Q1 2023 Laser Photonics Corp Earnings Call

Speaker 1: The.

Speaker 2: Good morning and welcome to the Laser Phonetics first quarter 2023 financial results webcast. After today's presentation, management will answer any questions that you have submitted ahead of time or through the webcast. Please note that this event is being recorded. I will now turn the call over to Brian Spiegel.

Speaker 3: Senior Managing Director of Hayden IR. Thank you, sir. You may begin. Thank you, operator. With me today are Wayne Topola, laser photonics CEO , Peter Evans, who recently joined us as president, and Bill Campbell, who just joined us as CFO .

Speaker 4: Wayne will introduce the company and its opportunity to disrupt the market for corrosion control and other applications. Peter will discuss the strategy and the plan for this share. Then Bill will review the financial results for the quarter ended March 31, 2023. Any forward-looking statements made during this conference call, whether general or specific in nature.

Speaker 5: are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These risks and uncertainties include, but are not limited to, the specific risks and uncertainties discussed in the reports that we file periodically with the SEC. Laser Photonics assumes no obligation to either update any forward-looking statements that we have made or may make.

Speaker 6: or to update the factors that may cause actual results different materially from those that we've worked at.

Speaker 7: I will now turn the call over to Wayne, Laser Photonics Chief Executive Officer.

Speaker 8: Thank you, Brian . Good afternoon, everyone. We reported a solid quarter in Q1 with year-over-year growth of 35%. This growth was led by solid performance across all of our product lines, especially in our high-power laser cleaning processing applications and affordable entry-level systems.

Speaker 9: We attribute this growth to our continued investment in sales and marketing and capitalizing on our existing and newly installed customer base.

Speaker 10: We are also making investments in R&D to develop world-class products that meet the demands of our customers in industrial, automotive, MRO, and nuclear facility decommissioning markets.

Speaker 11: Moving to our growth investments, which as we said on our recent fourth quarter earnings call would negatively impact profits this year.

Speaker 12: From a personal perspective, we brought on Peter and Bill, two C-level executives with proven success in relevant verticals at larger companies.

Speaker 13: We also expanded our marketing department to 13 people to support anticipated growth and added four outside sales professionals to target the DoD, automotive and energy industries and strategic geographic areas.

Speaker 14: Furthermore, we are building an AI and big data team.

Speaker 15: which will primarily focus on targeting specific end users, such as plant managers, department managers, and chief engineers from selected industries and verticals, including the automotive, aeronautical, and maritime sectors to enhance lead creation.

Speaker 16: while decreasing customer acquisition costs. For R&D, we maintain several programs and activities to improve our technology and processes to enhance performance to reduce the cost of our laser cleaning systems.

Speaker 17: In Q1, we increase R&D investments to stay ahead of our competition.

Speaker 18: We equip our application center with state-of-the-art laser blasters and develop new complementary technologies such as remote particle removal for energy transmission power lines and infrastructure projects maintenance repair and construction

Speaker 19: Moving forward, we intend to make further investments in R&D to innovate and guarantee the company's long-term future.

Speaker 20: Now, I'd like to turn the call over to our President, Mr. Peter Evans, for a detailed review of our sales and marketing efforts.

Speaker 21: Thank you, Wayne. As I mentioned last month on our fourth quarter earnings call, our strategic plan for the next 12 to 24 months centered around two key areas.

Speaker 22: sales, customer support, and expanding distribution channels.

Speaker 23: Starting with sales personnel, we are looking to recruit senior key account managers that are proven hunters and closers with deep vertical experience and existing contacts with key decision makers at current and potential customers. To accomplish this, we have brought on a number of leading search firms that specialize in our key verticals from automotive to business.

Speaker 24: DoD, shipbuilding, maritime, aerospace, energy, manufacturing, oil and gas, heavy duty industries like over the road type vehicles, agriculture, and construction. I believe this will provide efficient coverage to optimize opportunities while still exercising financial prudence. This quarter I'm happy to say that we brought on two senior account managers to focus on DoD.

