Q3 2020 Earnings Call
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Good afternoon, and welcome to the Lightpath Technologies' third quarter 2020, its financial results conference call.
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After today's presentation there'll be an opportunity to ask questions.
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Please also note today's event is being recorded.
Oh, and I'll pass the call off to Dawn retreat, Chief Financial Officer Lightpath technologies.
[noise] good afternoon.
Before we get started or likes to remind you that during this of course, if this conference on this conference call. The company will be making a number all forward looking statements.
Based on current expectations on involved various risks and uncertainties.
As discussed in his periodic SEC filings.
Although the company believes that the assumptions underlying these statements are reasonable any of them can prove to be inaccurate.
There can be no assurance that the results will be realized.
In addition references may be made to certain non generally accepted accounting principles are non-GAAP measures for which you should refer to the appropriate disclaimers on reconciliations in the Companys FCC Army press releases.
Following management's discussions there wouldn't be a formal <unk> session opened to participants on the call Oh, no like that burn a conference or disarmament, Vice President and Chief Executive Officer go ahead.
Thank you and good afternoon.
Welcome to like Puffed acknowledges fiscal Twentytwenty third quarter financial results Conference call.
Our financial results press release was issued after market close today and posted that coal put Pepsi.
Following my remarks, I would see a fell a little bit reach will serve to review our financial results and provide more perspective on key areas. We will then conduct acumen a session.
Now onto line with many of them ops.
I'm pleased to be able to kind of that's my first conference call with lifestyle at the time when our quarterly financial results showed consistent improvement in many areas.
As compared to tie it all year period, Enfamil performance measurement as compared to second quarter This fiscal year.
All things considered we find the results to be satisfactory, given the global economic conditions and the challenges some of that what customers employees and suppliers have been facing the result of that go with 19 and Debbie.
In line with previous updates regarding our operation during this time.
The designated essential suppliers to the medical industry, all at one manufacturing facilities in China, Latvia, and the U.S. remain open and production has been ongoing without any interruptions.
Our global workforce has visited dislocation to delivered solid financial results, while continuing to support that with customers, new and becoming a like and while keeping our workplaces their communities and their families safe.
And while we deal where does that come in to impact of the crisis, when our daily lives corporations government entities and educational.
Thank you patient community alike are developing strategies surrounding the new norm.
Section with life during and after cobot, 19, and what might be required to support that going forward.
In terms of lifestyle products. This pertain specifically that were infrared lenses used in temperature meeting he imaging set of things technologists.
During the third quarter, we announced and awards totaling more than 1.7 million for thermal imaging Glenn its assemblies used in medical and 13, you could applications.
Many of which being utilized to combat the spread of cobot 19.
This was just one important award we announced during the quarter, but more important question is how big this market opportunity maybe.
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Much attention on work has been put recently into developing safety protocols. So that business is businesses and institutions may reopened and operate safely.
According to reports Amazon for one large as to price as an example has commenced the years thermal cameras and its warehouses speed up screening workers with fever.
Who could be infected with cowen and diverse.
Such thermal cameras would use infrared lenses to measure how much eight people mitt relative surroundings.
Those devices are more efficient in requiring less time to conventional thermometers and do not require physical proximity to take a measurement.
While I went on warehouses into the US have stayed open during the pandemic enhance for example, it was reported at the company had temporarily closed six of its procurement facilities due to its canchola virus.
Thermal camera the temperature measurement initially garnered tension in Asia. After the salt epidemic in 2000 free when they were used in airports.
Beyond critical venues hospitals and difficult first responders other facilities are interested in installing remote thermal sensing devices, including mainstream businesses.
Okay. Examples of companies exploring the use of thermal camera technology include Tysons Food Corporation, and Intel Corporation hotels May also joined US free perhaps led by Wynn resorts, which announced it will be screening for temperature using non invasive thermal cameras.
All its hotels and chipsets.
