Q4 2021 LightPath Technologies Inc Earnings Call
Good afternoon, and welcome to the Lightpath technologies fiscal 2021 fourth quarter financial results Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Al Miranda Chief Financial Officer at Lightpath technologies.
Thank you good afternoon, everyone.
As this is my first time I'm speaking on White house, right past, earning calls and I'd like to thank Sam.
And the company's board of directors for the opportunity to serve as CFO and I look forward to earning the trust of all our shareholders now and in the future.
It's been an incredible pleasure to join white passenger to participate in the development and execution of our exciting growth plans.
For the benefit of our listeners today I thought it would be helpful to share something about my prior professional endeavors that led me to white Pat.
I joined White path in April of this year.
Prior to that time I was the president and Chief Financial Officer of the North American subsidiary of a publicly traded Germany based and optic AG, where I led the North American subsidiary and top and bottom line double digit growth.
During my tenure sales went from 30 million to $220 million with a 20% EBITDA.
<unk> uptake is known globally for specializing in photonic based technology across several markets.
There we transformed the company from a component manufacturer into providing solutions, which is something that white path is doing now.
My career spans more than 25 years, where I've held executive level positions and contributed to delivering high financial growth across a broad group of products and services and demanding in diverse industries, including health care defense and security consumer electronics automotive and semiconductors.
Before you an optic I held executive level management, finance and operational positions and optical products groups within Carl Zeiss AG and the chemical manufacturer VA SaaS.
Now 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 and involve various risks and uncertainties, including the impact of COVID-19 pandemic.
That are 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 assurance that the results would be realized.
In addition references may be made to certain non generally accepted accounting principles or non-GAAP measures for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases.
Following managements discussion there will be a formal question and answer session open to participants on the call.
Ill now like to turn the conference over to Sam Rubin Light paths, President and Chief Executive Officer Sam.
Thank you Alf buildup it afternoon to everyone and welcome to light of Technologists fiscal 2021 fourth quarter and full year financial results Conference call.
Our financial results press release was issued after the market closed today and posted to our corporate website.
Yes.
I would like to begin my remarks by thanking and acknowledging our employees and team members around the world for their hard work dedication and devotion to achieving and delivering results. During these challenging times.
The company the business it conducts defined with the efforts and the execution of its employees.
Our 350 hardworking team members around the world What's makes all of this happen.
This year had been very texting in terms of pressure and personal toll starting from the impacts from COVID-19 on everyone's life in and outside the workplace.
And continue it continued in driving the growth and changes in the company this year.
All of this further compounded by our discovery of years elicit behaviors in our China operation.
The efforts associated with the changes we have been implementing sir.
So a bubble I would like to thank and acknowledge the efforts of the team.
Now onto my remarks. This call concludes my first full fiscal year of a CEO would like to pass it has been a year characterized like change. This began the process of changing the strategy and cost of the company from a purely component to.
So our solutions pops over another.
Another important change what does that compare with both trajectory from years of single digit growth in the path to double digit.
Another critical change that impacted us in part in the past year and is expected to have an even greater effect and see as to come is that what effort in building a strong senior management board of directors and mid level management team.
Finally, somewhat unexpected change came in the form of the cleanup that wall operations in China, where we discovered is licit behaviors. They sent it back yes.
So I hope those changes already showing results in the first three quarters of the year, we achieved a 17% year over year top line growth rate.
This was later dampened as a specific situation, we had in China and with a pause in shipments from our largest telecom customer.
But even with those we were able to end the year with a 10%.
Installing processes systems and controls and important step in preparing the company for future growth and development has also helped us hooked up eradicate wrongful behavior in our China operations, which we now know has been part of that operation for many years.
So the short term impact to us in the last quarter of this year was painful we now have a well controlled and well managed operation in China.
Our focus in China back to growth.
Okay.
Earlier last year, we outlined at the beginning of our new strategic path moving from a components manufacturer to a solution provider.
And with the goal of being the optics partner to our customers.
Though this is only at the beginning in fiscal 2021, we have shipped already over $5 million of such engineered solutions.
