LPTH - LightPath Technologies Inc. (LPTH) Q3 2023 Earnings Call Transcript
2023-05-11 20:36:07 ET
LightPath Technologies, Inc. (LPTH)
Q3 2023 Earnings Conference Call
May 11, 2023, 05:00 PM ET
Company Participants
Albert Miranda - CFO
Sam Rubin - President and CEO
Conference Call Participants
Brian Kinstlinger - Alliance Global Partners
Gene Inger - ingerletter.com
Presentation
Operator
Good afternoon, everyone. And welcome to the LightPath Technologies Fiscal Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
At this time, I'd like to turn the conference over to Albert Miranda, Chief Financial Officer. Please go ahead, Alb.
Albert 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 our periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be prove to be inaccurate and there could be no assurances that the results would be realized.
In addition, references may be made to certain non-generally accepted accounting principles or non-GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports and certain press release which include reconciliations of non-GAAP financial measures and associated disclaimers.
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 fiscal year. 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 2023 third quarter financial results conference call. Our financial results press release was issued after the market closed today and posted to our corporate website.
As expected -- we as we expected would happen to some degree shipments in the third fiscal quarter of 2023 were impacted by the ongoing construction and expansion of our Florida facility. And while we planned and expected for some disruptions from the move and expansion, this resulted in between a million to 1.5 million of products that was not shipped in the quarter. Those orders however, are not lost, and their shipment moved into Q4 the current quarter we're in. Completing such construction will position the company for larger, more sophisticated orders, a growth that is backed by a strong backlog and continued bookings and customer commitment.
In prior quarterly calls we discussed LightPath's strategic shift from a components manufacturer to a value added solutions provider. To discuss this further, I'd like to use a framework of talking about three pillars of growth as I started communicating in recent months. Some of those points we've discussed previously, the complete understanding is important.
The three pillars of growth we look at the shift to the solutions business, the increase in defense business driven mostly by our new materials, and the new high volume markets primarily automotive. While the latter two growth fellows are market and application-driven, the first the solution approach is they strategic in nature, and in many ways ties into and enables the two strongest growth segments.
Our solution business defines the first part of our growth strategy. The solutions business is built on leveraging unique capabilities we have and continue to develop and provide customers with solutions engineered to their exact needs that solve problems that deeper current solutions don't solve all of too expensive. Over the last two years, and setting the strategic direction plates, we have been execute and get in the level of length simply. Instead of selling individual lenses offering and delivering assemblies that include multiple lenses, often designed to specific customer requirements.
Today about 20% of our backlog of future deliveries is comprised of such lens assembly. In addition to this organic expansion into assembly, in December 2022, we announced our first imaging product, more than just saying lens assembly designed for a specific detector. Our Mantis imaging module is a unique combination of a special lens assembly together with a modified microbolometer array detector to deliver multispectral infrared camera. The Mantis multispectral infrared camera not only provides customers with more advanced imaging system, one that images in more than one spectral range, but also demonstrates the next level of offering for LightPath integrated optical systems with imaging electronics to deliver cutting edge infrared solutions.
While our intention here is not to be a manufacturer of a line of off the shelf infrared cameras, we have developed a camera product as an example and design reference that will be the basis of customized OEM modules for integration for specific application. This approach is somewhat different than the organic growth into solutions so far. In a way we have built a hammer that demonstrates unique and advanced capabilities, and are now working closely with our customers to uncover the right nails that would benefit from this hammer.
So far, we have seen strong interest and reception in the market to the unique capabilities of an imaging solution like Mantis. Those include a number of applications in the defense space, as well as commercial uses, such as sorting, plastic and recycling, fire detection, and more. It is clear to us that the need for such an imaging solution exists. And then some applications and customers were simply waiting for such a solution to appear at the right price point.
Instead of a $100,000 cryogenically cooled camera, that was the only option until now, we are now offering a solution for an order of magnitude less.
Over the last few months, our camera has been tested and evaluated in a number of applications, and has especially received significant attention with some groups inside Department of Defense. We're very encouraged by this and believe it will lead to significant OEM business of customized solutions.
Also, in addition to working with customers on their applications, we developed some unique technologies around it for which we have been applying for patents. In the last few weeks, we have applied for more patents than the company has in the last 10 years combined, representing a significant buildup of unique IP.
The second pillar of growth of our growth is revolves around defense and leveraging our unique infrared materials. This is in addition to any defense business I discussed in relation to the camera. The defense industry, whether the U.S. or Europe has been using infrared optics for a long time. Stable supply chains already exist, provide times and sometimes with the optics and optical systems they need.