Lifestyle stands ready and is actively planning for this potential growth driver.
This additional planning it's needed since demand for a number of our key products product lines has risen and bid and certified as a result consolidated revenue for the third quarter fiscal Twentytwenty was 8.7 million.
An increase of more than 10% as compared to first quarter fiscal 2019.
Growth was driven by demand for our new line of PD, six infrared lenses going into medical market and similar sensing applications as well as precision molded lens is for Fiveg and other telecom related applications.
This strength more than offset the decline in sales to academic institutes that are temporary close and two other sectors experiencing weaknesses, such as consumer goods market.
All of which are impacted by the restrictions imposed due to covert 19.
We have had a small number of customers hold or cancel shipments to cope with 19.
This represents less than high percentages of revenue for the third fiscal quarter.
About half of those are temporary plant closures due to local stay at home orders in their respective areas.
We expect that once the facility as we open and they can receive shipments they will take deliveries of those orders currently unfold.
In respect of the impact of the situation on our operations and performance. We're pleased to report since we have not had any employee impacted as we continue to take all precautions to ensure that our employees remain safe is that our businesses business operations continue.
We also continue to evaluate the situation with our supply chain and to look for ways to mitigate any risks we can foresee.
While we are able to continue operations were nonmanufacturing staff working from home system Mangement may ultimately have an impact on the delaying some long term projects and some research and development initiatives.
However, there has been no material or negative sustainable impacts to our business to report that we recognize the situation is fluid and we must will remain vigilant, which that preparation of contingency plans.
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Life's off has entered this covert crisis in a position of strength that has enabled us to effectively approach to present challenges and opportunities.
We completed the transition out of our New York facility by consolidation of our facilities, which removed a lot of additional costs and nonrecurring expenses were incurred in prior year.
Ongoing cost reduction and expense management initiatives, along with a favorable revenue mix led to a gross margin as a percentage of revenue coming in at 46%.
700 basis points higher than last year and above our low to mid 40 percents target range.
Among our higher margin products, although sold into telecommunication market.
The Fiveg front. This has been a growth driver flight crop for approximately to for previous quarters. After we earlier developed prototypes and product samples on an hour basis.
In effect, one can look at the end of the basis of that and all the projects as us being paid to develop new lenses that then go into Fiveg network installations.
And now we have a library of products customers can choose from.
We have reported increased production for this application in fiscal 2019 and 2020 to date.
Yes.
More specifically production volumes for Fiveg related lenses increased 175% in third quarter Twentytwenty versus the prior year period and are up 195% year to date.
Our lenses have primarily been used for Fiveg network infrastructure. The Fiveg network is designed to connect virtually everyone and everything together.
The ecosystem.
This includes for example machines objects and devices connected on this fiveg network that delivers higher multi gigabit per second big data speeds.
Ultra low latency and increased availability by a smaller significantly closer together network access points.
Mobile access points mean, more network equipment installation, which in terms means more sales of our precision molded lenses.
Precision and quality to ensure the highest service level standards is paramount to a trusted and experience partner like Lightpath enables our customers to deliver onset pharmacists.
Okay.
In China alone.
Where we have been selling our lenses to equipment suppliers chemicals are expected to deploy approximately 500000 Fiveg base stations in Twentytwenty.
We have approximately 200000 installed through March twentytwenty. According to research.
In the US Verizon announced in March that it is increasing its capital expenditure guidance range to approximately 18 billion in twentytwenty to accelerate its transition to Fiveg and help supports economy. During this period of co with 19 induced disruption.
Looking at the current distress stress to its networks and new norms post cobot 19, when millions of additional people make continued work from home the rights and has been analyzing usage patterns and is addressing anticipated changes in demand now and into the future.
The Corona Vivus has given rise to remote workers and has advanced requirements for bandwidth more robust optical technologies in the us globally.
Again, this appears to be a trend benefiting telecom equipment Oems and in turn in turn lifestyle off.