So it's being lens assembly and optical subsystems, we designed specifically for those customers and which we own the design and deliver the complete subsystems assembled and tested sold them to sell them for further integration.
These revenues were derived mostly from applications applications pertaining to thermal imaging.
This is just the beginning this is really exciting to see such immediate results that also show acceptance in the marketplace and validates our strategy.
There remain many capabilities that we need to develop or acquire in order to solidify our presence in this new strategic direction.
And capitalize on the many existing and emerging opportunities and diversely expanding photonics industry.
Yeah.
Like every company, we too have been impacted by the Covid pandemic.
In addition to the post a little poll of stress is taken on our employees.
We have also had some operational challenges due to this situation.
No I'm glad to report that none of which have been material in nature.
Our supply chain bile, mostly an impact it has had occasional disruptions.
One such disruption as the current limited supply of pure gustus, such as nitrogen and oxygen needed to know what manufacturing operation in Florida.
This temporary disruption is driven by the demand for those same gases by medical facilities in the states.
We believe this logistical issue should soon be solved for.
Fortunately our engineering team developed the work around that enabled us to stay relatively on track.
Other disruptions have been around shipping and the availability of some old materials, all of which have been temporarily and have since been being resolved.
That said, we still face the risk of unexpected disruptions.
Constant re evaluating areas voice due to COVID-19.
On the health front, although we had a number of employees contract. The virus, we have knobs to the best knowledge had any outbreak in our facilities and did not need to shut down any facility.
This is thanks to very careful precautions the team tapes, which has pulling them into gain.
Okay.
Shifting gears now to discuss our strategy.
Last year, we presented in general terms, our new strategic direction.
I would like to further elaborate on just now and provide updates on our activities.
So Phoenix is an enabling technology that is integrated into many products and devices across many industries and applications.
20 years ago. The use of Photonics was mostly limited to optical communication defense applications and some high end medical applications today, it's finding its way into many use cases and applications some of which like E V O and lighter or becoming names that we use in EMEA.
They life.
Many different forces contribute to this contributed to this over the last 10 to 20 years chief among them are the manufacturing cost some key elements such as optical transmitters or light sources and detectors.
But Phoenix is making its way into so many applications in the industry is that a recent study by the National Academy of Sciences.
Tomatoes that as much as 11% of the goods and the world economy are enabled in some way based upon mix.
Yeah.
As is typical in the case with wide adoption of the technology that was previously a speciality the supply chain and supporting operations need to adjust from a technology that was never to be adopted and mostly by experts. We are moving that technology is becoming widely adopted and <unk>.
Those who lack initiatives native.
Thirties.
From a fragmented supply chain characterized by mostly small component vendors, we're moving to a more consolidated supply chain.
Driven by the technology partners that possess and brings to the table the domain expertise and optics.
Such is the case that when such a transformation is complete confidence integrating an extended their product will not be managing supply chain with Belgian component manufactures.
A small number of partners or even though only one who would provide the optical subsystem wholesale product.
Examples of this can already be seen in press releases by diverse defined.
Announcing is the outsourcing of optical subsystems the companies that specialize in that.
A few recent examples can be found the lidar and augmented reality and virtual reality applications.
Like office is very well positioned to become such a partner for companies looking to use photonics into half way.
Through our historical components business strong industry reputation innovative manufacturing solutions high volume manufacturing focus and of course, our overall domain expertise light path can and is already becoming a photonics partner of choice.
And in particular in the area of fast growing infrared imaging.
To accomplish this efforts on multiple fronts, who need it.
Sales funds.
We have switched this year to an account based sales effort, which is better suited for solution sales as opposed to our legacy components business.
Be clear, we view a solutions approach that with customers to be far more advantageous to any other strategy due to the potential for larger revenue opportunities higher volume longer OEM products lifetime and.
Mostly physician with a higher value pumps, and that's our customer, which ultimately leads to higher profitability.
Along these lines. We have also opened the sales office in Europe.
Which will provide a more direct interaction needed.
And last among recent sales initiatives, we have created a business development function to generate a pipeline of opportunities given the need to interact the earliest stages of the design cycle.
