Q1 2021 LightPath Technologies Inc Earnings Call
[music].
Good afternoon, and welcome to the life technologies fiscal 2021 first quarter financial results Conference call.
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Please note today's event is being recorded.
I will now pass the call to Dawn retreat, Chief Financial Officer Lightpath technologies.
Thank you [noise].
Good afternoon, before we get started or 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 and involve various risks and uncertainties, including the impact of COVID-19 pandemic.
And I have discussed in a periodic SEC filings, although the company believes that the assumptions on the on the underlying underlying these statements are reasonable any of them can prove to be inaccurate and therefore, there can be no ensure assurance that the results will be realized.
In addition references may be made to certain non generally accepted accounting principles or non-GAAP measures, which you should refer to the appropriate disclaimers on reconciliations in the company's S. T SEC filings and press releases.
Okay.
I would like to commend our global staff for the resilience commitment and continued efforts to support our customers, while adhering to health and safety protocols to protect our co workers and their families.
Sales of all major product groups increased from the first and the first quarter of 2021.
Prior year period. Most notable has been the demand for our PMO lenses for the <unk> infrastructure Buildout and from our vertically integrated manufacturing platform for optics and optical assemblies made with our own beady six material.
We shipped approximately 1.3 million lenses and first quarter and nuclear record for the company, which is an increase of 105% from 600 pounds lenses and the first quarter of last year, and 9% increase from $1.2 million than in the previous quarter.
To meet the increasing demand for optics, we have been adding SB food investments in equipment and process improvements in different areas.
Amount based capacity constraints began to be revealed in the third quarter and continued in the fourth and fifth quarter, which is why we have concluded investments in our manufacturing for this year.
Capital expenditure and first quarter of 2021, where $1.2 million nearly four times the amount spent entire year period and more than 25% greater than in the fourth quarter.
It is important to note however that reporting on capital then is based on dates of invoices and often there is a delay between the timing of decision and order and the actual insurance books.
The additional investments and machinery and related operating personal person.
Typically take several months until achieving full scale outputs, where we see more meaningful margin competitive contributions.
Such.
Some of the growth in capacity and some snakes lynch's.
While still related to investments initiated in fiscal 2020.
For the time being although we have added a production capacity in the fiscal year to date, we remain constraint on certain product lines amid the growth and both revenue until two backdrop.
And we intend to continue to invest in areas. We believe we can get suitability term.
Both revenue in total backlog increased 26% as of September 30th 2020, as compared to the same time last year.
While our capital expenditures in recent quarters has have been focused on capacity increase.
As we roll onto our new strategic direction and as we continue to evaluate opportunities for improvements in his organization, we are likely to identify areas point investments.
That will yield improvements farewell durations, and hence download margins as well as allow us to attract new business that will help shape, our future and yield higher returns.
The technology is being integrated into more and more industries and applications.
This leads to a change in the typical customer profile with an opportunity to create and capture more value. If we focus on solving the customers optical problems and needs rather than being a supplier of components.
This is made possible not only because of this change changes on the rolling in our market, but also because of life comps unique positioning as an innovative optics company with strong capabilities in both design and manufacturing of optics.
To deliver on that there are some activities and changes we are implementing.
First the sales process.
Along the lines of what I, just discussed and for the purpose of contact in the components business, we engage with the customers. Once they have a complete optical system designed such that the customers engage with us.
Point in which they need to procure was a component.
In the solutions oriented business, which we are moving towards the process is different and.
And we would ideally engage with the customers at an earlier stage.
Now that we're past the design process.
In other words, instead of receiving a multiple design from the customer and fabricating the individual components for them, we're going to design the optical systems for the customers systems and procure the entire optical and produce the entire optical assembly.
To achieve this we are implementing some changes in our sales process and structure. Although we will continue to work with and pursue business through our traditional processes that have been successful to date.
We have created a new role of business development, whose responsibility is to engage with customers early on and begin our interaction assistant specifications stage.
We have also established an internal rapid response team that is able to work with customers on their needs and turnaround designed for solutions quickly.
Lastly, our sales team and switching from a product based focus to an account based on.
Thus, making that the customers need the center of attention as opposed to product or technology.
Secondly.
To be able to offer unique capabilities for our customers and to be able to design and deliver great solutions. Our product development is now focusing on adding product capabilities products and capabilities that will allow us to enhance the performance of the customers system.
Im such recent example is the addition of a new high indexed multiple block that our product offering.
Such as loss allowance, achieving higher numerical aperture, which in turn in turn translate to better light collection efficiencies or phyto optical focus.
All of which are very important specs in optical system design.
First as we can as we focus on solutions that naturally mean, focusing on higher value contracts with longer durations.
