LightPath Technologies, Inc. (NASDAQ:LPTH) Q1 2024 Earnings Call Transcript

LightPath Technologies, Inc. (NASDAQ:LPTH) Q1 2024 Earnings Call Transcript November 9, 2023

LightPath Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.04 EPS, expectations were $-0.02.

Operator: Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal First Quarter 2024 Financial Results Conference Call. Please note that, today's event is being recorded. And at this time, I'd like to turn the floor over to Al Miranda, LightPath's Chief Financial Officer. Please go ahead, Al.

Al Miranda: Thank you. Good afternoon, everyone. Before we get started, I'd like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations, involve various risks and uncertainties as discussed in its periodic SEC filings. Although, the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there can be no assurances that the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures.

A scientist working on a complex photonics instruments in a sterile laboratory setting.

Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures. Sam will begin today's call with an overview of the business and recent developments for the company. I will then review financial results for the quarter. Following our prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to Sam Rubin, LightPath's President and Chief Executive Officer.

Sam Rubin: Thank you, Al. Good afternoon to everyone, and welcome to LightPath Technologies' Fiscal First Quarter 2024 Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted on our corporate website. The first quarter was highlighted by our acquisition of Visimid and with it the win of a significant project for an imaging engineered solution. Both are significant steps in our strategic shift from a component manufacturer to a value-added solutions provider. To recap our investors, LightPath has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to a value-added partner for complete solutions based on optical technologies, who differentiate us on mostly based on technology.

A long-term lines we have been focusing on three pillars of growth: Imaging Solutions as a strategic shift, such as cameras, growth in new markets such as automotive and specifically growth in our market share of the defense business. All three pillars of growth tie into and support our transition from a components manufacturer to a provider of engineered solutions based on these proprietary technologies. This transition began a couple of years ago, starting from customized lens assemblies, which are what we call today LightPath 2.0 through camera solutions or LightPath 3.0. The first of which was our innovative mounted sport band infrared camera, which we announced in December and which enables new applications and capabilities for our customers.

The latest step in this transition is acquisition of Visimid Technologies. Visimid Technology is a small engineering firm based out of Dallas, Texas, does the back end of thermal cameras. and does what Lightpath has been doing for the front end of those same cameras. Lightpath has been tailoring and customizing the optics for cameras based on our optical technologies and Visimid has been customizing and tailoring the video processing engine and support electronics for the same cameras or similar cameras. The light LightPath base business model of customizing optical assemblies to be used in inferred cameras, LightPath has established itself as a go-to for customized -- customizing the electronics and software part of uncalled infrared cameras.

In fact, our relationship goes back a bit, where Visimid has customized four LightPath electronics and software for our MANTIS camera prior to the acquisition. Together with Visimid, LightPath can now extend our offering of Customized Imaging Solutions to include wholly Integrated Camera Modules, increasing the offering to existing customers and providing us a bigger share of those customers' bill of materials. Shortly after the acquisition of Visimid, Lockheed Martin, a major prime contractor in the defense world, awarded Visimid and LightPath, a major project for the design, development and later on manufacturing of a complete camera module for a new project in the Missiles Division. With the award came what will be up to $7.5 million of development work over the next three years.

However, the real significance of this award lies in what will come after the development completed. Once in production, we will producing this device in volume estimated at tens of thousands of units over the program lifetime and with an ASP for LightPath of thousands of dollars per unit. And I will let that sink in second, thousands of dollars per unit, tens of thousands of units in the program. This is a major achievement for LightPath and Visimid and can be very, very significant for our future. The decision of this time to outsource the development of such an important part of their system has been the first purely due to Visimid's technical capabilities. However, their decision to then engage with us at the scale they are now engaging and the potential manufacturing of these units in volume is really due to the combination of LightPath and Visimid, bringing our manufacturing capabilities, capacities and most importantly, ability to produce and integrate the entire subsystem.

And while our strategy and having three pillars of growth are designed such that we don't put all our eggs in one basket or one product, this award by a major time with this massive potential for revenue on the manufacturing side is seen by us as a big win to our strategy and the execution of that through the acquisition of Visimid. So this was one significant development that touches on two of our pillars of growth, The Defense Industry and The Integrated Engineered Solutions. In other areas, we continue to make progress some at better pace, others less. In the automotive market, we continue to work with new potential customers for the integration of thermal imaging into safety systems and specifically emergency braking systems. Though we have not had any significant development in the area since our last call two months ago, we do note, that some of the time lines of our end customers, meaning automotive companies themselves, might be impacted by what seems like a possible slowdown in the EV market.