Speaker 25: and government customers. We also added an account manager in the automotive space and one of energy.

Speaker 26: Our plan is to continue to grow our team of account managers across our key verticals and geographies.

Speaker 27: Additionally, we want to double the number of inside salespeople from the current team of four to eight persons.

Speaker 28: Further, we plan to hire and integrate a strong customer service group to support our broader sales team.

Speaker 29: Finally, we plan to invest in and expand our distribution and partner networks. We recently spoke to investors for the first time about our service partner network or SPN. We are very proud to support American entrepreneurs in creating MRO service businesses using our clean tech technologies.

Speaker 30: Through the SPN, we help them secure equipment financing, if necessary, to purchase one or more clean tech systems and then provide warm or hot leads and other support to help them establish their businesses.

Speaker 31: The key benefits are accelerated market penetration through the establishment of service businesses using our clean tech systems. SPN members will also go out and do demos at our potential customers that can drive incremental sales and the potential to identify and penetrate smaller industries and customers that we may not have been identified by our existing sales efforts.

Speaker 32: As you saw over the past few weeks, we have received orders from our SPN members. What's great about this is that as members expand their business within their territories, they will need to buy additional systems, so it's a win-win proposition. Today we have 15 members, up from 12 at year end 2022.

was a strong financial base.

Now I'd like to review the expectations or targets we recently set for these initiatives. For our key account manager, our goal is to fill these roles as quickly as possible. To date we have hired four of the seven identified physicians.

By hitting this goal, we will give these new team members approximately six months in 2023 to become productive and bring in revenue. I expect these sales to come from low-risk, high-yield businesses that our experienced hires would have immediate access to.

through prior experience and relationships. I also expect additional sales will be realized from our increased in-sales, inside sales efforts. Beyond this year, we expect to continue to build the pipeline for our more highly engineered systems, which have a six to 12 month sales cycle, and will therefore help drive sales growth in 2024 and 2025.

With respect to setting up our SPN and GILAR distributor network, our efforts in 2023 will be spent vetting potential members and partners, and therefore any sales through these channels will be incremental to our growth rate. In summary, in 2023, we fully expect to report higher revenues versus 2022 from the initiatives I've outlined.

Of course, it will be an investment year with the goal of positioning the company to drive accelerated sales growth over the next several years. And I'm excited about the opportunity to create significant value for our shareholders.

Now, I'll turn over to Bill for his discussion of our first quarter financial results. Thank you Peter and welcome everybody. Our first quarter revenue increased by 2% to 1.24 million. While this number was up slightly, both year over year and sequentially.

As Wayne and Peter communicated, we expect this growth rate to accelerate as market awareness of our capabilities and resources devoted to sales and marketing increase.

Our gross margin and those Q1 fails increased by 500 basis points.

About 1 million of this loss was attributable to non-tash stock issuance costs related to our IPO and both cash and non-tash costs.

related to the severance agreement for our former CFO . Both of which were settled in April and therefore needed to be marked to market and accrued at the end of the quarter.

Beyond these non-tash and one-time costs, the most significant change in our operating structure was the increase in sales and marketing resources, NASDAQ and SEC compliance costs, and rent for a new facility.

The other loss of 200,000 represented a bad debt reserve.

of 200,000 represented a bad debt reserve for a prior year sale.

Yep, net loss was 1.4 million and loss per share was 18 cents. Non-gap net loss and net loss per share was 0.4 million and 5 cents.

which excluded the 1 million in previously referenced operating expenses. From the balance sheet and cash flow perspectives,

We finish the quarter with 10.8 million in cash and no debt. This balance represents a 1.4 million decline during Q1 resulting from our operating activities.

Networking capital remain fairly constant. Now I'd like to provide some commentary about the full year of 2023.

We believe our gross margin percentage may decline from 80% in Q1 based mostly on mixed shifts.

However, a gross margin percentage should still exceed the prior years 58%. Looking at operating expenses?

Give it our continued growth investments, in sales and marketing, and expanding our distribution channel.

we expect these costs to further rise throughout the rest of the calendar year. In Q2, we expect to see an offset to operating expenses of approximately $0.6 million.

related to the referenced Mark to Market stock update.

