Management Talks: Inside Optex Systems
A 1:1 with Optex Systems’ CEO on armored vehicle optics, prime contractor signals, and staying mission-critical across budgets
Estimated Reading Time: 8 Minutes
If you’re new to the Optex Systems ($OPXS) story, start with this deep dive — it covers the company’s sole-source positioning, backlog dynamics, capital efficiency, and why I believe it’s a well-run, high-quality operator in the defense space.
Since publishing that piece, I had the opportunity to sit down with CEO Danny Schoening for a detailed 1:1 conversation, joined by a fellow investor. We covered everything: margins, manufacturing pain points, sole-source myths, commercial moonshots, and his succession plan.
This is a walk through of the key questions I had going in — and what I walked away with.
The tone is deliberate. The quotes are real. And the judgment is mine.
How much headroom do you have before needing major expansion?
When I asked about how much Optex can grow before hitting a hard ceiling on production, Danny broke it down between their two business lines — AOC (optical coatings) and Optex (periscopes and mechanical systems).
“The AOC facility today runs more of a multi-shift operation because they have coating chambers, and the majority of their business supports the LASs or LFUs. Those chambers sometimes will have a coating run that’s several days. We’re probably running at about 50% capacity over there. We could probably double revenue without needing more footprint or new coating chambers.”
On the Optex side:
“We’re more people-constrained. We’ve got enough machine tools — CNCs, bonding fixtures, paint ovens. So as volume increases, we just hire more people. Eventually, you run into physical constraints like parking spaces or needing a second shift, but right now, we’re around 30–40% capacity utilization.”
“We could easily double, maybe triple revenue across the company before we need to spend on major expansion.”
Is 20%+ Growth Sustainable?
“We’re not giving guidance, but yes, we see continued strong double-digit growth. $75 to $100 million in revenue in five years is not out of the question. But that probably means taking on new product lines and some investment.”
They’re not trying to grow at all costs. They’re following customer demand, and they’re cautious about stretching the business too thin.
Is your TAM limited by your 80% sole-source exposure?
This was my biggest question going in.
Optex says ~80% of its revenue is sole-source. That’s attractive from a margin and moat perspective, but it raised a concern for me: If you’re sole-sourced, does that also mean you’re boxed into a finite set of platforms? Can this business actually scale meaningfully?
“We can’t drive demand. If you cut our prices in half, you’re not going to get more Abrams tanks. But the U.S. keeps adding platforms. And they rarely retire old ones. Everything gets upgraded.”
“The Armored Multi-Purpose Vehicle (AMPV) program is one example. That’s new work for us. Plus, we continue to support legacy systems like Bradley and Abrams.”
“We’re also seeing demand out of Europe. Defense spending is increasing, and armored vehicles are going to be part of that. Our optical systems and coatings are relevant there.”
That helped clarify it for me. Demand creation is out of their hands — but platform count is expanding, and legacy platforms persist. So it’s not a shrinking niche. It’s a growing one.
Can I use prime contract wins to predict Optex backlog?
I was already tracking GDLS and BAE awards — I wanted to confirm if that was meaningful.
“That’s a fair signal. If GDLS or BAE wins something on platforms we support, you’ll usually see an order release to us within six months.”
“Lead times vary. Our components are typically 7–12 months. So we get slotted in fairly early after contract award.”
“Sometimes the government buys direct from us through DLA and furnishes the components to the prime. Other times, the prime buys from us. It depends on who wants control.”
This is helpful. BAE and GDLS contracts are valid leading indicators. Just track the right programs.
How large is Optex's piece of these prime contracts?
Even if primes win big awards, how much trickles down to Optex?
“It depends on the content, but it’s usually less than 1% of the total contract value. We’re a small part of a much larger system.”
“There’s some unpredictability — some of our units go to depot refits, others go to production. But we usually have a good view within 6–12 months.”
Small dollar value — but critical functionality. And that still flows into high-margin backlog.
How does Optex fit into a $1T defense budget under Trump?
Given the election cycle, I wanted to understand how funding changes might impact them.
“We’re not at the top of the pyramid, but we’re critical. If a $3M vehicle comes in for upgrade, they’re not going to quibble over a $1,000 periscope. They just replace it.”
“So yes — more platforms, more upgrades, more budget — that helps us. Quietly, but consistently.”
This is a hidden beneficiary of elevated defense spend — with high visibility and low political noise.
What caused the margin drop — and is it fixed?
Margins were hit due to legacy IDIQs. I wanted to understand if the issue was structural or one-off.
“We had fixed-price IDIQs from before COVID. Costs went up, but the government wouldn’t reopen them. We tried. They said, ‘You’re still standing. You’ll be fine.’ So we took the hit.”
“Now we include inflation clauses. It slows down some negotiations, but it protects us.”
The worst looks behind them. Future contracts are being negotiated smarter.
Why even pursue commercial products like Speedtracker and REACH-R?
They launched REACH-R and Speedtracker — both for rifle scope users.