As a source for high volume high quality lenses optical network.
Yes.
Strong demand and order execution led to turn with 12 month backlog at March 31st Twentytwenty setting another record $20 million with forward visibility bolstered by our backlog beyond the next 12 months.
This is a result of successful execution of our strategy for developing customer relationships, we've applied to a product.
Entering into long term supply agreements, primarily in our new growing in fluid business.
Based on our order book, which may vary depending on how the economy plays out and our backlog levels, we may need even more incremental production capacity.
Capital expenditure for fiscal Twentytwenty are on track, but subject to an increase of new order volume continues to current pace.
As a key focus area, we continue to invest and optimize our IR lost production coating and molding keeps capacity.
To meet the increase in demand for both our BD six based in fluids product and telecommunication product lines.
Okay observers product areas are expected to continue to grow the year progress.
For full disclosure and transparency there is a lots of work remains to be done to fully capture and execute through the near and long term market opportunities.
And I would like to caution that amid cobot, 19th we may be subject unforeseen circumstances, which may be out of our control.
Including changes in demand additional expenses for health unsanitary purposes.
And closure will be the our suppliers customers or even one of our facilities.
In these uncertain times it remains our intent to remain agile continued to develop our approach to the markets. We serve follow up product roadmap improve our processes managers expenses and leverage our strong financial condition for growth.
Again, we are working from a position of increasing strength.
Such that we have been investing in the business, while continuing to reduce our debt and even adding outlets moderately our cash as our key balance sheets measures have improved in stride.
We have our expanding product portfolio addressing several different markets globally diversified sales distribution platform.
Manufacturing in three countries around the world and solid financial condition based off is well positioned to provide high quality to competitively priced optical components.
We look forward to building upon the success achieved thus far in fiscal 2020, while remaining grounded remaining grounded in the realities that fits all businesses amid the present environment.
And now ill pass the call over our CFO Donald message to provide some additional information and aspects of our first quarter financial results.
Thank you Sam.
Yes, I would like to mention but much of information. We are discussing during this call is also included in the press release issued earlier today in our 10-Q filed with the SEC.
I encourage you to visit our web sites of Lifepath comp and specifically the section titled Investor Relations.
Now onto my remarks pertaining during third quarter fiscal 2012.
Fans are mark covered a lot of our financial performance. So I was specifically in discussing key performance areas.
Revenue for it.
Third quarter fiscal 2020 was approximately 8.7 million an increase of approximately 803000 or 10%.
As compared to the same period of the prior fiscal year.
IR product revenue was 4.3 million or 50% of the total up 12% from 3.8 million or 49% of the total in the prior year period.
Visible precision molded optics or PMO product revenues were 3.9 million or 44% of the total up 15% from 3.5 million of 42% of total into fiscal third quarter 19.
The balance of our revenues in their respective peers were from Michelle specialty products, a nonrecurring engineering projects, which vary greatly from quarter to quarter or are substantially smaller smaller contribution so our consolidated revenue.
With respect to our margin profile.
Generally speaking pmone products are small on almost entirely mold.
So we have faster turnaround time higher volume applications and more automated processing.
Due to these attributes, which historically have had margins averaging in 40 to 50 range.
<unk> percent range their product group represents our larger and faster growing market opportunity with gross margins Norman BMO.
Our margins have historically been in the 20% to 30% range.
Our new molded IR lands.
Which use our prior period in Berlin and develop BD six material are on the top side, if not able to go higher wood efficiencies.
These six products that are not more than maybe in a middle of the range on diamond term germanium based products are at the low end of the range due to generally higher material costs on less automated manufacturing.
As part of our gross margin improvement strategies, we have been aggressively working a marketing new products and for our new customers using our line of innovated. These expenses, while attempting to convert the existence possible germanium customer BD six customers.
Moving technologies and processes are competitive differentiator from let Brad which provides in certain circumstances benefits to customers beyond the higher gross margin contribution that we may enjoy.
