Q1 2023 LightPath Technologies Inc Earnings Call
Good afternoon, and welcome to the Lightpath technologies fiscal 2023 first quarter financial results Conference call.
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Please note. This event is being recorded I would now like to.
To turn the conference over to Albert Miranda Chief Financial Officer. Please go ahead.
Thank you good afternoon, everyone.
Before we get started I'd like to remind you that during the course of this conference call.
We're making a number of forward looking statements that are based on current expectations involve various risks and uncertainties, including the impact of COVID-19 pandemic that is discussed in our periodic SEC filings.
While the company believes that the assumptions underlying these statements are reasonable any of them can be proven to be inaccurate and there can be no assurances that the 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 too.
The appropriate disclaimers and reconciliation in the company's SEC filings and press releases.
Sam will begin today's call with an overview of the business and recent developments for the company I will then review financial results for the quarter.
Following our prepared remarks, there'll be a format question and answer session.
Now I'd like to turn the conference over to Sam Rubin like past, President and Chief Executive Officer.
Thank you al before I begin I'd, just like to inform everyone that due to internet shortage.
Orlando well.
Outage, where cellphone so excuse us if there's any.
Quality issues.
So good afternoon to everyone and welcome to Lifebelt Technologists physical 2020 for the first quarter financial results Conference call. Our financial results Press release was issued after the market closed today and posted on our corporate website.
As can be seen from our sales number for the quarter life pumps. This quarter faced multiple headwinds starting from hurricane affecting our shipments in the last few days of the quarter.
Down in China, and the war in Ukraine.
The hurricane was sufficiently intends to full flight path to clone population that we're following Florida facility for the last three days of the quarter. The facility closure resulted in a delay in shipments which impacted revenue for the last week of fiscal 2020 fleet first quarter.
An initial assessment is that the.
Fiscal first quarter revenue could be negatively affected by 400 to $700000 due to delayed auto ship auto ship at.
All of which have simply shifted into the following quarter without losing any of the revenue.
The past quarter, we have acknowledged a slowdown in China's economy affecting demand for light false blocked.
The first fiscal quarter of 2020 free soy continuation of this trend with demand in China Lucky as mentioned in our record backlog disclosure earlier this quarter. The model has been picking up significantly in other regions for future shipment starting in one to two quarters.
But that is not yet visible in our sales number for first quarter.
Yeah.
Hey, Don.
Inside China this quarter represented roughly 13%.
One 3% of life pass through revenue for the quarter that is down from about 30% three zero percent in fiscal 2022.
Yeah.
We have however began preparing for this day for a while now and as a reminder, though have been mined out shortly after I joined in 2020, we conducted an in depth strategic analysis and have concluded that the pure components play is not sustainable for us.
The market is getting too crowded.
Since then we have been putting a new course and moving away from our dependence on component.
And putting our resources and growth elsewhere.
In particular in infrared optics, and the added value that.
Engineered solutions and while we did not expect sale of components in China to shift so quickly the combination of the Lockdowns in China, the economics like a nation and the geopolitical events have accelerated the shift proving to us that our new strategic direction, which we began implementing.
The main thing two years ago in the right direction for us.
Now, having said that I do want to revisit where it's going.
In the past few quarters, we discussed our transition to a provider of optical solutions former manufacturer of components.
We have significant engineering and product knowledge built up over the year to provide our customers with sufficiently compelling solutions for them to partner with us.
Oh, that's development will be critical in our transition to a solutions provider.
We continued to make substantial progress in but it's not as transition and all excited about what we will announce in the coming weeks and months.
Last quarter, we discussed our domestically produce black Diamond glass is central to our transition to a solution provider.
These material make a cheap domestically produced product and allow new applications, such as multi spectral imaging.
These are obvious benefits over traditional crystalline and fluids materials, like germanium, which should largely sourced from China and Russia.
Over the last year, we have been collaborating with different government agencies and key customers on advancing our Blackstone glass and moving into production some of the new materials. We have developed based on the license from Naval Research Laboratory.
This morning for example, we announced that our flagship black diamond material named BD.
After validation testing and is being qualified for use in space.
