenues, but the clear trend is toward increasing revenue in the remainder of fiscal 2024 and beyond.
I’ll now turn the call over to Wayne to review the financial results in more detail. I will then make a few closing comments before questions. Wayne?
Wayne Coll: Thank you, Joe. Let me expand on some of Joe’s comments on the financial results, starting with revenue. Last year, we recognized $600,000 in one-time revenue pertaining to a technology rights agreement in the second quarter, which makes year-over-year comparisons to this year’s second quarter a bit challenging. For the second quarter of fiscal 2024, total revenue was $4.8 million, a decrease of 18% compared to $5.9 million in last year’s second quarter. However, net of the technology rights revenue, the year-over-year decline for the quarter was 8.8% or $463,000. Engineering revenue was a record $2.3 million compared to $1.7 million last year, an increase of 33%. However, revenue from optical components was down $600,000 for the quarter compared to the same quarter last year, primarily due to reduced demand at Ross Optical, which, while improving in the second quarter compared to the first, is still down compared to the prior year.
Finished products and assemblies was down approximately $400,000 year-over-year due to the elimination of certain products from our customers’ portfolios and a pause in the manufacture of one product into the beginning of our next fiscal year while our customer sells through their existing inventory. However, as Joe touched on, we expect this category to be a source of significant revenue growth during the second half of this fiscal year. Compared to the first quarter, revenues grew by $500,000 due primarily to increasing engineering revenues, improvements in order volumes at Ross, and the production start of the new defense aerospace program that Joe mentioned earlier. We have taken proactive measures within our Ross Optical operation to continue revenue growth, including the onboarding of a new technical salesperson in the second quarter, and a revitalized digital marketing program.
For the second quarter, our gross margin was 30.1% compared to 44.2% in the same quarter last year. Excluding the technology rights revenue I discussed, gross margin for the second quarter a year ago would have been 37.8%. The biggest driver of the gross margin decrease is reduced overall sales and lower utilization of facilities. Additionally, while engineering revenues continue their trajectory of growing sales, we had 34% of our sales in the second quarter in the materials component of engineering sales, compared to a more typical 24% of sales in the first quarter. Since the margin on materials is only 20%, this factor serves to dampen overall margins. We also recorded a one-time increase to our excess and obsolete inventory reserve in the amount of $75,000 after a thorough analysis, driven by preparations for our new ERP system, which we are excited to say will go live at the end of this month after the lengthy and dedicated efforts of our team.
Finally, gross margin was negatively impacted by startup inefficiencies associated with programs transitioning to, or restarting production during the second quarter. We have already addressed these inefficiencies, mainly embodied in low startup yields, and expect margins for these programs to recover nicely in the third quarter and beyond. Total operating expenses in the second quarter were $2.16 million compared to $2.03 million in Q2 of last year, or an increase of about $125,000. Increases in travel expenses, and the allowance for accounts, as well as an increase in stock-based compensation expense during the quarter were the main drivers here. Despite the anticipated increases in revenue for the second half of 2024, we expect quarterly operating expenses to remain substantially constant.
As a result of the year-over-year decline in revenue and gross margin, net loss during the second quarter was $759,000 compared to a net income of $508,000 in last year’s second quarter, which of course includes the $600,000 of technology rights revenue. Adjusted EBITDA, which excludes stock-based compensation, interest expense, depreciation and amortization, was negative $269,000 for the second quarter of fiscal 2024 compared to positive adjusted EBITDA of $866,000 in the second quarter of last year. Again, the key driver here was the decrease in production revenue, and the technology rights agreements included in last year’s financials. Our cash balance at December 31, 2023 was nearly $1 million, compared to $1.4 million at September 30, 2023.
The change in cash is consistent with our EBITDA loss and normal debt repayments in Q2. As a reminder, we continue to maintain full availability on our $1.25 million working capital line of credit with our bank. As we look to the third quarter of fiscal 2024, we expect to see sequential quarterly revenue growth similar to the growth from the first to second quarter, due to key production deliveries against existing customer orders, and a continuation of strong engineering revenue. We believe these higher revenues, along with improved margins, will result in higher profitability and positive adjusted EBITDA. I will now turn the call back over to Joe for some final comments.
Joe Forkey: Thank you, Wayne. I’d like to summarize a few key points before we take questions. First, our engineering pipeline is as large and robust as it has ever been, with record engineering revenue in the second quarter. We believe this is a key leading indicator of future production revenue increases. While total second quarter revenue was down year-over-year, we grew revenue sequentially from Q1 to Q2, and expect to see continued growth in Q3 in Q4 of this year. With growth in revenue will come increase utilization of our manufacturing capacity, and thus improvement in gross margins and the bottom line. Our technological capabilities are highly sought after. We are one of only a few companies in the world that can deliver the type of micro-optics and digital imaging that are supporting the next generation of medical devices.
The segments of the medical device market that we operate in are growing quickly, and we expect to benefit from this surge in new devices that are coming to the market in the coming years. With a number of production orders in hand that support sequential revenue growth in the back half of fiscal 2024, coupled with continued strength in our engineering pipeline, we remain optimistic for a strong finish to fiscal 2024, and look forward to ongoing growth in future years. To all of you on the call, I thank you for your continued support of Precision Optics. We’d be happy to take questions at this time.
Operator: We will now begin the question-and answer-session. [Operator Instructions]. Our first will come from Chris Vichovski, a Private Investor.
Chris Vichovski: Hello. Thanks for taking my question. You said a lot of engineering revenue this quarter, now is that all going to turn into manufacturing revenue in future quarters, or do you sometimes just do engineering on contract, or is everything for something that you start producing in the future?
Joe Forkey: Yes. So with very few exceptions, we only take programs into our engineering pipeline that we expect will go to production. Now that doesn’t mean that 100% of everything that we do in the engineering pipeline ultimately gets to production, but we do go through a fairly thorough analysis before we accept an engineering program, and evaluate the programs with a high focus on the likelihood that they’ll go to production. So the short answer is everything in the engineering pipeline we work on with an expectation that it will go to production.
Chris Vichovski: Okay. So this huge growth in engineering — this large growth in the engineering revenue, it’s important for even larger revenues in the production side.
Joe Forkey: Exactly.
Chris Vichovski: Okay. On that program, you mentioned, that you expect for it to be the largest program — and I think that is going to be in the fourth quarter, it’s going to start — could you tell a non-medical professional exactly what it’s going into?
Joe Forkey: So I can tell you briefly, we’re constrained a bit by the nondisclosure agreements we have with our customer because they have not announced publicly what it is that we’re doing for them. But it’s a cystoscopy system, which means that it’s used in urinary tract. And it’s a robotic type system. So it’s a robotic system that has an endoscope that goes into the urinary tract to do various things.
Chris Vichovski: Okay. And is it one-time use?
Joe Forkey: It is. Yes.
Chris Vichovski: Okay. So I guess you’re going to be making lots of them.