This offset represents the change in our stock price from the end of Q1 to when the shares were actually settled in April .

The offset represents the change in our stock price from the end of Q1 to when the shares were actually settled in April . We will adjust this out.

of our non-GAAP numbers for Q2. That concludes the prepared remarks for today. We can now move to questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we call for questions.

Okay, there are no phone questions. Do you have any questions?

All right, yes, there are some questions online. The first question is,

This is for Bill. Could you elaborate on the non-recurring events that have affected results? Should we expect any more of these in Q2?

Um, these are, this is for bill. Uh, could you elaborate on the non-recurring events that have affected results? Should we expect any more of these in Q2? Um.....

were recognized in Q1. The first one involves the continuance of our IPO costs and that was based upon it being a stock-based payment and had to go market to market at the end.

in Q1. The first one involves the continuance of our IPO costs and that was based upon it being a stock-based payment and had to go market to market at the end of the quarter.

As indicated in the call and as disclosed in our 10K, that will be partially reversed approximately 0.6 million in Q2 as we sold those transactions on April 17th and the market to market resulted in a reversal of some of those expenses. So we're no further.

non-recurrent items and there have been none since the end of the water. Great, thanks. You mentioned in a news article towards the end of last year that you expected revenue between $7 and $10 million for 2023. Does this projection still hold?

This is Peter. Yes, this projection still holds.

We are very encouraged with our hiring process both in marketing and sales and we see us going in a very positive direction. Great. And then Bill, do you see yourselves being able to turn a profit this year?

Again, there's three main factors that are involved. The first one obviously being the top line and Peter gave the indication along those lines.

The second most significant variable is the gross margin percent. As we indicated, we anticipated being between the 80 percent that we experienced in Q1 and the 58 percent that we experienced last year.

The third item is how quickly we start to ramp up some of the other expenses in anticipation of the increased revenue.

After each of those items, I do expect with time, yes, profitability will be increasing.

So, the target that we have would be to achieve profitability by the end of the year, but we are not formally providing any guidance or specific numbers at this time.

Great. Regarding the buybacks, did you buy back any stock this quarter and what is your plan for the rest of the year?

Yes, understood. There have been no stock buybacks during this quarter nor since quarter close. Thus, there have been none to date.

We have secured the board approval for the buybacks, but we monitor on a daily basis the opportunities that we have.

There has not yet been the determination that we should proceed that stock buyback. As the gentleman indicated, Wade and Peter, we have significant opportunities that we're considering right now.

And we want to use the cache wisely. Okay, and this question is for Wayne or Peter. You've billed yourself as a rust removal laser company and this is a huge vertical...

Why is adoption not happening more quickly? What is preventing that growth curve from really taking off?

Sure Brian , I'll take that question. Laser blasting or laser cleaning, when we took it to market, we took it as a disruptive technology to replace the abrasive sandblasting market.

and address the corrosion control problems that both our government and private sectors are facing.

address the corrosion control problem that both our government and private sectors are facing.

they just started to develop the specs around how to measure laser cleaning.

It was just published by both corrosion control organizations. You have government agencies like NAVSEA, SOCOM, that are looking at these procedures and trying to learn how to incorporate them into their corrosion control programs.

So, you missed the say, you know, we're in the gain-in-scale model, which involves the adoption of this technology and then the adoption to it. And then from there, we can grow the disruptive technology with the...

this takeoff. So that's kind of why it's on a slow move. Obviously we can't predict when people will make decisions on accepting this, but so far we've seen positive feedback from it. Some companies have already...

written white papers on this to address their own processes, in-house processes.

So that's good news because now they're looking at not only supplying their current facilities, but the other facilities currently domestically and globally will be affected by these decisions and discoveries.

So that's why, you know, it just needs some time and I think it'll take off. And right now is the time to really get involved with this technology. It's at the early stages and I think it'll really take off this year and the years to come.

Great. That's all the questions we have online. So operator, you can close it up. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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