This is part of a project financed by the European Space Agency and announced by Us about a year ago.
Similar to that we have ongoing projects and commitment.
From different many different government agencies, primarily in the D O D Department of defense.
Well the integration of Atwood material into new systems, both for superior performance and to reduce the dependence on germanium.
Expect like pasta announced development of new solutions, leveraging the potential of that with black diamond material.
Which allow our customers to achieve results presenting leaps forward in optics in the coming weeks and months.
While we look forward to exciting news on the product development front. We are also seeing exciting developments on the business front. We are now the lifestyle for each a $24 million in August while black backlog does fluctuate over time, we see them as it does.
First indicator for future revenue.
At the end of the first quarter, our backlog remained near historically high levels of 23 million.
Looking deeper at the backlog, we see some beneficial trends.
It's more skewed now towards defense and commercial customers in U S and Europe than it has ever been before.
Additionally, the backlog remains comprised of a significant portion of the.
Pollution OEM to the audits.
The bulk of which are scheduled to begin deliveries in our third and fourth fiscal quarters of this year.
I have previously spoken about a number of key opportunities with what you thought that involve new technologies and product and each one of those key opportunities could potentially be a 10% or more customer.
Along those lines I would like to update the toilet coupled with those opportunities have fallen food.
The opportunities have completed customer qualification and awaiting customer production orders, while two other opportunities have grown silver and white initial expectation and represents now opportunities that could each be a game changer tablet revenue.
We will continue to update those and hopefully be able to announce soon the transition of salt into production.
Despite some external headwinds and near term cost pressure, the company's outlook and growth prospects.
Greenlee plagued our black diamond to Peel off as well as many other technological innovation has the potential to revolutionize our product portfolio and all beginning to do so already.
We are actively developing solutions built on that platform to provide a complete engineered solution, that's well, what's impossible or much harder to achieve before.
I want to thank our employees and stakeholders, who have continued to work diligently who's the various transitions and told them we have endured.
We see a bright future and growing company because of their dedication and hard work.
And with that I will now turn the call over to our CFO Alan Vanda to review, our first quarter financial results. Thank you Sam I'd like to remind everyone that much of the information. We're discussing during this call is also included in our press release issued earlier today and will be included in the 10-Q.
Encourage you to visit our website at Lightpath.
Dot com to access these documents.
I'll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing our company.
On a consolidated basis revenues for fiscal first quarter were $7 4 million compared to $9 1 million in the year ago period.
Sales of infrared products were $3 6 million or 49% of the company's consolidated revenue.
Revenue from PMO products was $3 3 million or 44% of consolidated revenue.
Revenue from specialty products, $4 5 million or 6% of total company revenue.
The decrease in infrared products revenue is primarily driven by sales of molded infrared products.
Two customers in the <unk>.
Industrial market.
Sales of Diamond turned infrared products also decreased also attributable to customers in the industrial market.
It also PMO products were $3 3 million compared to $3 8 million in the same period of the prior fiscal year.
The decrease in revenue is primarily attributed to decreases in sales.
Catalog distribution channels as well as sales to commercial customers.
The majority of the decreases in sales to our catalog and distribution channels is due to the termination of our distribution agreement.
In Europe during the third quarter of fiscal 2022.
We're no longer accepting new orders through this distributor they are now soliciting and receiving orders directly from your end customers.
This transition will continue through the third quarter of fiscal 2023, and we will continue to ship distribution orders that were in place prior to the contract termination.
The remainder of the decrease in PMO product.
Is it related to customers in China across all of the industries, we serve there.
Sales of specialty products was <unk> 5 million compared to <unk> 4 million in the same period of the prior fiscal year.
The increase was primarily driven by nonrecurring charges build to a customer during the first quarter of fiscal 'twenty 'twenty three.
Moving onto margins.
I'd like to remind listeners that PMO margins are typically higher due to our molding, which enables mass production in a more automated machine process.
Infrared historically was more manually produced but with the growth in our molding technology as applied to infrared products being made from our proprietary BD six material.
Margins will increase from both the advantage or the material cost and using the automated molding process.
Gross margin for.
First fiscal quarter 2023 was approximately $2 2 million.