“We’ve been selling to Nightforce for about 10 years. That’s most of our commercial revenue.”
“We built REACH-R and Speedtracker internally. REACH-R adjusts optical alignment for ultra-long shots. Speedtracker is a radar-based chronograph that mounts on the rifle.”
“We’re not spending big on this. No marketing push. If it works, great. If not, we didn’t burn a lot of cash.”
It’s low-risk. Built off existing R&D and relationships. Not a distraction.
Are you doing anything with AI or smart systems?
Everyone says “AI” — I wanted to know if they were actually doing anything real.
“I filed a patent on a ballistic solver that uses AI. It pulls shot data from users in the same area — same GPS location, same caliber, same bullet — and looks at actual results.”
“If everyone shooting from the same ridge overshoots due to wind, the system learns that. It’s not just physics, it’s observed performance.”
Genuinely interesting application. Especially since it builds off their existing shooting optics base.
Is there real exposure to drones and future-facing defense tech?
I wanted to know if Optex is relevant to emerging platforms — or just legacy armor.
“We’re on IVAS, now with Anduril. Our laser filters protect the optics from laser strikes. That tech also applies to high-end drones.”
“We’re not in the disposable drone space. But on the high-value ones, our coatings are useful — especially as counter-drone and laser disruption tech evolves.”
So there is relevance. Quiet exposure to a major area of growth.
What’s your moat — and how do you keep competitors out?
This was one of my core diligence points — how defensible is this business, really?
“We’re a cleared facility. That alone is a barrier. You can’t bid on classified specs unless you have the clearance and infrastructure. We’ve also been qualified for 20+ years on these platforms. That means primes trust us.”
“We’re cost competitive. We’re vertically integrated. We’re in North Texas — which gives us access to technical talent and materials. We’ve built up reliability metrics with the primes. We’re a known quantity.”
“BAE grades all their suppliers. We’ve been a Gold Supplier — their highest level — for at least four or five years.”
“We’ve had investors ask whether a prime might backward integrate. Maybe. But then you have to ask: what happens to everything we supply to their competitors? We’re Switzerland. That neutrality matters.”
How strong is your board — and are they actually engaged?
I’ve seen too many small-caps with passive boards. I wanted to understand the bench strength.
“We’ve got three independents. One is a former L3 guy — strong on defense trends. Another runs a fund and keeps us straight on SEC and governance. The third is an operator — sharp, detailed, and the first guy to ever go out, research something, and present it back to the board.”
“They’re engaged. We debate options. Last fall we modeled four investment opportunities in a pro forma P&L. We agreed to move forward with three, shelved one.”
They’re functional and actually helpful.
What’s your capital allocation mindset today?
I wanted to know if there’s a default playbook — or if they’re flexible.
“We’ve tried all the usual levers — CapEx, dividends, small M&A, buybacks. Nothing is off the table. But we don’t have to act right away.”
“The board wants to see clarity. We’re in the ‘evaluate and model’ phase right now. Probably 6–12 months before we commit hard to one direction.”
Sounds cautious but competent. No pressure to deploy — just make the right call.
Would you sell the company?
Always worth asking.
“We’ve had inquiries. We’re not scared of it. If it made sense for shareholders, customers, and employees — we’d consider it.”
“We’ve all been through acquisitions. The AOC team has had three different names on the building — L3, Northrop, Raytheon. Doesn’t rattle them.”
Are you staying on as CEO — and is there a plan if you step down?
Danny has been with Optex for over a decade.
“Yes. No plans to leave. But we’ve done succession planning. If and when the time comes, I’d probably move to a mentorship role. I own 13% — I care about what happens.”
What’s the biggest risk? What keeps you up at night?
This is my last question in every CEO call.
“Supply chain issues. We buy from small shops. If one misses a delivery, we’re stuck. That’s the risk.”
“We try to dual-source where we can. But this is manufacturing. It’s not remote work. You have to show up and build the part. I tell our HR team — until someone figures out how to build a periscope at home, we’re staying onsite.”
Practical and grounded.
Final thoughts on investor understanding — what’s misunderstood?
Always useful to hear how the CEO thinks outsiders misread the story.
“People underestimate how hard manufacturing is. You’re bridging billion-dollar primes on one end and mom-and-pop shops on the other. There’s a lot of complexity.”
“We’re not a software company. You don’t get hockey stick growth. But we show up. We deliver. And we earn trust one part at a time.”
That explains the cultural DNA of the company better than anything else.
Final Reflection
Optex is a capital-efficient, backlog-backed, margin-recuperating defense optics supplier with optionality in new domains — and a management team who knows how to grow without betting the house.
It’s not a “buy and forget.”
But it is the kind of business where — if you follow backlog, contract cycles, and management execution — you can compound quietly alongside them.
Low ego. High competence. Real work.
Disclaimer:
This is not financial advice. I hold what I write about — but I’ve learned the hard way that being early and being wrong can look a lot alike. Do your own homework. All opinions are my own. I haven’t been compensated by any company to write this.