Q3 2024 LightPath Technologies Inc Earnings Call

Operator: Welcome to the LightPath Technologies Fiscal Third Quarter 2024 Earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And I would like to now turn the call over to your host, Albert Miranda, Chief Financial Officer. You may begin.

Welcome to the Lightpath technologies fiscal third quarter 'twenty 'twenty four earnings at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and I would like to now turn the call over to you.

Operator: Host Albert Miranda Chief Financial Officer, you May begin.

Albert Miranda: Thank you. Good afternoon, everyone.

Albert Miranda: Thank you good afternoon, everyone.

Albert Miranda: 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, as discussed in its periodic SEC filing. 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 assurances that the projected results will be realized.

Albert Miranda: Before we get started I'd like to remind you that during the course of this conference call. The company, you'll be making a number of forward looking statements that are based on current expectations involve various risks and uncertainties as discussed in its periodic SEC filings.

Albert Miranda: 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 assurances that the projected results. It would be realized in addition references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP.

Albert Miranda: In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. Sam will begin today's call with an overview of the business and recent developments for the company. I will then review the financial results for the quarter. Following our prepared remarks, there will be a formal question and answer session. I would now like to turn the conference over to Sam Rubin, Lightpath's President and Chief Executive Officer.

Shmuel Rubin: We refer to these as non-GAAP financial measures. Please refer to our SEC reports certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers.

Shmuel Rubin: 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.

Shmuel Rubin: Following our prepared remarks, there will be a formal question and answer session.

Albert Miranda: I would now like to turn the conference over to Sam Rubin bypass President and Chief Executive Officer Sam.

Shmuel Rubin: Thank you, Al. Good afternoon to everyone.

Shmuel Rubin: Thank you al Good afternoon, everyone welcome to Lightpath technologies fiscal third quarter 2020, full financial results conference call.

Shmuel Rubin: Welcome to Lightpth Technology's Fiscal Third Quarter 2024 Financial Results Conference. Our financial results press release was issued after the market closed today and posted on our corporate website. Fiscal third quarter and additional developments in early 2024 continue to underscore our strategic shift from a component manufacturer, what we like to refer to as LightPath 1.0, to LightPath 2.0, a value-added provider of assembly, and set the stage for Lightbulb 3.0, a custom infrared camera and subsystem manufacturer.

Shmuel Rubin: Our financial results press release was issued after market close date and posted on our corporate website.

Shmuel Rubin: Yeah.

Shmuel Rubin: Fiscal third quarter and additional developments in early 2024 continue to underscore our strategic shift from a component manufacturer, what we like to refer to a slight buffer one point, though to lifestyle to point to a value added provider assemblies.

Shmuel Rubin: And set the stage for like a three point toe, a custom infrared camera and sub system manufacturers.

Shmuel Rubin: To recap for our investors, Lightpth has been transitioning in the last few years from a pure component manufacturer focused on being the lowest-cost provider to a value-added partner for complete solutions based on optical technologies whose differentiators are mostly technological. As you likely recall, during our first fiscal quarter call six months ago, we stated that Lightpath was making a strategic decision to move away from geomanium-based business and that as a result of that, the company would likely see two slow quarters.

Shmuel Rubin: To recap recapped far away investors like Bob has been transitioning in the last few years from a pure components manufacturer focused on being the lowest cost provider to value added partner for complete solutions based on optical technologies, whose differentiators of mostly technological.

Shmuel Rubin: As you likely recall during our first fiscal quarter call six months ago. We stated that Lightpath was making a strategic decision to move away from Joe mainly of base business and.

Shmuel Rubin: And is that just the result of that the company would likely exceed two low quarters.

Shmuel Rubin: The quarter we're reporting on today is the second of those two quarters, and as expected, we're now on a recovery trajectory and on track to return to profitability during the next fiscal year. Together with The Recovery and Sales, we have also been working on multiple tactical initiatives that will assist in our return to profitability. One such initiative has been to finally complete the full integration of ISP opti- which was acquired in 2017 - into LightPath's ERP.

Shmuel Rubin: The quarter, we're reporting on today is the second of those two quarters and as expected. We're now one of recovery trajectory and the on track to return to profitability during the next fiscal year.

Shmuel Rubin: Together with the recovery in sales we have also been working on multiple tactical initiatives that will assist and I will return to profitability.

Shmuel Rubin: One such initiative has been to finally complete the full integration of ISP optics, which was acquired in 2017 into like Puffs ERP system.

Shmuel Rubin: Yeah.

Shmuel Rubin: I don't think I need to explain why that is needed and its impact on efficiency and operations. It did, however, create some short-term impact on our inventory value, which also hit the cost of goods sold line for this quarter.

Shmuel Rubin: I don't think I need to explain why that is needed and its impact on efficiency and observation. It did however, it creates some short term impact to our inventory value.