Paired to approximately $3 2 million during the prior fiscal year over year period.
Gross margin as a percentage of revenue was 30% during the quarter compared to 35% for the year over year period.
Although this quarter had a similar product mix. The first quarter 2022, the decrease in gross margin as a percentage of revenue was primarily due to the significantly lower revenue levels with west contribution towards fixed manufacturing costs.
Turning to gross margin of 30% at this low revenue level reflects reflects the benefit of a number.
The operational and cost structure improvements that we have been implemented.
Selling general and administrative costs were approximately $2 6 million for the first quarter of fiscal 2023, a decrease of approximately 231000 or 8%.
Compared to approximately $2 9 million in the same period of the prior fiscal year.
The decrease in SG&A cost is primarily due to a decrease of approximately 300000 of expenses associated with the previously described the beds that occurred at our Chinese subsidiaries, including legal and consulting fees.
Net loss for the first quarter of fiscal 2023 was approximately $1 4 million or five basic and diluted loss per share compared to 632000, or <unk> <unk> basic and diluted loss per share for the <unk>.
Same quarter of the prior fiscal year.
The decrease in net income for the first quarter of fiscal 2023 as compared to the same periods of the prior fiscal year was primarily attributable to lower revenue and gross margin, which was partially offset by lower operating expenses and income taxes.
We believe EBITDA is helpful for investors to better understand our underlying business operations.
EBITDA for the quarter.
He was.
Okay Alright.
Awesome.
Okay.
Alright.
Period of the prior year.
The decrease in EBITDA in the first quarter of fiscal 2023 was primarily attributable to lower revenue and gross margin, partially offset by lower operating costs.
As of September 32022.
Working capital of approximately $9 2 million and total cash and cash equivalents of approximately $4 3 million of which greater than 50% of our cash and cash equivalents was held by our foreign subsidiaries.
Cash used in operations was approximately 416000 for the first three months of fiscal 2023.
<unk> to approximately $1 6 million for the same period of the prior fiscal year.
Cash used in operations for the first three months of fiscal 2023, reflecting a higher net loss in the comparable period was an outflow of approximately 69000 for the net change in operating assets and liabilities.
Whereas the first three months of fiscal 2022, reflecting that pool of approximately $2 million and changes in operating assets and liabilities.
This is largely due to timing a portion of the decrease in accounts payable and accrued liabilities. During the first three months of fiscal 2022.
Was due to the previously described events that occurred in our Chinese subsidiaries with certain expenses were accrued as of June 32021.
Many of which were paid during the first three months of fiscal 2022.
First three months of fiscal 2022 also reflected an increase in accounts receivable due to higher sales in the previous sequential quarter, whereas for the first three months of fiscal 2023 reflects a decrease in accounts receivable due to the law.
Lower sales in the previous sequential quarter.
The increase in backlog during the first three months of fiscal 2023 was largely due to a $4 million supply agreement with a longtime European customer precision motion control systems and OEM assemblies.
The new supply agreement will go into effect in the second half of our fiscal year and is expected to run around 12 to 18 months.
In addition orders received for several other significant long term projects with customers in the U S and Europe .
I'd like to add some commentary.
Seven 4 million dollar revenue quarter is a very low figure.
There are three events that contributed to the sub $9 million a quarter.
First with shutting down for Hurricane Ian.
Second is we should be end of our annual contract with a key European customer, which typically renews in November .
And the third was the ongoing drop in demand in China, which Sam discussed and.
And we've mentioned before.
The first two are what I would consider normal business. The hurricane is a delay in the annual contract will shift at an accelerated rate all year to conclude in early <unk>.
Water is unfortunately shaping up to be the new norm in China and is being addressed in a very comprehensive way.
Our current forecast backed up by our backlog and a strong indicator that Q1 will be an anomaly for this fiscal year.
As we've said war recession, even hurricanes, our headwinds and wildcards and to be straightforward, China is in a recession and the current government policies will likely keep it there for a while.
That said, we do expect growth in Europe , and the U S, particularly in defense aerospace and specific industries. So.
So we remain cautiously optimistic about revenue, even with recession headwinds and a bad quarter.