On the operations side, we have added a position of PPP operations, Italy by.
A detailed guidance joining us from running operations at Jabal, Peter and team have begun to identify as well as the payout and the line is absence operation to reinforce the foundation supporting the growth strategy.
Our balance that we balance our efforts for bolstering our current operations and foundations, we have initiatives that enable us to run forward and gets going with more detailed implementation of our photonics strategy.
Along those lines, we have separated our R&D resources into two groups and engineering group, which supports existing technologies and products and the development group, which focuses on developing new capabilities and technologies.
The latter being particularly important when looking to solve the customers' optical problem as opposed to manufacturing components to the customer's specification and design.
Collectively we are marshalling the expertise and capabilities of over 50 engineers scientists and technology specialists to execute on this.
Being a fast evolving and highly multidisciplinary technology designing the optimal solutions in photonics is often driven by what technologist obviously.
Developing and pushing the limits of our technologies and capabilities.
Key in being able to provide the customer the best solution.
Our cornerstone so no valid strategy.
Examples of recent recent such development work includes both molding and being able to mass produce unique optical components, such as free form objects, which are a critical component for mass production of AR and VR goggles.
Do you think the size and the weight of hardware.
We expect to continue to invest in developing such unique fabrication and manufacturing capabilities in pop who secure Ingo Macquarie All third party nonrecurring engineering charges.
Awesome changing course also includes building a new team on all fronts.
The last year I have recruited and built a professional team to lead the company and to implement our strategy and key higher with Alan Miranda CFO to replace the retiring downward tweak you've already heard from Apple adult his impressive background.
He took life joined us at the beginning of this summer from table multibillion dollar contract manufacturer.
Where he was the senior business direct to point of sale ATM and self checkout to product.
Managing over $400 million.
And leading operations in five countries.
Tito hit the ground running with implementing the necessary operational improvement that position us to execute on the strategy at an accelerated rate.
Multiple avino has also joined US last year Evans VP sales Mark comes to US having spent his entire career in the world of optics with experience in building and optimizing performance of global sales teams as well as the sales channels.
Mark and I actually competed with each other in the past and I'm happy to have him on my side. This time.
Additional multiple of our position and mid level management have been refreshed.
Quality to marketing and site managers.
We have strengthened the depth and improved the quality of our team and we are all audit work and focusing on execution.
Lastly, several months ago, we also announced changes downward board of directors I think an age limit for directors following which two longtime directors have retired one of which was our chairman for 25 years.
We had also recruit recruit bid on to the board Eric Creviston.
President of the mobile Division Cold'll, who brings with him a wealth of knowledge and first hand experience transforming our business into a multibillion dollar business.
Also as part of better transparency and alignment with shareholders. The board has accepted management proposal for new executive bonus program, which will be simpler and easier to track and will be significantly aligned to shareholder value creation and company profitability.
Sure.
With that in mind, we plan to continue focusing in our fiscal 'twenty two on the health of the business and the implementation of our strategy with the China event, mostly in our rear view mirror.
Team has been hard at work building, a strong foundation that can execute elevated growth both organically and through acquisitions.
I very much look forward to continue to show our progress along with a new vote, we are pacing.
Now I'll pass the call over to our CFO Alan Miranda provides more details on our recent financial performance.
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 also be included in the 10-K.
I encourage you to visit our website at Lightpath com.
Before I dive into the financials.
Like to take a step back and categorized major issues that have led to our results.
First our margins were 35% in fiscal 2021 off from last year up 40%.
This was due to low coding yields and our IR product segment.
Yield and cost issue was exasperated by the year over year revenue growth for our IR products of 16%.
Something Sam has talked about before but really had a large impact in Q4 as we ramped up production.
We estimate our cost basis to a experienced significant headwinds in the back end of fiscal 2021 with low yields high scrap rates and production rework and the hundreds of thousands.
It's not just production inefficiencies and reduced operating leverage there is a real cost in terms of material waste.
Second.
As we've publicly discussed we discovered in our China operation.