Shmuel Rubin: That also hit the cost of goods sold line for this quarter I mentioned this just to provide the context of the lower gross margin and assured that this is a one time event related to complete finally completing that integration.

Shmuel Rubin: I mentioned this just to provide the context of the lower gross margin and assure that this is a one-time event related to finally completing that integration. In addition to finally completing the integration of the ERP entity. We have also taken a number of initiatives that improve our cost structure. In the last few months, we have trimmed down our cost structure by over a million dollars and will continue to do so with a few more projects that are not yet complete. All of this is designed to, hand-in-hand with the growth in the top line, bring us back to profitability. All of this has been at the tactical level and has a short-term impact.

Shmuel Rubin: In addition to finally, completing the integration of the L. P. Entities. We have also taken a number of initiatives that improve our cost structure.

Shmuel Rubin: In the last few months, we have trimmed down our cost structure by over $1 billion and continue to do so we have a few more projects that are not yet complete.

Shmuel Rubin: All of this is designed to hand in hand with the growth in topline bring us back to profitability.

Shmuel Rubin: All of this has been on the tactical level and short term impact.

Shmuel Rubin: I'll now discuss some of the strategic direction and longer-term outcomes. As has been the case since we started our strategic transition, we focus on three pillars of growth. One is imaging solutions, becoming a subsystem or camera provider.

Speaker Change: I'll now discuss some of the strategic direction and longer term outlook Christos.

Shmuel Rubin: Second, is growth in new markets, such as automotive, and the third is growth specifically in the defense business. All three pillars of growth are driven by unique and differentiating technologies. Chief among them are our black diamond infrared materials. Also, all three pillars of growth tie into and support our transition from a component manufacturer to a provider of engineered solutions based on our proprietary technology. This transition began a couple of years ago, starting from customized lens assemblies, which we now refer to as LightPath 2.0, through camera solutions like Lightbar 3.0, the first of which was our innovative Mantis broadband inferred camera, which enables both new applications and capabilities for our customers.

Shmuel Rubin: As has been the case since we started out with strategic transition we focus on three pillars of growth one is imaging solutions, becoming a subsystem like camera for later.

Shmuel Rubin: Second is growth in new markets such as automotive.

Shmuel Rubin: The first is growth specifically in the defense business.

Shmuel Rubin: All three pillars of growth driven by the unique and differentiating technologies, chief amongst them or our black diamond infrared materials.

Shmuel Rubin: Also all three pillars of growth probably into and support our transition from a components manufacturer to provider of engineered solutions.

Shmuel Rubin: Based on our proprietary technologies.

Shmuel Rubin: Transition began a couple of years ago, starting for customized lens assemblies, which we now refer to a flight path to point out.

Shmuel Rubin: True camera solution for light light bulb three point up the first of which was that we're innovative mantas broadband infrared camera, which enables both new applications and capabilities for our customers.

Shmuel Rubin: Demantis was our first major step in that pillar of growth of becoming a solutions provider of higher-value products, such as cameras, which we sell for thousands of dollars versus the ASPs of components we were used to in the past. 12 Activities in that pillar of growth included the acquisition of Vizimir Labs. Announcement of more additional cameras, such as our high-sensitivity camera with an ultra-low noise of 15 millikelvins. And hiring our new VP of Sales, Jaeson Messerschmidt, who joined us from Teledyne FLIR, where he was responsible for a $250 million sales organization for infrared cameras. As mentioned, we strive to have every quarter some development to report on each one of those pillars of growth, and this quarter is no exception.

Shmuel Rubin: Demand. This was our first major step in that pillar of quote of becoming a solutions provider of higher value products, such as campus, which.

Shmuel Rubin: Which we sell ins of thousands of dollars versus the Asp's of components, we were used to in the past.

Shmuel Rubin: So if activity that pillar of growth included the acquisition of <unk> last year.

Shmuel Rubin: And announcement or additional catalysts, such as our high sensitivity Cavalier with a ultra low noise of 15 million Castleton.

Shmuel Rubin: And hiring our new VP sales chasen, Messerschmitt, who joined us from Teledyne <unk>, where he was responsible for $250 million sales organization for infrared cameras.

Shmuel Rubin: Okay.

Shmuel Rubin: As mentioned, we strive to have every quarter some developments to report in each one of those pillars of growth and this quarter is no exception.

Shmuel Rubin: The last point related to the pillar of growth is to share that in this third quarter, the revenue attributed to Lightpath 2.0 and 3.0, including customized lens assemblies and camera solutions and related engineering services, accounts for 18% of our revenue, demonstrating our ongoing success and commitment to our strategy. The second pillar of growth is the defense industry. Here, too, there are many important developments. The first is that we have delivered on our first milestone in the Lockheed Martin missile program.