The ceiling.
A seamless in the nearly 2.7 million dollar contract, we announced last February which we will soon commence delivery against oftentimes contracts are multi year contract.
In the past, we had disclosed at the end of each quarter, our backlog for the forward flow from period.
This year, we did not include any longer term supply agreements that extended beyond the one year period.
And that and that we expect now to see more of.
And such and to be able to provide a more complete picture of the outcome of those efforts. We will now be reporting our complete backlog and did not a 12 month backlog, we previously reported.
It is our belief that this will allow investors to have a better picture left our progress with the new strategic direction.
Additionally, as expected we are also engaging into more solution based opportunities with customers that have a higher unit revenue and longer term engagement.
Though we are early on early on in the strategic in this new strategic partner. We currently have in our pipeline and number of early stage opportunities. Each from each has the potential of being a multi year engagement with over $1 million of annual spend for each of them.
Which we see as a positive sign for the potential of this strategy.
Finally, I would like to address the recent global development relates to covert 19th.
While we have been lucky enough to not be significantly impacted by the situation as I mentioned in previous calls calls the dynamic nature of the situation leads to changing conditions and significant uncertainty.
In the previous quote unquote wave, we have seen some customers deferred taking delivery of products, whether due to change in demand for due to physical closure observed facilities.
In this time around we have not yet experienced such situations. However, we are seeing signs from some of our customers in Europe of potential reductions or order postponements retaining some demand during the time of this wave which may impact quarter.
Future quarters.
At the same time sales to academic customers, which were significantly impacted in the previous wave.
I'll now show are now not showing the same pattern.
Additionally, as we did six months ago, our teams are evaluating potential impacts to our supply chain.
And we'll be adjusting our inventory levels for raw materials to ensure business continuity in our manufacturing.
The results today.
The results announced today reflect continued sales growth improving manufacturing efficiencies and ongoing management of expenses.
Our disciplined cash management has allowed us to hold a consistent cash balance at the end of the quarter from beginning of fiscal year at 5.4 million.
A substantial increase in capital expenditures, while further reducing our total debt.
Don will review, our cash flow and the divestments in greater detail during his remarks.
We are very pleased with the progress made in the first quarter of fiscal 2021 and are upbeat about future results and the implementation of our strategy based on our strengths and our core capabilities to address the largest and fastest growing trend in our industry for visible and in.
So that solution.
Now I will pass the call over to our CFO the mandatory age to provide more details on our first quarter of fiscal Twentytwenty one.
Thank you Sir.
First I would like to mention that much of the information. We are discussing during this call is also included in our press release issued earlier today and in our 10-Q filed with the SEC.
I encourage you to visit our website at glide path that Tom and specifically the section titled Investor Relations.
Now on to my remarks pertaining to reach this drove 2021 first quarter ended September Thirtyth 2020.
Sounds remark covered a lot of our financial performance. So I will be specifically discussing some other key performance areas.
Revenue for the first quarter of fiscal 2021 was approximately $9.5 million up from $7.6 million in the first quarter of fiscal 14.
The margin.
Yes, they are a product group represents a larger on faster growing market opportunity.
IR margins have historically been in this 20% to 30% range.
Or molded IR lens, which use our propriety internally developed needy six material with comment on the higher end of the margin range on we foresee farther increases to our margins within this category as volumes grow on efficiencies improve.
As part of our gross margin improvement strategies, we have been more aggressively work in the marketing new products of targeting new customers using a line of innovative 86 lenses, while attempting to convert existing customers to the extent possible from using.
Germanium lenses for beady six lenses the.
<unk> discuss we haven't been making enrolls with you on differential products, such as K P F and tool to which offers a high index rating for invisibles to near infrared spectrum that is very hard to achieve at a scale. So this will be a premium product group.
Our first quarter of fiscal 2021 gross margins were three 9 million, an increase of 61% as compared to approximately $2.4 million in the same quarter of prior fiscal year.
Total cost of sales was $357 million for the first quarter of 21.
Up from five $2 million and the prior year.
So us as the cost of sales were up 10% on a 25% improvement in sales. This is the result from some of our operating leveraging strength.
While impressive we did benefit from certain operational challenges that impact results in the prior year period, which we estimated at approximately 2.5% increase in cost of sales.
One six decreasing gross margin.
Gross margin as a percentage of revenue was 40% for the first quarter of fiscal 21 as compared to 32% in the first quarter fiscal pointed on the fourth quarter of we improved by one point.
The increase in gross margin from prior peered was primarily driven due to high higher revenue on volumes across all product groups. In addition, there are several factors that negatively impact the first quarter of fiscal pointed joining such as increase in Paris, the impact of which have since been mitigated.