There were key members of management and staff acting in their own self interest and we're preparing to create a competitive company.
Sam has said.
Save the business from harm.
But at a cost of $5.0 million in Q3 and Q4.
Third the transition of the former CEO transition of the CFO. The addition of a VP of operation and changes to our board at one time costs of 550000.
As investors you are probably asking what are we doing about it.
Regarding revenue, we expanded our sales office in Europe as Tim just said this past year.
We're replacing expanding our sales office in China, we hired an industry veteran of 35 years for a global coding director who is solve the coding problem.
And we will improve our capabilities and coding in general this addresses our yield issue that impacted our results in the second half of fiscal 2021.
We are finishing our final investment and we're eager to give them production capabilities and capacity.
And we're completely reorganized and Youre Orlando production facility.
In China, we are rebuilding and there are promising indicators for future business.
We are also pursuing the bad actors in China to the fullest extent that the law will allow.
And of course, we're tightening our risk and compliance activities in China, we still see China as growth opportunity in an excellent location for manufacturing and production.
These activities don't represent all of our efforts, but I thought it was important under the circumstances to move off script for a moment hopefully the overview, we will give you some context as I go through the financials.
Now onto my remarks.
Sam just covered the highlights of our recent financial performance and strategic plans for the future I will specifically discuss some of the key financial performance areas. During the past year and provide additional color on these matrix to better assist investors in analyzing the company on a trailing basis as well as a forward base.
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Revenue for fourth quarter of fiscal 2021 was $11.0 million down 9% from $10.0 million in the fourth quarter of last year and down 22% sequentially from the third quarter's $17.0 million.
IR revenues increased overall.
Certain contracts move into production amid a more normalized sales environment pertaining to contactless temperature sensing applications as compared to the heightened demand last year driven by Covid.
IR demand relating to industrial applications firefighting and other public safety applications continues to be strong.
PMO sales declined in the quarter, primarily due to lower sales activity associated with the personnel transition and related organizational disruption in China and also due to customer demand in the telecommunications market.
This was partially offset by an increase in sales from catalog and distribution channels as universities and other public private sector businesses resumed purchases compared to last year, where it trailed off due to COVID-19.
Revenues for all of fiscal 2021 was approximately $43.0 million, an increase of approximately $8.0 million or 10% as compared to $35 million in the prior fiscal year.
Sales of IR products comprised 55% of the Companys consolidated revenue in fiscal 2021 as compared to 52% of consolidated revenue in the prior fiscal year.
Visible PMO product sales represented 41% of consolidated revenues in fiscal 2021 as compared to 42% in the prior fiscal year.
Specialty products continue to be a small component of the company's business, representing 4% of consolidated revenue in fiscal 'twenty, one as compared to 7% to the prior fiscal year.
Higher revenue grew 16% for the year, primarily driven by catalog in distribution sales that were lower last year due to COVID-19 debt, partially offset by decreases in sales to the telecom sector.
I'd like to note that.
Telecom sector have been.
As begun picking back up following the end of our fiscal fourth quarter.
Moving on gross margins as we report today, we have three primary product groups PMO IR in specialty specialty is just that sort of a catch all of products and they represent a very small in <unk>.
Consistent component of our consolidated revenues specialty also includes.
Nonrecurring engineering service projects. So this is really a different type of revenue altogether.
Sam addressed in his review of our strategic plan, we are aggressively moving into engineered solutions, which may require us to offer our financial reporting segments in the future, but for now we will continue with the traditional segments.
For the two primary segments will report on generally speaking PMO products are smaller in size and almost entirely molded. So we a faster turnaround time higher volume applications and more automated processing.
These products are typically lower in price as compared to IR lenses with.
We historically have higher margins, averaging in the 40% to 50% range for the PMO lenses, which.
Which have been about 10% to 20 points higher than the margins on the infrared lenses.
Of the two primary revenue reporting groups PMO as the smaller group in terms of revenues with a higher margin.
Solidago basis, our gross margin will skew more towards IR products, which comprise a greater percentage of revenue the infrared product group represents a larger faster growing market opportunity as compared with our PMO lines.