Shmuel Rubin: Last point related to the pillar of growth is to share that in this third quarter. The revenue attribute it to lifestyle 2.2, and three point toe, including customized lens assemblies and camera solutions and engineering related engineering services accounts to 18% of our revenue.

Shmuel Rubin: Demonstrating our ongoing success and commitment to our strategy.

Shmuel Rubin: <unk>.

Shmuel Rubin: The second pillar of growth is it is the defense industry here to the multiple of important developments.

Shmuel Rubin: First is that we have delivered on our first milestone and Lockheed Martin with flight program.

Shmuel Rubin: In this project, Lockheed Martin is competing against another prime defense contractor to develop an updated missile system. The project, as we have previously reported, includes, in the short term, $7.5 million in development funding, $4.7 million already committed, but most importantly, a massive, massive sales opportunity for us down the road in hundreds of millions of dollars over the lifetime of this program if we successfully deliver the system and are chosen by the army. I will not elaborate more on this project right now since it is on track and there are no additional changes or updates to report on.

Shmuel Rubin: In this project Lockheed Martin is competing against another prime defense contractor to develop an updated medical system.

Shmuel Rubin: The project as we have previously reported includes in the short term a seven month, a half million development money for seven already committed but most importantly, a massive massive sales opportunities for stellar devote in hundreds of millions of dollars over the lifetime of this program.

Shmuel Rubin: If we successfully delivered the system and are chosen by the army.

Shmuel Rubin: I will not elaborate more on this project right now since it is on track and there are no additional changes or updates to report, but for those that are not familiar with it I didn't cover you to listen to what previous calls or press releases that discussed this project as we see it as a major global drive.

Shmuel Rubin: But for those that are not familiar with it, I'd encourage you to listen to our previous calls or press releases that discuss this project, as we see it as a major growth driver in the next couple of years. On the defense side, we also announced last month the availability of the first of the exclusively licensed NRL infrared materials. That material is BDNL4.

Shmuel Rubin: And the next couple of years.

Shmuel Rubin: In the defense side, we also announced last month availability of the first of the exclusively licensed NOL inferred materials that material PD PD and that'll before this announcement with has created significant interest from existing and new customers.

Shmuel Rubin: This announcement has created significant interest from existing and new customers, and we have, in fact, started booking new orders almost instantly for this material. As a reminder, this is one of nine new materials licensed exclusively from NRS, and the qualification of their manufacturing readiness is paid for by DLA through a grant. We expect to continue announcing new materials on a regular basis, with the next one being BDNL-8, which we plan to announce in the coming weeks.

Shmuel Rubin: And we have in fact started booking already new orders almost instantly put this material.

Shmuel Rubin: As a reminder, this is one of nine new materials license exclusively for Monovisc and.

Shmuel Rubin: And the qualification of their manufacturing readiness, it's paid for by DLA <unk> Clos.

Shmuel Rubin: We expect to continue announcing new material from regular basis, which is the next one being <unk> eight which we plan to announce in the coming weeks.

Shmuel Rubin: Also announced around the same time is another major design win for our products, in this case, our new material. This new airborne program is for an optical system designed almost exclusively with our own exclusive materials. This program of record is separate from the Lockheed Martin missile program. I'd like to emphasize that in case there was any confusion. Those are two separate opportunities.

Shmuel Rubin: Also announced around the same time is a another major design win for our products in this case when your materials. This new airborne program is for an optical system designed almost exclusively with our own exclusive materials.

Shmuel Rubin: This program of record is separate from the Lockheed Martin missile program I'd like to emphasize that in case. There was any confusion there was up two separate opportunities. Each one of them is very very significant significant in size.

Shmuel Rubin: Each one of them is very, very significant in science. This also has significant potential, almost as large as Lockheed Martin. This program serves to demonstrate very well our strategy related to the new materials. It's a new system which is designed using our exclusive materials, and we end up building the entire optical system as a product. In our previous strategic direction, or Lightpath 1.0, as we call it, we would probably end up making only the components.

Shmuel Rubin: This is also has a significant potential almost as large as the Lockheed Martin opportunity.

Shmuel Rubin: This program serves to demonstrate very well our strategy related to the new materials, New system, which is designed using our exclusive materials and which we ended up building the entire optical system as a product.

Shmuel Rubin: In our previous strategic direction or light off 1.2 is we call. It we would have probably ended up making only the components for this now because of the unique capabilities. We developed we get a much bigger piece of the pie and we own it.

Shmuel Rubin: Now, because of the unique capabilities we developed, we get a much bigger piece of the pie, and we own exclusively a key ingredient in that pie. Last but not least, in the Defense Pillar of Growth is our recent award of the European Defense Manufacturing Lab. This license, which is similar to what ITAR is in the US, allows us to now participate in European defense projects that are required to be designed and produced within the EU.