To achieve significant growth and the market share in such an established market while commanding a premium, LightPath is leveraging its unique and exclusive materials for infrared imaging as an entry point into new programs and to become a supply of choice for infrared optics in the aerospace and defense industry.
The advantages our materials provide are twofold. First, it is an alternative to using germanium for infrared optics. The DoD and White House identify germanium as a strategic vulnerability within the supply chain. With most of the germanium originating from China and Russia, it is of strategic importance to have alternatives. We have been working with the DoD and various government agencies to accelerate the qualification of our new materials. Most of this work is funded directly by those agencies.
Secondly, our materials provide additional advantages over germanium, primarily in complex imaging systems. A good example of that is our own Mantis camera, which could not be made possible if we were to use only germanium. While new defense contracts can take a significant amount of time to come to fruition, we're seeing very positive lead indicators because the success of this strategy, as well as some faster wins as evident in our backlog.
The first part of our growth strategy concerning the adoption of thermal imaging or infrared imaging in general, in more applications, and right now primarily with a focus on automotive. Independent of some of the other activities and advancements in automotive, such as -- in the automotive world such as LiDAR, multiple car companies are working towards the integration of thermal imaging as another safety sensor in their system. Primarily, we are things this in relation to automatic braking systems, and adding additional safety features.
We are in different stages of development and testing with various players in this field. And while each one has different timelines, different use cases and different projections, one stands out in our pipeline. And that is a major car company out of Detroit, it has already fully qualified our product.
To put this into the right perspective, though we obviously do not expect to win all the opportunities on our plate, neither all of them necessarily turning into final product, with a price tag of between $20 to $50 per assembly and with tens of millions of new vehicles hitting the voting each year, it is enough for us to win one, or even two major accounts for this to be transformational for our company.
Last since we completed the equity raise in January, we have accelerated construction on expanding our Florida facility. The purpose of this construction was to increase our facility capacity and capability. We're excited to have the construction phase behind us as we are now back at full capacity and expect the next construction phase to be completed in the second half of the calendar year. With our facilities increased capacity, we will soon look to add capabilities, which we can see coming from both organic and inorganic development.
As always, I would 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 drone company because of their dedication, patience and hard work.
That's it. I will now turn the call over to our CFO, Al Miranda, to review our first quarter financial results. Al?
Albert 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.
I will discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company.
On a consolidated basis revenues for the first quarter -- excuse me, third quarter were $7.4 million, compared to $8.3 million in the year ago period. Sales of infrared products were $3.6 million or 49% of the company's consolidated revenue of fiscal third quarter. Revenue from Precision-molded optics or PMO products was $3.1 million or 42% of consolidated revenue. Revenue from specialty products were $0.7 million or 9% of total company revenue. The decrease in infrared product sales is due largely to timing issues related to a renewed large annual contract, which was partially offset by the sale of the majority of the company's infrared catalog inventory to Edmund Optics.
Decrease in PMO revenue was primarily attributed to a decrease in sales to customers in the telecom and commercial markets, partially offset by increases in defense and industrial customers. PMO sales in China continue to be soft across all industries. The increase in specialty optics during the quarter was a result of increased demand for collimated assemblies and custom visible lens assemblies to the medical industry.
Gross margin in the third quarter of fiscal 2023 was approximately $2.5 million, a decrease of 16% as compared to approximately $3 million in the same period of the prior fiscal year. Total costs of sales were approximately $4.9 million for the third quarter of fiscal 2023, compared to approximately $5.3 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 34% for the third quarter of fiscal 2023, compared to 37%, for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue is partially due to lower revenue level, with the less fixed cost coverage as well as the mix being more heavily weighted to infrared products.
PMO products which typically have higher margins that are infrared products comprise 42% of revenue for the third quarter of fiscal 2023, as compared to 49% of revenue for the third quarter of fiscal 2022.
SG&A costs were approximately $2.8 million for the third quarter of fiscal 2023, an increase of approximately $140,000 or 5%, 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 increase in stock compensation, and other personnel related costs. We also incurred approximately $129,000 of costs related to the exit of our secondary facility in Orlando, for which our lease ended in February 2023.
Net loss for the third quarter of fiscal 2023 was approximately $1.2 million or $0.03 basic and diluted loss per share, compared to $495,000, or $0.02 of basic and diluted loss per share for the same quarter of the prior fiscal year. The increase in net loss for the third quarter of fiscal 2023 as compared to the same period, the prior fiscal year was primarily attributed to lower revenue and gross margin.