Unfortunately, excuse me ultimately as we generate more and more revenue from engineered solutions.
We look forward to even higher consolidated margins.
During fiscal.
<unk> 2021 the company.
In high volume delivery of several key OEM projects.
<unk> orders consisted of products with both molded.
Diamond turned BD six material for IR products.
As is typical of scaling of new products into volume production a number of technical challenges have been experience both related to the fabrication of the components as well as some of the value added activities such as coding and assembly.
All such early stage problems or com as the company resolve the issues as they occur which will subsequently improved production yields and elevate the production the products to higher gross margin levels.
These different fundamentals for our business during the past year, we have been encouraging investors to focus on our revenue gross margins as a percentage of the revenue over the long term not necessarily on a quarterly basis.
New production lines may experience the experienced yield issues, initially which is simply the nature of the business.
Because we had so many new products coming online at one's impact on our financials in the fourth quarter is even more pronounced.
Over the course of the year. However, we are pleased that we have proven that we can manage problematic inherent issues associated with technical innovation.
We have several new success for product launches were.
Some involve proprietary new unique material when you moved into volume production phases for new customers and new contracts and expect our margins to normalize now that we have rectified the yield problems.
Gross margin as a percentage of revenue was 25% for the fourth quarter of fiscal 2021 compared to 39% for the same period of the prior fiscal year gross margin for all of fiscal 2021 was 35% compared to 40% from the prior fiscal year.
The decrease in the gross margin is primarily due to the mix of products sold in each respective period and yield.
<unk> pertaining to newly launched products.
Entering into volume production, which I explained in my opening remarks, a few moments ago.
We continue to produce more lenses overall again this kpis best viewed on a longer term basis since revenue mix and production ramp ups come into play as they did this year longer.
Longer term, we believe <unk> production as the Kpis will be less relevant since we expect to do more and being paid more for our engineering capabilities and value is a photonics solutions provider.
During fiscal 2021, we continue to invest in our manufacturing plants, which enable.
Increased wins production to address growing industry trends.
Total production for all product lines increased to $11.0 million lenses.
<unk> the scrap production.
During the 12 months ended June 32021 up from $9.0 million lenses in the prior year.
Moving on to operating expenses.
During the fourth.
Excuse me during the fourth quarter of fiscal 2021.
Total operating expenses increased $10.0 million or 67% from the prior year period.
Of which selling general administrative cost increased by approximately $9.0 million as.
As previously disclosed additional legal fees consulting expenses and severance expenses associated with changes in our operations in China, where we're.
Were incurred in the fourth quarter of this year.
We encourage you to read our SEC filings for more detailed explanation of these charges.
Slightly higher SG&A on an ongoing basis with designed to accommodate additional head count and costs associated with operational improvement and to support the growth strategy as it Sam addressed in his remarks.
During the year, we also incurred elevated charges in the third quarter relating to China.
194000, and in the second quarter charges related to the former CEO for about 400000.
Certain other expenses incurred in connection with other leadership changes.
<unk> and including Q4. These nonrecurring items added nearly one 8 million of one time expenses.
For the fiscal year.
During fiscal 2021 total operating expenses were approximately $18.0 million, an increase of $9.0 million or 31% as compared to $18.0 million in the prior fiscal year of that amount SG&A costs were approximately $12 million during the fiscal 2021 the increase of approximately.
<unk> 3 million or 34% as compared to the prior fiscal year inclusive of the $8 million I mentioned a moment ago.
Net loss for the fourth quarter of fiscal 2021 was approximately $11.0 million or <unk> 11, basic and diluted loss per share compared to net income of 657000 or <unk> <unk> basic and diluted earnings per share respectively for the fourth quarter of fiscal.
2020.
Net loss for the fiscal 2021 was approximately $5.0 million or 12 basic.
Basic and diluted loss per share compared to net income of 867000 Port point, <unk> basic and diluted earnings per share for fiscal 2020.
A decrease in net income for fiscal 2021 periods as compared to the prior fiscal year.
Was primarily primarily attributable to lower gross margins, coupled with approximately $9.0 million of nonrecurring SG&A.