Though we do not have anything specific to report on this, we do expect that some of the rollout might get delayed by a year or more with some of those customers as they adjust to their own rollout of new modules and the start date of both of these new systems. During the last two months since our September call, we have continued to make progress on some of the new offerings in our camera or solutions aerial growth. Applications for our Mantis camera continue to garner interest, and we are actively engaged with several customers on developing versions specific to their use cases. For example, in industrial monitoring of high-temperature processes and more. Our innovative use case of flame detection using our Mantis, which I mentioned in the last call, is now being actively evaluated by customers with the goal of first proving the value proposition of this technology before we dive into building specific tailored solutions for their exact used case.

Last, the plastic recycling applications we had previously discussed is taking longer than expected due to the complexity of the integration of what is called technically a hyper-spectral system. We still expect this to be a valuable application, but developing it would require a partner that will do the heavy lifting on the software development side. The first pillar of growth is the defense market and specifically around our unique black diamond materials and their use as an alternative to germanium. This is on track as we continue to move forward with qualifying our new materials and having them integrated into DoD projects. Noted in this area is the renewal of an order we announced in the beginning of October. That $3.4 million order is one of the first projects we know of, in which germanium was designed out purposely.

Similar to that, we have other projects in which systems are being redesigned to reduce or completely remove germanium. In some cases, we are involved or even do the actual redesign work. In other cases, we know of customers working on this and are collaborating with them to expedite it as much as possible. On that same topic, we note that while the exports of germanium have finally resumed out of China, the process to receive export license in China is cumbersome, and also seems to vary considerably between different vendors and different export ports in China. With that in mind, we have decided to try and to reduce our own exposure a bit by reducing our own work on components made of germanium for customers. As a reminder, among other things, we produced customer components in which we optically machine or form lenses out of germanium.

We have already communicated the customers proactively that we will be reducing our offering of components made from germanium, and we continue to work with those same customers at designing and developing alternatives made of our raw materials. We expect that this might have a short-term impact on our infrared component revenue as we discontinued some germanium work and gradually replace it with new work. However, our defense revenue continues to grow, particularly in the US, but non-defense revenue continues to be soft in China and somewhat softening in Europe. It is further exaggerated by the germanium supply and decisions around that. We are seeing slowdowns and delays in non-defense sector globally and anticipate continued softness for the next few quarters in those segments specifically.

World event and economics play out -- laying out confirms our decision to focus on defense and on solutions and assemblies. To conclude, our shift in strategic direction is beginning to show the results we're looking for, both in winning some major programs and in revenue growth in that area. Al will talk about our new product classification and how we will now communicate the new product grouping to support the strategy. At the same time, our three separate areas of growth, solution, defense and automotive continue to generate multiple independent large-scale opportunities that many of them have the potential for tens of millions of dollars of new revenue resulting in what we feel is a healthy pipeline of large-scale opportunities that any of them alone can be transformative and have a significant positive impact on our business.

As always, I'd like to thank our employees and stakeholders who have continued to work diligently through the various transitions and hurdles we have endured. We see a bright future and a growing company because of their dedication, patience and hard work. With that in mind, I will now pass the call on to Al, our CFO, to review first quarter financial results. Albert?

Al Miranda: Thank you, Sam. I'd like to remind everyone that much of the information we're discussing during this call is also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our website in lightpath.com to access these documents. I'll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company. For the first quarter, we've made significant changes to our product groups. We previously organized our products in three groups, which were precision molded optics, or PMO, infrared products and specialty products. We've been considering changing revenue reporting along the new product lines for some time to align with our strategy.

With the addition of Visimid in July, it became clear that the timing was right to make the change. We believe the new revenue groupings lend more visibility on our progress against our strategic goals. Therefore, we reorganized our products into four product groups. One is infrared components, two, visible components; three, assemblies and modules and four, engineering services. Assemblies and modules were previously included in PMO infrared or specialty product groups, depending on the lens type. We basically carved it out. So you can think of the new reporting as components being LightPath 1.0, assemblies and modules as LightPath 2.0 and 3.0 and engineering services as the activity that will create new revenue in assemblies and modules. With that said, on a consolidated basis, revenues for first quarter were $8.1 million, compared to $7.4 million in the year ago period.