From the first quarter of last fiscal year on the fourth quarter.
We're experiencing benefits from yield improvements in efficiency measures, which are are farther magnified as a volume of lenses produced continues to increase.
In fiscal 2021, we ship $1.3 million lenses up from the fourth quarter of fiscal 2000, when we shipped one $2 million lenses 905.
Total lenses and third quarter compared to 600 reported 3000 lenses and the first quarter of fiscal 20.
During the first quarter of fiscal 2021 total operating expenses for approximately three 2 million, an increase up about 168 or 6% as compared to the $3 million in the same period of the prior fiscal year.
Selling general and administrative costs increased by approximately 4% as compared to the same period of the prior fiscal year due to personnel related costs associated with a moderate increase in headcount, particularly interfilling and trailing positions that have been outstanding as well as additional outside.
Consulting services for projects related so operational improvements please.
Research and development related to new product development costs increased by 5%.
Which was needed to address the demand for advanced optical designs, partially offsetting these increases were limited travel on marketing expenses from the COVID-19 restrictions net of pandemic related increased cleaning and safety expense expenses.
Our consolidated corporate income tax in the U S. As shields by our net operating loss carryforward benefits of approximately 74 million at September 30th pointing.
But we have to pay income tax that a country's of certain foreign subsidiaries.
Income tax expense for the first quarter of fiscal 2021 was 435000 as compared to 148000 in the same period of the prior fiscal year.
As in both periods are primarily related to income generated by one of the companies Chinese subsidiaries.
First quarter of 2021 income tax also include Chinese withholding taxes of 300000 associated with the into component dividend declared refractory cash from China into the U S.
Only 100000 of this tax has been paid as of September 30th 2020, with the remainder accrued.
It should also be noted that while into component dividends are subject to withholding facts. This total income tax on the earnings of this subsidiary was still lower than it would have been using the normal income tax rate since the subsidiary currently qualifies for a lower Chinese income tax rate.
Net foreign currency transaction on losses due to changes in the value of the Chinese young on the euro against years ago.
$98000 in the first quarter of fiscal 2000, a wall with low impact on the on the earnings per share compared to net foreign currency transaction losses of 497 and.
And the first quarter of fiscal 2020 for a reduction of <unk>. So the earnings per share.
Net income for that fiscal.
21 was 97, and which was breakeven on our per share basis.
<unk> net loss of 1.4 million or five cents per share for the first quarter of fiscal 2000.
For the second consecutive sequential quarter, we had a higher revenues stronger margins and controlled management of expenses.
Income tax expense from the repacked tradition of cash from China resulted in a meaningful non-recurring impact on earnings and the first quarter of fiscal 21. This.
This was not experienced earlier.
Amira comparability, we look at the EBITDA provide.
Provide important insight into our performance on progress EBITDA at 1.4 million set a <unk> record for the first quarter and compares to a loss of $236 in the same period of fiscal 2020.
In addition to the operational progress that drove the improvements in EBITDA for the first quarter. There was also a favorable difference of approximately 400000 foreign currency transaction losses.
Moving to the balance sheet and cash flow related items.
Hotel expenditures was one $2 million in the first quarter of fiscal 21 up from two around five to 7000.
In your prior year period Steven.
Modified our disclosure from providing a 12 month order outlook. The one that emphasizes our focus on long term custom orders such that we now provide total backlog for all firm orders.
As of September Thirtyth 20, joining late Thats total backlog was $20.9 million, an increase of 26% from 16.6 million as of September Thirtyth 2019.
It should be noted that it is natural for backlog to fluctuate during the year as a result of the timing of such bookings of large orders and annual renewals.
With this review of our financial highlights and recent developments concluded I will now turn the call over three operator, so that we may begin with your question and answer session.
Thank you we will now begin the question answer session.
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Today's first question comes from Brian Kinstlinger with Alliance Boots Burgers. Please go ahead.
Hi, good evening great results.
Thank you spoke about can you talk about.
Mmm cotinga much more standard and film culture coating called a Ava aunty reflective.
And more complex systems. If you are talking about ethics systems without the dynamic zoom will change it could be three or four lenses and much more complex systems. It can be up to seven lenses or eight lenses.
Alright, that's great.
Here's competitors I I take it that are.
Going through the process of selling a similar version of <unk>, what you're selling you know in terms of a generic germanium. Our customers are are they generally b as successful as you are you taking much more market share given this T. L. C. I I would think given.
You know how would they handle those exterior facing issues that you know the the generic has.
The the sales definitely an advantage to my knowledge in the U S is two two other companies that can do deal to see him he'll call Tonight, some material like that would be the six.