Thousands of hours.
Other expenses related to China, as well as increased new product development costs.
Moving through the balance sheet and cash flow related items capital expenditure was $5.0 million for fiscal 2021 versus $6.0 million in fiscal 2020. This level was on track for our capital investment plan for the year with the majority of spending related to the continued global expansion of IR coating capacity.
As well as increasing lines pricing and dicing capacity to meet current and forecasted demand.
Cash was $14.0 million at year end.
Versus $9.0 million at the end.
The prior year, a 24% increase.
Cash flow provided by operations was approximately $11.0 million cash invested was $5.0 million passengers.
Yes.
And effects of exchange rates on cash was a positive 657000.
Therefore, the change in cash was a positive $5.0 billion for the fiscal year.
Our backlog as of June 32021.
$24.0 million up from $24.0 million at the end of March and slightly down from $30.0 million as of June 32020.
Our.
Production capacity has grown which enabled us to deliver on more contracts. Meanwhile, certain of our sales volumes have been reduced as the transition in China takes hold.
It should be noted that is natural for our backlog to fluctuate during the year because of the timing of bookings of large orders and annual renewals our single largest contract valued at nearly 18% of our total backlog at the time was renewed for a second quarter and we deliver against that contract during the course of the year.
Yeah.
With this review of our financial highlights and recent developments concluded I will now turn the call over to the operator, so that we meet begin question and answer session.
Thank you we will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone, if you're using a speaker phone. We ask that you pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Today's first question comes from Brian <unk> with Alliance Global Partners. Please go ahead.
Great. Thanks, so much for taking my questions. So clearly and you addressed it a lot the margins are going to stick out in the fourth quarter and can you tell us when exactly you were able to fix the yield issue and then help us understand the expected recovery you're expecting gross margin maybe in the person in the second quarter.
You said, you can get margins back to where they've been historically that around 40% I know, there's a bunch of things I just wanted to kind of focus on when and how you expect to recover that margin.
Yeah definitely good to hear from you buy them.
The yield issue would withhold early July I think we mentioned it in the another press release that we had at the beginning of July.
As a side note in that first please.
Happened to be that both.
Two yield issues, one FMC coating and one from Spain that we had were resolved roughly around the same time.
Now given that this is a pipeline of products and pipeline and manufacturing. So it takes time to flush it out I would not expect the margin to be impacted instantly.
But it could take I would expect a couple of months or even a quarter.
To go through a whole inventory cycle, and such and to see that.
In terms of margin.
In terms of where we see this in the longer term I'd say inherently infrared.
Always has lower margins than PMO, we've seen that in the past because of the mix of products and infrared, but some of them are pure build to print those we call where margins tend to be lower in pumps, and where we have more unique technology and.
And our own advantages and therefore, some premiums to it.
I'd say the overall we'd be happy.
When the margins of the company towards the end of the year would have a forward to beginning of them.
We'll get back do you think.
Everyone believes directly do you think you can get that.
I believe so it depends highly on the mix of products also.
Not to forget that the same time it happened to be just sort of a perfect storm, where we also lost our biggest PMO customer who was a high margin telecom customer and that customer while it's starting to come back has himself lost his main contracts. So it's not going to come back to full speed with step one.
And TMO being a higher margin, it's pick up margin last year in the two quarters, where we were in the mid Forty's.
So a lot of it depends on that mix.
But all things considered if it would be the same mix, we would definitely be in those same margins in the 40 plus percent.
That brings me and my second question that was already there.
Maybe commenting on the PMO lenses when you expect a recovery there first.
Our comm providers outside of China.
As it relates to <unk> can you talk about.
I think it's small, but how and when that starts to break out but then.
On your Chinese telecom customer.
We now expect any material growth.
From where you were maybe recently over the over the remainder of the year given what you just.
Highlighted yep definitely good question. So first of all in telecom outside of China.
We're starting to see some positive activity, there and some orders coming in from manufacturers.
To provide for the five G SEC.
As we mentioned before the supply chain is structured slightly differently. So we don't have as much visibility sometimes it comes through a contract manufacturer.