We believe EBITDA, a non-GAAP financial measure is helpful for investors to better understand our underlying business operations. Our EBITDA up for the quarter ended March 31, was a loss of approximately $242,000 compared to earnings of $647,000 for the same period of the prior fiscal year. The decrease in EBITDA in the third quarter of fiscal 2023 was primarily attributed to lower revenue and gross margin.
As of March 31, 2023, we have working capital of approximately $16 million in total cash and cash equivalents of approximately $9.9 million, of which greater than 25% of our cash and cash equivalents was held by our foreign subsidiaries. Cash used an operation was approximately $921,000 for the third quarter of fiscal 2023, compared to approximately $352,000 for the same period of the prior fiscal year. Cash used by operations for the first nine months of fiscal 2023 is largely a function of the pause in production during the third quarter, as inventory was built and not shipped.
The increase in backlog during the first nine months of fiscal 2023 was due to several large customer orders. One such orders a $4 million supply agreement with a longtime European customer of precision motion control systems and OEM assemblies. Shipments on these large orders will begin between next quarter and ship during the following 12 to 18 months.
I'd like to comment on two points for the quarter. First, we still good about the Q3 gross margins, given the low shipping volume 34% in Q3, compares favorably to 30% in Q1 on similar revenue and mix, which we believe is a testament to the operational improvements we've been making. Second is the equity raise. As we said, we're planning on using the proceeds over the next 12 to 18 months for production capacity and new capabilities, particularly as it relates to our assembly business.
The raise also enabled us to achieve favorable terms with our senior lender, including monthly principal payment reduction, removal of financial covenants, lifting of restrictions on acquisitions, and removal of limitations on other financing sources. This really gives us the creative freedom to manage cash and debt in a sensible way to meet the company's growth needs, including finding a new finance partner.
With this review of our financial highlights and recent developments concluded, I'll now turn the call over to the operator to begin the Q&A.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brian Kinstlinger with Alliance Global Partners. Please go ahead.
Brian Kinstlinger
Hi, guys, thanks so much for taking my questions. I got a bunch. We'll start with some around the numbers. The large renewal order that started to shift but hurt your year-over-year sales for infrared. How much was that a year ago versus this quarter? Or what was the headwind from that?
Sam Rubin
Well the biggest impact of the move here in Orlando has been the coating chambers for the infrared. So all right, we're not only that, most of the impact from the downtime that we had, would show up as impact in sales of infrared.
Brian Kinstlinger
I thought you -- in addition to that, I thought you said that the timing of that order for year-over-year comps. So I was just wondering what that was. Sorry, go over there afterwards. That's okay. When I looked at the Q, with a little surprised, even with the Orlando facility down what unit volumes were, then I was even more surprised to see that the average selling price I know it in swing was almost twice what it almost ever is, or both your main category. So can you help me understand these dynamics?
Sam Rubin
So twice being higher, right.
Brian Kinstlinger
Almost $100 a unit, whereas normally it's $50 to $70?
Sam Rubin
Yeah, so the biggest impact, the biggest driver to that is really the decrease in sales in China, where we've spoken in the past about the big drop in revenue, nearly two thirds of our sales in China 20% of our global consolidated sales have gone away, basically, because of the different events in China geopolitical primarily, but not only. And those are all tend to be on the lower end of the spectrum of products, meaning really down to the components, single dollar lenses around, $1, even sometimes. So less of that is really driving water of the unit prices up, the ASPs as well as, of course their assemblies and quarter the shift into some more engineered solutions, which is taking us to hundreds of dollars and thousands of dollars per unit.
And Brian, that's the telecom industry, particularly out of China. Where --
Brian Kinstlinger
And what about infrared? That was like $128 per unit, as opposed $80 for the last few quarters? I mean --
Sam Rubin
The second customer in China with the infrared, it was for consumer level product, that we're using infrared lenses.
Brian Kinstlinger
Okay. So a couple of big picture questions. Maybe an update on I mean, you gave us a lot of information this quarter on Mantis. In the last conference call, I think you said you were probably six months away from its initial sales. So maybe update us on where discussions are with OEMs and partnering with you. And does that timeline still hold?
Sam Rubin
Yeah, absolutely. I think we have very extensive tests. And don't feel the lab with different groups in the DoD, which naturally, we cannot talk too much about the application there. But I would say that the different groups there have been evaluating our cameras or taking deliveries of samples such for a while now for a couple of months. And things look very, very positive and some elements, the results they were showing us that they got even better than we thought could could be.