Investors and analysts often ask about margins as an indicator of the company health and ability to produce positive results.
30% gross margin this quarter, certainly would invoke the question of what to expect.
As a point of comparison I went back several years in search of a comparable quarter in.
In 2019, we had a $7 $5 million quarter with 30% gross margins.
That fiscal year salaries were lower raw materials with cheaper utilities were less than half of today's price and there was no recession in China.
The improvements we've made in cost efficiencies and yield is hidden in the $7 4 million dollar sales figure, but also hidden as a reason to be somewhat optimistic about our future results when revenues are normal levels and growing.
With this review our financial highlights and recent developments concluded I will now turn the call over to the operator to begin the question and answer session.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Speakerphone, please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time.
Plasma maturities mom in terms of some of our roster.
Our first question will come from Scott Buck with H C Wainwright.
Yes.
So quickly.
Got it.
Larger organization.
Cardenas time, often a challenge.
And some time.
We'll move onto the next questioner and next question will be Brian Kessler here with Alliance Global Partners. You May now go ahead.
It sounds like we're all managing multiple conference calls at once so.
When you start with the.
The exiting of your distribution partner in Europe , maybe.
Maybe if you can provide some detail behind what led to that I don't know if you've shared that before maybe I forget how much revenue did that distribute to help generate in the trailing 12 months and then how do you plan to replace that revenue or we connect with those customers.
Okay.
Yeah. So.
Great question and thanks for joining today Brian .
The work on replacing to distribute has been ongoing since I joined we announced opening an office in yogurt.
As early as I think a year and a half ago or maybe even two years ago in preparation for that and have been.
Being preparing and negotiating our way to direct sales.
We now I believe have not only not lost any customers since then but actually had.
Significantly grew sales in Europe since then.
And there's two reasons for it one that distributor was focused really on a few specific areas mainly in industrial customers.
And growth but to be to wood.
In stagnation wasn't really go out and they achieved nice growth many years ago and have been.
Hitting Goldman Finfet.
Once we have a place to distribute a few things happened first of all our margin for those products went up because we're not paying anymore to 15 or 20%.
Count or sharing of profit, which is a distributor.
The costs related to selling directly have already been embedded in our SG&A for a couple of years now so there's no new costs related to that.
And since we have already a facility in Latvia that as part of the EU, we essentially funnel all our sales in Europe foods that facility.
And are able to really.
Domestically inside that European Union bombed out without any problem whatsoever, so very very little added cost.
Our margins went up because we're not paying a distributor of any mall with sales have gone up because one the new team is highly energized and once to twice that and two with focusing much more now on defense business, which we started working towards defense business.
In Europe , the belt to year, and a half ago, obviously, the war and everything happening there has really been.
Being a driver for that.
So I'd say that overall, our sales in Europe are growing and growing really nicely.
With margins from those sales are growing too.
Okay I just wanted to make sure that I understand in your prepared comments I joined a few minutes late I thought you said that.
Losing the end of this year.
Distribution partnership led to some lower revenue.
Would you say you're growing faster she always you lost them, but now you're growing what you've got faster is that is that what you were trying to communicate.
Yes, so Brian sorry, that's probably my fault it was a little wordy.
The way the way I the way I said that.
It was not my intention to say that our sales are going down.
It was it's more regarding categorization.
We don't have we don't have as much catalog distribution sales in Europe , but it's being replaced by direct sales in the verticals like defense and commercial like San Jose.
So that's my fault I should've should have worded that noise.
Excellent.
And then you mentioned three what do you believe are free form part.
It actually would have completed qualifications to gone farther than you expected and if I'm using your words could be a game changer help us with the timing of when we would know if in fact, that's a game changer.
How do you define a game changer 2 million 5 million per year.
Yeah.
In the past you've talked about.
A big difference if it's a new product for the next generation of existing product maybe help US you know all of that sorry.
Yeah, no problem whatsoever. So first of all not all of them are necessarily freeform optics preform optics is a key technology that sort of gave us the second wind for the PMO for Diebold adopted but it's one of multiple technologies that we use the differentiator.
The black Diamond gloves, three form optics that coatings that DLC and many more.
No.