But in general.
So also different telecom manufacturer in China, We had worked very closely with over the years to design.
Specific lenses that had improved the <unk>.
Efficiency in them in the next manufacturing process and therefore, the price of the lenses and our margin was different so we would not expect necessarily the exact same margins from telecom customers.
It said.
Sitting idle waiting for <unk> to come back we've had some very very encouraging.
Congress in other projects that utilize PMO.
Mentioned briefly in my notes between theme called Freeform optics, which is really as the name implies allows.
It allows us to mold the lens it doesn't really look like a lens, but at least no longer bound.
Symmetrical product is actually has all sorts of odd shapes to it sometimes sharp corners, and so on and.
And we have at least three projects that include that every one of them has the potential of very nice volumes to it and much higher unit prices and later much higher margin. So we're very.
Positive about PMO coming back we're looking for.
Places to utilize that technology and to continue to advance the technology.
As a reminder, we make our own machines to make PMO lenses that gives us great flexibility in being able to advance it forever.
We don't want to get stuck in the more Commoditized savi.
And just be one of many and we're continuing to innovate and push the boundaries.
To be able to charge premiums and therefore be more profitable and such pumps.
Okay, I have a bunch more but I may ask one more thing it back in the queue.
Demand for your BD six products it looks like revenue was down year over year by a small amount, but maybe if you can comment on what's happening there and what you think needs to happen to drive greater adoption of that alternative.
Yes, that's a great point.
Hum.
The higher volume BD six orders.
<unk> had less shipments in the past quarter.
That was actually the biggest one was not related to us at all it was related to a change internally.
Our customer which changed teams first strategy and therefore paused shipments for a while.
Taking product and it's going very well with them.
More generally in terms of BD six adoption.
As you pointed out that's actually a very very important element of our strategy and as I mentioned in the strategic direction of being more of a partner to the customer and things that <unk> designed the op explore him up to design the complete optical solution.
More advantages we have technically.
We can differentiate our solution we can design a better solution. So we're investing a lot into.
Creating sort of unique differentiates us in that area.
Some of them started with things like the DLC coatings coatings that we mentioned.
Published a while ago.
<unk>.
Some of them are much more unique coatings for some of them we already applied for patents. So for example coatings.
Reject water and that way you can work in an environment, where maintenance coming down and the water doesn't seem to lend.
Different advantages and materials and so on all of those actually continued to provide BD six and although cogenerate plus like flat.
Unique advantages that give it more than what's can achieve elsewhere.
Okay. Thanks, I'll get back in the queue.
Thank you.
Our next question will come from gene Inger with anger letter Dot Com. Please go ahead.
Hi, Sam and al.
First I would say kudos.
For your effort delving into this company I think Sam when you got there you thought it was a turnaround and it looks like it's still turning around.
Yes.
That's for sure yeah.
All good.
Oh, yes.
I'm going to say I'm, just curious about something.
I want to look to the future and optimism rather than the past, which youre sorting out.
Thanks, so much of the expectations or lifestyle app.
Some of US have had for years would be relative because of the broader allocation.
Allocation of.
Components in China.
I know youre, expanding your facilities or Orlando or consolidating is this an expansion of this consolidation and are you preparing to increase production of between six and so on in Orlando, where you have absolute.
<unk> on the spot.
Yes, absolutely in regards to China.
I need to tread.
Tread delicately here because there's different activities, we're doing legally in China. So I cant talk at great detail about it but we are obviously pursuing every option we can.
I'd say, it's at the end of the day, it's a zero sum game, if if someone did something wrong and benefited someone else slots.
And definitely the company would've been better off if what's happened there.
It didn't happen and definitely as you hinted we realize now that add things have been going on for a while.
This is actually very long time, so we're.
We're pleased that we got to the bottom of it also whipping the mandate was very painful in Q4.
And.
Bay painful also emotionally I think there's a team that has invested so much in the China observation and into success for years to find out that this was going on below the surface.
That said in terms of the expansion in Orlando. So first of all it's a consolidation of the two businesses two buildings for Shaw and an expansion as well.