Gross margin in the third quarter fiscal 2020 was 4 million as increase an increase of 29% as compared to approximately $3.1 million in the same quarter the prior year for fiscal year.
Total cost of sales was 4.7 million for the third quarter 20.
Down from 4.8 million in the prior year.
The lower total cost of sales is meaningful when you consider the sales increased 10%.
Gross margin as a percentage of revenue was 46% for third quarter 2020, as compared to 9% in the third quarter 2019.
On 41% in a second quarter 2020.
The increase in gross margin in dollar and as a percentage of revenue is primarily driven by an increase in sales and the elimination of elevated costs, improving labor manufacturing inefficiencies and increased overhead expenses associated with the relocation of our New York facility in prior year peer.
Sorry.
The increase in gross margin as a percentage of third quarter 2020 versus second quarter, primarily reflects the revenue mix another favorable variances.
Worth, noting is that yield issue related to be six products, which negatively impacted our first quarter 2020.
Margin was mitigated in the second quarter 2000, joining and we have seen consistent quality than in the yield during the third quarter.
I will be six eagle issue muscle behind us, we're been improving our factory utilization on increasing our volume production of lenses trade extent possible in meeting customer demand.
Demand in aggregate has been strong although there are pockets of weakness that emerge as followed from candidate 19, Sam address some of these stronger areas of our business.
Demand for the commercial and industrial markets is lagging, particularly on supply chains tissue.
The supply of Sterne tissue prevent the OEM customers from following through on their fulfillment. We view. This week in demand is potentially short term in nature, while we enjoyed strong demand from secular or long term market applications.
Overall as is indicative of our higher revenue our production volumes are growing.
In the third quarter 220, we produced 904 total lenses up 41% from 642 lenses in the third quarter 2019, and an increase of 4.2%.
868000 lenses made in the second quarter 2020.
Unit volumes sold or off 29% as compared to first quarter fiscal 2020.
During the third quarter fiscal point in front end total operating expenses were approximately $2.9 million, a decrease of 135000 or 10% as compared to 3.1 million in the same period of the prior fiscal year.
SGN egg costs decreased by 7%.
Third quarter 220, and reflects the elimination of 103000 nonrecurring expenses from last year, which are related to the relocation of the New York facility as well as our reduced personnel and overhead costs from synergies.
New product development costs decreased by 93000 or 18% due to the shifting and personnel to the newly created product management function, which is included in the SGN.
It should also be noted that expense in the third quarter 2019 were reduced by gains on disposal of equipment of approximately 136000, which is masking some of the savings when compared with total expenses for third quarter 2000.
Capital investment in 2019 in fiscal 2019 to increase our vertically integrated regional production capacity of enable us to reduce capital expenditures so far this year.
Capital expenditures, including equipment Finance grew leases were 1.5 million for the first nine months of fiscal 2020 down from 2.1 million in a fiscal 2019.
As we are much silicon production capacities in certain lanes.
Remains challenged we may need to moderate may add more capex, where new machines with corresponding increase in personnel.
Meanwhile, net cash provided by operations was 1.9 million for the first nine months of the year and about half of the coming in the third quarter alone.
This compares with net cash provided by operations are falling 26000 in the first nine months of the prior year.
Improving cash flow from operation gave us the continued confidence to reinvest in our facilities.
Total debt, including finance leases were reduced by nearly 737000 or 11% in the first nine months of fiscal 2020 from June.
2019.
Our cash balance at March 30, Onest went into when it was 4.4 million.
Compared to 4.3 million at December 31st one in 90.
And finally, our consolidated corporate income tax in the years shield by our net operating loss carryforward benefits of approximately 73 million at March 30, Onest 2020, what we do have to pay income tax that are countries of certain foreign subsidiaries.
With the higher revenues strong margins and management of expenses net income for the third quarter fiscal 2020 was 816000 compared to the net loss of 352000 for the third quarter fiscal 2019, which was negatively impacted by elevated costs incurred.