Probably another couple outside C. U S too. So that's definitely an advantage Sir what is really unique in terms of lifestyle from there were advantages and this comes from the integration of ISP and lifestyle is that where ability to combine the mold and molding technology with standard.
<unk> technology for large lenses.
Typically one can mould lens up to a diameter of one inch about.
Above that is difficult to multiple lens and and get consistent results. So above that usually what one would need to do is to fabricate the lens using other techniques, which are far less cost effective then moulton.
We have developed and patented and the drink we issued a press release, some that's S and it's about half a year ago as a technology that allows us to mould the lens into a near shape. So very very close to the final lens and then only touch it really weird fabrication equipment, it's a very and just suggest.
The final result to be a perfect optical surface. So it's really combining the both the best of both Welts.
And as far as I know that is one of our biggest advantages and allows us to offer.
Cost effective large diameter chalcogenide blenders.
Alright.
Two more questions I have the first is.
Within the.
The current situation of where we are with the pandemic coupled with the U S China attentions.
Has there been any change to the pace or expected pace of the five G rollout in China.
And companies Octavate over the weekend and far more than usual in order to build up the inventory and whenever it's needed and then.
Dissipation of the downtime during Chinese new year, the Chinese government, even mandate that was the holiday formerly is only four days companies.
Companies wanted to give it a seven day holidays. They have to substitute there was additional days with days over the weekend cause that's how output doesn't impacted.
Alright, I I know it cause it's fried, but just today, the United Kingdom talked about starting to back to me probably the Doctor vaccine everybody in England. Starting next month, so if you're envisioning a slowdown in Europe I guess, you're also envision a that that would pick up and gives you a sort of a compound that <unk>.
30% every quarter. So my answer for that was that the PMO could easily double within a year unit wise.
And the Zip code.
Based on our capacity constraints, but the run rate that we're using that would be that providing nothing else happens and telecom continues.
Okay.
This may all be fine, but I see by the relatively steady growth.
Can go further.
Okay, Sam if I might ask one more thought.
Really elevate the perception of the company, if if you're doing that because you're not just talking about design, let's say vulgar used Apple late design something they give it to Fox Connor, they design and arms chip and they give it to a T F C in Taiwan, but they're the designers you're talking about doing the design to meet the customer desire.
Here I think it's a really good idea, obviously create residual or annuity style income, which I'm guessing is what you're shooting for.
Selling price is also higher.
The scopes.
Use both in defense.
And some industrial while if I also in commercial.
Annual contract and we have an annual contract with one of our biggest customers, which is between $5 million to $6 million a year on that is mostly.
Loss or a loss at least we did say in earnings.
No I don't think we'd be looking at the loss I think we have a.
Stable consistent operation now and we've done quite a bit in the last half a year.
Achieved sales I think what you're seeing is two different things like I'd break it out into two different things one is.
We have in our molded optics in our PMO, we have really what I'd call two very different price ranges and one is the telecom, which is the lowest price range and single doses, but fairly good margins and the other is the medical and others, which are.
Hi units plays and a different type of margins tusa.
When we added capacity, we added that because at that time, we had large telecom orders.
Which 10, which again of the lower units fights and so it is not as visible in the dollar amount of revenue as you can see it very clearly in the number of units we produce.
And the very nice consistent growth.
This is not to say that it would remain for ever like this our product mix changes and our orders from different industry change and we also navigate that knowing what capacity, we have and what orders we want when.
Alright, and I know there has been a you had a recent insider purchase of.
I forget what it was three or 4000 shares, but what would you say to investors.
To the point, where there's very little inside or buying and I know and I know there is some options.
Based on an incentive options based on the price of the stock, but nothing is.
Investors more confidence than seeing true meaningful insider buying as opposed to.
A token several thousand shares.
So I think we do I cannot speak for all those like him speak for myself that.
Mm bye as possible and when possible dependent and there'll be a flea on our blackout and and different personal cash flows, but we both have in mind that we just that our fiscal year and it's on June 30th and from that period until fairly recently, we were in a very extended.
Long blackout periods in which we obviously could knock trade anything as much as we would have loved to because we all felt sure place.
Low and a very goodbye.
Okay.
That's all the questions we have.
We went out we went out to US a call back from one of his room for closing remarks.
Thank you for participating in today's conference call. We look forward to speaking with you next quarter until then we encourage our shareholders to join US as we conduct our virtual annual meeting on November 12th.
We also will be participating in the Diamond equity research virtual conference on December 1st and the twenty-first and you'll need to have confidence in January.
We hope you join us to continue to follow our progress. Thank you again and goodbye.
Three Q. This concludes today's conference call you may not a scratch orange or have a wonderful day.