All of those projects I'd say the two is the Tor potentially game changers in life wording or actually not free form optics. They are both in the infrared optics and when I say game changer of I mean, some things that Ken.
Two very quickly scale. According to the timelines that we have meaning within two to three years scaled to somewhere between $5 million to $10 million a year revenue.
So you know usually I referred to there was 10% customers and I feel that there's something in those numbers or more of a game changer. One of them is in automotive and have wanted to in defense.
They're both projects we have been working on.
For well over a year.
Very extensive qualification both in both the defense and automotive, but in both of them. Once you know that you're in it for four years of course, the automotive in particular is interesting because it's a leading car company that at first it's going to roll it out to a few more.
Models, but later on plans to have it in all the same model.
And lastly.
When help us in that timeline, well you know what.
Six months, yeah. It will it take you to know where are we in tightening.
Okay.
A I expect to see us finding a supply agreement for both of them and announcing qualifications in the next.
210, maybe 12 months.
The supply agreement will not necessarily be the purchase order itself it could be a supply agreement for five years, stating the range of quantities.
And such but there's already a commitment that we are the supplier for those parts.
All right last question I've got and I'll jump back in the queue.
I missed you started the call, but with your BD six press release.
I think at least since I've joined a light paths story BTC hasnt taken off for reasons, we've discussed it on the calls in the past yeah mhm.
This open the door for that to take off you know, what's the timing for that and you start replacing that with germanium just help us understand what this means you're balancing the timing of it absolutely absolutely I think if this announcement is very very important on the strategic.
That's a little bit, but not necessarily what the people.
Finkel, meaning absolutely the space.
For beating missions and someone has a good market. It's a market. We're in we're going to push it even further and but to me. What's special about this announcement is that the government organization has decided to spend money with us.
<unk> to qualifying the material to replace germanium.
We've been you know thinking that song go or talking about this for a long time about the dependence service so very very significant.
Supply chain liability risks.
The D O D here another government tech.
And this is the fact that.
They decided to put their own money into that and to now essentially it's not formally qualified because they need to finish the projects, but but it's part of the most critical part of the offset of ideation thought the harvest of aviation of existence. The fact that they are doing that is an indicator we have them.
On Board you know I'm thinking to now go and really switched everything to be six no.
And it's not needed.
What's important is that they will reduce exposure to amount of germanium significantly and they understand that we have the solution for that.
Great. Thank you very much.
Thank you Brian .
Again, if you have a question. Please press Star then one.
Our next question will come from gene Inger Stinger litter dot com.
You May now go ahead.
Hi, Al and Sam and I first congratulate you on being brave enough to do a conference call with the kind of results that have been Oh, we wish we knew we are forthcoming.
My first thought would be that for investors because the prices have been asked about some of the product and about Europe that I would have but.
For investors. This has been sort of a half pregnant hazy picture with Lightpath always trying to develop the baby, but somehow never delivered if I take the questions that I've already heard I would say that you're expecting delivery basically a year and about the first dry maths right.
Now.
And you are pre announcing a good quarter later in the year.
Yeah, I think I think will.
First of all I I agree and understand what Youre, saying and that's definitely a has been a roller coaster divide and wasn't one thing definitely join guy with term and over the years here.
We're excited about a number of things and that is both in the pure financial direction of things and strategically.
Absolutely seeing the sales in China are going down is painful.
But realizing now that the decision we made two years ago and does somewhat painful directions that we've taken to sort of mitigate that it's paying golf kind of makes us a bit pleased in the sense of we're far better off than if this was caught us by surprise.
Right now we would need to start.
Changing direction. So we've been working on this for two years.
And different activities all coming to fruition.
Really really significant and exciting business opportunities that are at very advanced stages that we hopefully will have very shortly some announcements on.
Some of them could take two years to mature to full revenue, but the.
Completely different type of revenue and relationships and light bulb has had in the past.
So I think we are in the right time with our technology.
The geopolitical events, we have China, we started preparing for this two years ago sure. We could have done it faster, having known that now China, it's going to fall apart.
But we're we're definitely it's a far better place than we were say half a year ago.
But by the way, while I don't think that China will be what it was before or after what they've done.