During labour cost manufacturing inefficiencies and increased overhead expenses associated with the relocation of the New York facility.
We are operating far more efficiently and profitably.
We completed the transition improve the of production yields on increased revenue.
With this review of our financial highlights on recent developments concluded our turnover as today operator, So we may begin with our question and answer session.
Thank you we will now begin the question answer session.
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The efficiency is that we have were full capacity at least from all p. animal and getting to the rest. The second part as you know the closing upstate New York facility and give it some savings at all been said I honestly don't expect a 46% as we saw there as published on there, but I see us.
In the in a little forward is it's quite possible that would keep everything again, if no visitors or clothes on orders continue similar to to treat which we expect everything to be normal.
That that's helpful just to Mark from me.
Talking about the supply chain issues that maybe you're running into as a result of Coke in 19, and then the final one would be you had mentioned increasing demand for new customers do you think you'll be able to leverage the the relationship to expand sales a into other product categories.
Thank you.
Sure in terms of the <unk> the supply chain.
<unk> some short term impacts that we saw in China, It's a wireless different parts of the country where on to different situation. So condition.
And at which point it took some vendors.
Time to give backup of gets older employees back in order to pull up of Asians after the Chinese new year on at the closure as a headset.
We have been seeing some similar things <unk>.
Outside of China.
For example in Mexico, we've had one vendo that wouldn't it be quiet like government, they're close down with their facility early for a while we've had <unk> we've had the windows here in the U.S.
Has had to scale back, though alterations scale down south of ancient to even support how many people that they can have physically into building for <unk>. How many people can can come in and Oh perfect.
The most this has not affected us that's much the couple event of where we had the beam hasn't been able to get pumped phone. We have also nice then does full we have a team here that looks <unk> at the different risks and how things unfold and goes out and it's fine.
When needed vendors what need it.
The only other affected the supply chain, it's a shipment.
And this is both because they're shipping companies have to scale exfiltration and because like Oh, many up come canoes wants to expedite shifting want to get caught off differently like.
So for the most of the shipping karaoke is that we use have some delays.
<unk> typically only that the older <unk>, adding one or two days to shipments we have to say conception of one ship from in the long ago, but again, we were able to recover from that quickly.
The second part of your question. So it was.
In terms of you mention God up demand from new customers leveraging that yeah right.
Yeah, Yeah, that's definitely interesting for the most about Oh, y'all and the P. Lo 30, <unk> inside a customer base in a sense of you know technical perspective, it's a different wavelengths.
Cleo use for the different things.
Twisting gives it to fill no measurement <unk> getting attention.
Many players in its appeal.
That leaves that they can leverage that knowledge they have in infrared imaging going different aspects of uptick do now develop federal tested the measurements device that support measuring <unk>.
All have to have some business synoptic somebody.
Seven have significant insane for that so that's definitely a very good potential to to.
Engage with doing the customers in <unk> spending to unfold.
Mm.
Very helpful. Thank you and that's good luck.
Thank you.
<unk>, if you'd like to ask me questions. Please first cars on the one out this time.
Paused momentarily to some more roster.
Yeah.
[noise] wish on on further questions I'd like to turn the conference back over to must Rubin for any final remarks.
Oh.
Thank you to conclude that what first quarter Twentytwenty conference call. It I'd like to leave like reiterating Oh, we're focused on building a <unk> achieve <unk> and this year.
The remaining round it <unk> <unk> <unk> <unk> Department.
<unk> is one position to address the challenges and opportunities to lie ahead I.
I'd also like to find Callaway employees that continued to work hard and deliver products needed to pull the fights. It was a covert 19 and continue to come to work and performs that you teach in an exception of white.
Thanks, again for participating home to base come from school, we look forward speaking with you export.
Thank you. This includes today's conference call.
Salons and have a wonderful day.
Thank you.