Expansion was negotiated.
They will buy pizza in the ways that we actually are not going to start paying any additional event or not have any additional expenses and until we start to using the space.
So, although we announced this a few months ago, where we're not yet in curbing any additional costs related to that.
In terms of the BD six manufacturing in the U S.
We very very strongly believe that being vertical and having control of the materials allows us to provide better solutions in infrared imaging and we plan to continue to invest in that direction.
Actually working closely with some organizations in the U S, which are not confidence academics and others to develop new innovative materials and promotional noise them and I think that those will give us a enormous advantage in the long run.
That would be one of my questions partnerships acquisitions mergers.
Not sure what you are willing to entertain but I wouldn't be surprised I do remember the first time I visited lifestyle. I was told that you had many times the landscape of capacity in China that you did here, which is why I asked that question. If you are increasing the capacity here and I know that American truck in Europe.
Competition in the United States or is most of your competition offshore, giving you a better supply chain arrangement with customers here.
Yes, so first of all and we do have some competition in the U S. It's one small company and not just in New York that competes in this area.
But it is.
Very different type income directions that going and does not sort of designed for volume it's much.
We have been increasing volume of manufacturing in the U S and plan to do so as much as possible.
Definitely our <unk> infrared and infrared imaging solutions and such.
It's going to be driven significantly by the U S, but not only.
Therefore, we will require some expansion in the U S.
Additionally, state in terms of partnerships acquisitions and so on.
I tend to say, yes to all but we only do what.
What makes sense and what we can afford to do there are many many great opportunities that serves its many incredible things different companies and organizations have been working on in both in terms of technology and the application.
And we look closely at that and.
No doubt that some level of acquisitions will be part of our license future.
I might ask briefly.
And then I'll, then I'll get back in the queue, but by a more modest.
Sure.
Alright asked briefly about Riga, Latvia.
Third dimension.
I would also.
Sure Phil.
Photonics in general whether theres more ties with companies.
Wrong plans.
Israel.
Yeah, Yeah definitely so we have now a grant that we got from space, Florida in conjunction with SEC.
The Ministry of Science, and Israel gain we received money together with Israeli partner and we're developing a.
Thermal camera Val thermal assembly for space.
And thats going to be both a complete thermal camera as well as quantifying golar with materials and processes for Houston space and mostly in lower orbit.
And we have some of the additional projects we're working on in Israel.
We hope to be able to announce.
Near future.
This is both from the U S and from Latvia, All we have the great advantage of being able to both do.
U S defense work with <unk> as well as fall in defense work and some level of foods largely alteration.
And we want to make some boost out of that the lottery operation just as a reminder, we've expanded it in the last 12 months added a coating facility does that next month.
Hope to be able to share that its complete and fully running.
And we will have a I think also a great impact on both our performance working capital and margins.
I hate to ask one more quick one.
<unk>.
With space.
Some people thought it was like.
When you talked about being in the Mars Rover I think it's significant I don't think they appreciate although your new video hinted at it.
Your extensive involvement and I guess my specific question would be are you involved with the low Earth orbit communications satellite in terms of wireless infrared linkage maybe between the satellites and is not a big business.
In short, yes, we are involved in it also in short yes, we believe based on the bigger business. That's why we've been investing in that and working into that direction. We have multiple projects. So the mall as you mentioned is actually.
Not much of a revenue driver as much of that is a very significant seal of approval from naphtha.
And.
Allows us to now go and apply a lot of our technology to a lot of the nano satellites or satellite cubes and so on.
Project, and we have many of those and to work with customers.
Thank you Jean Thank you.
We show no additional questions I would like to turn the conference back over to management for any closing remarks.
Thank you for participating in today's conference call as you've heard we've been extremely busy implementing our new strategic plan and are encouraged by the favorable top line growth we've experienced in just the short time.
We look forward to speaking with you next quarter to continue to share our progress, but until then we have been invited to present.
The H C Wainwright.
Bob It's conferences, both of which take place this coming Monday September 13th we hope you can join US. Thank you again and goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.