Sales of infrared components were $3.8 million or 47% of the company's consolidated revenue fiscal first quarter. Revenue from visible components was $2.7 million or 33% of consolidated revenue. Revenue from assemblies and modules were $1.3 million or 16% of total company revenue and revenue from engineering services was $0.3 million or 4% of total company revenue. The increase in infrared component sales was primarily due to an increase in shipments against an annual contract of international military program. This contract was renewed during the first quarter of fiscal 2024 for a higher dollar value than the previous contract. The decrease in revenue generated by visible components is primarily due to a decrease in sales to customers in the telecommunication industry in China.

Approximately one-third of the increase from assemblies and modules is due to the addition of Visimid product sales. The remaining increase is driven by sales to customers in the defense industry and increased sales of a custom visible lens assembly to a medical customer for which we have an end-of-life order and backlog going into fiscal 2025. Approximately $175,000 of the increase from engineering services is due to the addition of Visimid sales. The remaining increase is driven by revenue from one of our space-related funded research contracts. Gross margin in the first quarter of fiscal 2024 was approximately $2.3 million, an increase of 4% as compared to approximately $2.2 million in the same period of the prior fiscal year. Total cost of sales was approximately $5.7 million for the first quarter of fiscal 2024 compared to approximately $5.1 million for the same period of the prior fiscal year.

Gross margin as a percentage of revenue was 29% for the first quarter of fiscal 2024 compared to 30% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to the decrease in visible component sales, which typically have higher margins than our infrared component product group, which comprised a greater portion of our sales for the first quarter of fiscal 2024. Selling, general and administrative costs were approximately $2.7 million for the first quarter of fiscal 2024 and an increase of approximately $23,000 or 1% as compared to approximately $2.6 million in the same period of the prior fiscal year. The increase in SG&A cost is primarily due to cost of approximately $83,000 associated with the acquisition of Visimid, which closed in July of 2023.

These costs were partially offset by a decrease in stock compensation. Net loss for the first quarter of fiscal 2024 was approximately $1.3 million or $0.04 basic and diluted loss per share compared to $1.4 million, or $0.05 basic and diluted loss per share for the same quarter of the prior fiscal year. Decrease in net loss of approximately $38,000 for the first quarter of fiscal 2024 as compared to the same period of the prior fiscal year is primarily attributable to favorable change in the provision for income taxes. We believe EBITDA, a non-GAAP financial measure is helpful for investors. EBITDA loss for the quarter ended September 30, 2023, was approximately $432,000 compared to $392,000 for the same period of the prior fiscal year. The decrease in EBITDA in the first quarter of fiscal 2024 was primarily attributable to other income and expenses, non-operating expenses.

As of September 30, 2023, we had working capital of approximately $11.4 million and total cash, cash equivalents and restricted cash of approximately $6.9 million, of which greater than 25% was held by our foreign subsidiaries. Cash provided by operations was approximately $1.1 million for the first quarter of fiscal 2024 compared to cash used in operations of approximately $415,000 for the same period of the prior fiscal year. Cash provided by operations for the first quarter of fiscal 2024 was largely driven by decrease in accounts receivable as sales were higher in the fourth quarter of fiscal 2023 than in the first quarter of fiscal 2024. Comparatively, cash used in operations in the first quarter of fiscal 2023 and reflected a decrease in accounts payable and accrued liabilities during such period resulting from the payment of certain expenses related to previously disclosed events that occurred in our Chinese subsidiaries, which had been accrued in prior periods.

Total backlog as of September 30, 2023, was approximately $21.3 million, a decrease of 7% as compared to $23 million as of September 30, 2022, compared to the end of fiscal 2023, our total backlog decreased by 2% during the first quarter of fiscal 2024. The decrease in backlog during the first three months of fiscal 2024 is primarily due to shipments against several annual and multiyear contract renewals and which orders were added to the backlog in prior periods. With this review of our financial highlights and recent developments concluded, I'll now turn the call over to the operator to begin the question-and-answer session.

See also 30 Most Popular Wine Brands in America and 25 Most Atheist Countries in the World.

To continue reading the Q&A session, please click here.