But those are more of the technology development groups within DoD, different not research labs, but different application labs or technology developments. So that move into actual product for the most part exception of two groups, the most part, it takes longer.
In the commercial side, we've had a lot of very interesting conversations, leaving some field tests as well, in firefighting, and some industrial applications of high temperature process monitoring, in plastic recycling, and more. I believe in the next few weeks, we'll already start shipping some small volume of units to some of those customers for them to test integrating them into their applications. But we're still a few months away from for many substantial, I'd say commitment around it.
Brian Kinstlinger
Right. Okay. And then you talked about the auto breaks opportunity, which is great to hear more about it. Last quarter, you talked about it here when I thought it was just supplier, but you're talking about a car manufacturer, not a supplier.
Sam Rubin
I meant the supplier. So we're just, it's that level of products, we tend to get involved in more than one level. So we're supplying to the integrator that we know very well who said car company is and have some interaction with them.
Brian Kinstlinger
So your primary customer with the tier one, whose primary customer will be a Detroit car manufacturer.
Sam Rubin
Correct, yep.
Brian Kinstlinger
And then and so again, back to timeline. I don't want to hold you exactly to it. But I mean, you sort of five to six months away, maybe from a supply agreement. Is that still feel right, I guess, I don't care about margins, [multiple speakers] major changes to that timeline.
Sam Rubin
Yeah, nothing, nothing changed to the worth in that timeline. But we're not there yet. So anything can happen. But there's been no negative changes in any way. On the contrary, even some discussion of increasing the scope of work, so we will do more assembly than initially, but I'd say that's going well right now.
Brian Kinstlinger
Okay. And then my last question is, you've got three major government agencies in the U.S. and Europe that have -- you talked about approved and completed testing on BD Six. So when could this become a catalyst to revenue? And what do you think has to happen in order for that to actually take off?
Sam Rubin
Yeah, we expect from the different projects or programs with different government agencies, which funded those for over $1 billion to this point. We expect in the next two months to be compiling all of that data into some commercial form that would then help our customers start to take delivery of BD Six in a more standard fashion, meaning they can still have the proper book cover specification and also technical data they need.
And at that point will start selling I think more of it, sometimes even in the more war format, where would it be selling it uncoated for example, the search to customers that wanted to do some additional processing guide. So we expect in the next couple of months to start seeing a bit more of a drive on that.
Brian Kinstlinger
Great. Thanks so much.
Operator
The next question -- excuse me. The next question is from Gene Inger with ingerletter.com. Please go ahead.
Gene Inger
Hi, Sam, an Al.
Sam Rubin
Hi, Gene.
Gene Inger
Hi. It's sort of an interesting time. Obviously, the preceding quarter is, I'm sure I'd say use an old Irish word a little bit, nebbish. But I don't think that's what we're all holding shares in LightPath for we're looking to the future as are you. Because it's pretty obvious to me at this point, that this company is primarily about the new directions and new solutions, and so on. Although I do want to ask you one question about BD Six, which the other gentleman was just asking about. Because you have talked, you've said before, I think that you could make as much as 10 metric tons a year of that. And the assumption has been that it's sort of a secret sauce that you don't want to license or sell the materials. And that you wanted to promote them specifically for your own thoughts, is that the case or is this now something you would like?
Sam Rubin
Yeah, I separate it into two parts. We sort of created a bit of a confusion over the years by talking about BD Six, BD Six, BD Six. Where now, BD Six and number Six is one of 12 material, where 10 of the other materials are licensed from Edmund are exclusive to us. So BD Six, as the general material has equivalent materials made by companies like [Indiscernible] for example. And so that one is not a secret sauce alone, it's not proprietary completely. The BDML [ph], the Naval Research Lab materials, those are the ones that are completely exclusive. And where we do not plan to sell of material. But the BD Six itself, we see no reason down the road to sell it to the material even given that there are others that exist similar to that and it can help there were economies of scale in the manufacturing of the globe.
Gene Inger
Okay, at the recent Photonic Show, I chatted with a number of major military contractors, defense contractors. And they all seem to know LightPath, they all seem to acknowledge they do some business with you guys. And I tend to have a focus on something that you may not want to touch upon, but seems obvious to me. I think I've mentioned this to you, Sam. And that is the smaller multispectral cameras have a use in a particular product, which doesn't come back to its base, and that is a drone. And I'm thinking what -- that I'm talking not about a drone in general that you want to come back, but what are termed kamikaze or suicide drums? Could you expand on that a little bit more? Or are we going beyond an area that can be discussed?