Suspect that after that meeting with G and Baidu you might be surprised that they commit to improve trade relationships.
But certainly not when it comes to National security issues, which takes me to my next question and I have no choice, but to ask you and you may have seen I've I've referred to.
Another company in Orlando that is in the photonics feel not infrared lenses per se, but they are involved in radiation hardening processors.
We're talking about space or anyone that's listening not not nuclear conflict, but the space aspect and that means satellite communications and they refer I'm talking about sky water do you know them I know you don't like to talk about specific customers and then I can speculate whether it's guy water weather.
It's Spacex.
Can you discuss relationships with either.
I think that we work with a great number the number of companies and are deeply involved in a great number of projects, but he did the space.
When it comes to radiation.
<unk> also.
Look at what is the lifespan of a satellite location. The further away you would go from one of the strongest of ideation in the very low earth orbiting such as the satellite Spacex, which also designed to lost only two or three years.
Radiation is not as much of an issue with that wave.
However, with.
Joe synchronized and with defense related satellites and so on the radiation is much more significant but in either case, we work on.
On multiple projects.
Project many of them. Many if not all almost all of them are related to imaging from space and it starts from wherever the satellite solar as a way to agriculture.
Detection of.
Of different events on the ground in different wave band, both long wave midway short wave and so on.
With that include by any chance target acquisition.
Systems for the upgraded version of Lockheed's Hellfire and so on.
It could very well be definitely.
So there's a lot of talk about it and this is public knowledge, so I wouldn't be sharing anything that isn't known but.
We'll put sonic Massaro and also work towards that.
Really one of the only ways to identify them after launch and to track them.
Using mid way, even long wave thermal imaging and Theres a lot of work being done towards satellite related to that.
The missile Defense Agency announced recently to think three or four satellites that are going to be dedicated for that.
Gonna be a testbed each floor set.
And finally.
Do you are you, obviously would not have come to the company nor L. I F.
You didn't see the potential and the stock option benefits down down the road do you see this is a company that can emerge into something that not only justifies these quarterly calls.
But becomes an asset that becomes attractive in other words can you scale on your own as these contracts develop or do you think you'll need a larger partner.
It works with D O D.
Yeah, no absolutely we believe in the company, which is why we also.
Decided recently to take more of their compensation in the form of equity.
And I think that's one of the proxy which is gonna be to vote on it next week.
And we strongly believe in it and want to align ourselves to it.
We believe that we're able to grow along this path of Phil and part of the reason for that is the timing on what we're doing is so well aligned with the priorities of the government and the D. O D that we're seeing multiple play.
This is where we're getting and going to receive support from the government we have.
Long commitment letter from comfort from customers inside the government, whether it's in the army and Air Force guaranteeing essentially they are going to switch over to using our Blackstone under material at the moment they are ready to reduce the dependence on germanium.
With that in mind, the D O T a S.
It's cumbersome as it is it's pretty good at supporting small businesses, and especially if they're aligned to strategic objectives and so we're working very closely with defense Logistics Agency Air Force Research Lab Army Night vision.
Missile Defense agency and many more.
Any more on these efforts just like the European Space Agency and there was a fund the deficit with you know not only short term funding, but also long term commitments with it.
Our next question will come from Scott Buck with H C Wainwright.
You May now go ahead.
Hey, guys. Good afternoon, and thanks for taking my question just one from me today, you guys have done a really nice job managing the cost given all the the headwinds on the revenue side I'm curious if the current environment were to last for an extended period of time, whether or not there is no.
Some additional levers you could pull there to continue to minimize cash burn.
So Scott yet.
The answer is yes, there are other levers.
Uh huh.
Yeah.
Okay.
Perfect.
That's it for me guys. Thanks.
[laughter].
It appears that no further questions. This concludes our question answer session I would like to turn the conference back over to Sam Wilson for any closing remarks.
Thank you I appreciate everyone's participation and patience with us as we continue to turn around the company and really take it in a new exciting course.
I look forward to thank everyone next weekend and I were annual shareholder meeting on Thursday at 11, a M. Eastern time, and if you haven't yes, please don't forget to vote.
Probably what proxy thank you and good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.