Sam Rubin
Well, I'd say obviously, we can't discuss the exact programs within the DpD. But I would say that loitering munition, what do you call the kamikaze drone for different missiles that are based on heat seeking are products that we are already embedded in, as well as multiple way more than one programs under development of next generation of some of those? So I'm not surprised. I'm happy to hear that. Everyone you spoke to a new lover. I don't think that they need defense company out there that we don't work with [indiscernible] at this point. Although we're not the only infrared optics supplier for now, at least, that we're working on that stuff.
Gene Inger
Okay. I really don't have questions about previous performance. Because I think we all know what the situation is. And I actually think you and Al has balanced the monies and held things together pretty well, considering that what you're really doing is taking care of things until you arrive at the point of these new product relationships, I presume.
I would like to ask you, though, you did think that it would be this quarter, the next quarter, I realized things got delayed. So you're still anticipating whether it's the military, probably maybe before the automotive, there'll be something you can announce and quantify by the end of this summer?
Sam Rubin
I very much hope so. I'd say we're juggling multiple balls in the air that have the opportunities that that would potentially be over $10 million each in the longer run. And I look at those are sort of in a way options to some degree. And as you know, we don't need all of them to happen concurrently with all of that will happen, but some of them will for sure. And the timing of it, I'm hoping that by the end of this summer, we might have some good progress to talk about. But I'm not anticipating necessarily a large announcement or a short term revenue from this.
Gene Inger
Well, I would say all you have to do is since you've talked about integrating the thermal products into technology, it's almost like being embedded on a board. Maybe you should change the name of the company the LightPath AI.
Sam Rubin
AI does seem to flavor. But then, we might need to change it to something else when people lose some of the passion for AI.
Gene Inger
I don't think they will because I suspect it changes the world considerably. But in any event, I will leave that with the fact that LightPath have a stack. It's almost like an option that doesn't expire. But it just goes in a neutral sort of zone. I'm wondering where you stand on a topic that you've mentioned, exploring in the past, such as acquisitions or partnerships, as opposed to simply selling these products, even when they do get to fruition?
Sam Rubin
Yeah, I think that the more we-- the further along, we're getting with stabilizing the business automation to financial performance, as you pointed out, the more we can start looking at some strategic investments or partnerships, that would bring us to the next level of some of those. And naturally, as we're starting to do things like a sophisticated camera with electronics, their PGA [ph], some processing on it on board, and so on, naturally, we would want to add capabilities there.
Gene Inger
And I will leave you with this last question, because I have to jump off. But the last question is going to be you have a really good backlog at the current time. Do you feel that the problems you've had, because you haven't ramped up Orlando fast enough with the new equipment? Do you feel that you'll be able to meet and fulfill that backlog, because you don't want to make customers unhappy?
Sam Rubin
Yes, our production team and Peter Greif, our VP of -- have worked very hard at developing alternatives in places where we have some weak spots. And we're not ashamed to outsource even to competitors or to other companies in the industry, some parts or fabrication process or even coating when we need to, in order to deliver on time. So I'd say that the team has its pulling gold stuff, and in no means is letting any of those, I'd say events, such as the move of such prevents us from delivering. So we will deliver much better, margins will continue to improve as we add the capacity and capabilities. But for now, we're certain we can deliver on everything we have in the backlog.
Gene Inger
I'm going to leave you but I have to bring up one word space. You have not mentioned space. And I have a feeling because we've talked about low orbiting satellite communications and so on. Can you color or provide any indication of what if anything you guys are doing in that realm?
Sam Rubin
Sure, I'm pleased that we've had a number of projects in space over the last few years that I'm here. Most of them have been around optical communication. And definitely recently, we started seeing signs that some of them could potentially grow at a higher rate than we were expecting. I'm hoping to even be able to talk about this publicly in the next few quarters, but also the various optical communication, activities in space are things where they involved in different levels of different customers.
Gene Inger
Okay, thanks a lot guys. Good luck and fingers crossed that some of this happens sooner rather than later.
Sam Rubin
Thank you, Gene.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Sam Rubin for any closing remarks.
Sam Rubin
Thank you everyone for taking the time today to follow LightPath Technologies. We appreciate your the trust you place with us by our stakeholders and look forward for future calls where we will further discuss the fruits of our efforts to return to business and move the company forward. Thank you and goodbye.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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LightPath Technologies, Inc. (LPTH) Q3 2023 Earnings Call Transcript