Shmuel Rubin: Exclusively a key ingredient in that pie.

Shmuel Rubin: Okay.

Shmuel Rubin: Lastly, the defense pillar of growth is that what <unk>.

Shmuel Rubin: The board of the European Defense manufacturing license.

Shmuel Rubin: This license that is similar to what I'd call. It is in the U S allows us to now participate in European Defense project that required to be designed and produced within the EU.

Shmuel Rubin: Yeah.

Shmuel Rubin: Just like ITAR requires U.S. defense projects to be designed and produced in the U.S., we received this license as a result of the investments we made in our re-operation three years ago, adding coating capabilities and making it, therefore, vertically integrated and self-sustaining, or, in other words, able to serve the European defense market completely locally.

Shmuel Rubin: Just like Ital requires U S defense projects to be designed and produced in the U S.

Shmuel Rubin: We received this license as a result of the investments we've made in our Eagle operations, three years ago, adding coating capabilities, and making making get say a fault vertically integrated and self sustaining.

Shmuel Rubin: In other words able to service the European defense market completely locally.

Shmuel Rubin: We also happen to have just completed and announced further expansion of that coating capacity and coating capabilities in America, in what turned out to be perfect timing for this growth now expected with this light, with the EU defense market growing at 12.5% to a record of $295 billion last year, and the European Union publishing its first ever European defense industrial strategy, which, among other things, encourages cooperation and purchases in defense technology among EU members, such as Latvia. We are now well-positioned to substantially grow our sales in Europe through... For comparison, our defense sales altogether have grown in the last few years from 8% of our revenue to 30% of our revenue, 3-0. Most of it, if not all of that growth, has come from the U.S. Department of Defense

Shmuel Rubin: We also happen to have just completed and announced further expansion of that coating capacity and.

Shmuel Rubin: Coating capabilities in <unk> and.

Shmuel Rubin: In what turned out to be a perfect timing for this growth now expected with dislikes.

Shmuel Rubin: Where does the ear defense market growing at 12.5% to a record of $295 billion last year.

Shmuel Rubin: And the European Union publishing its first ever European Defense industrial strategy, which among other things encourage its cooperation and purchases and defense technology, among EU members such as Latvia.

Shmuel Rubin: We are now well positioned to substantially grow our sales in Europe Phyllis.

Shmuel Rubin: For comparison at with defense sales altogether have grown in the last few years from 8% of our revenue to 30% of that wave Avenue three zero.

Shmuel Rubin: Most of it if not all of that growth has come from the U S defense market.

Shmuel Rubin: So the potential for growth from the European defense market is substantial. The first pillar of growth is new applications and, specifically, the automotive market. Those that follow us regularly will recall that we entered that market three years ago out of anticipation that thermal imaging would be adopted in automotive use. We further worked to have one of our solutions already fully qualified by one of the major car companies in the U.S., as well as have our products tested and evaluated by several others.

Shmuel Rubin: So is the potential for growth from lever P. M defense market is substantial.

Shmuel Rubin: The first pillar of growth isn't your applications and specifically the automotive market those that follow US regularly will recall that we have entered the market three years ago out of anticipation that thermal imaging will be adopted in automotive.

Shmuel Rubin: We further worked to have one of our solutions already fully quantified into one of the major car companies in the U S as well as have our products tested and evaluated by several others.

Shmuel Rubin: Last year, we were on track to sign a significant supply agreement in the field, one that would be valued at tens of millions of dollars a year, when some changes in the automotive market led our customer to pause on that project. Part of the reason was an announcement by DOT, the Department of Transportation, of the intention to mandate automatic emergency braking systems in all vehicles. As a result, and understandably, Car companies wanted to wait with any related decisions until DOT's approval.

Shmuel Rubin: Last year, we were on track to sign a significant supply agreement in the field, one that would be valued at tens of millions of dollars.

Speaker Change: Thank you.

Shmuel Rubin: When some changes in automotive market led our customers to pause on that project.

Shmuel Rubin: Part of Eaton was an announcement by D. O T Department of transportation of the intention to mandate automatic emergency braking systems in all vehicles.

Shmuel Rubin: As a result and understandably.

Shmuel Rubin: Car companies wanted to wait with any related decisions until D O teens, Inc.

Shmuel Rubin: A couple of weeks ago, the Department of Transportation announced that starting in 2029, emergency braking systems will be mandatory on all vehicles and lights. As expected, also, the new rule talks extensively about night-time performance and the use of thermal imaging. The extended timeline of implementation, which is longer than originally thought, is said to be such in order to provide car and technology companies enough time to improve the night-time performance of their systems. This is great news.

Shmuel Rubin: A couple of weeks ago Department of transportation announced that starting in 2029 emergency braking systems will be mandatory in all vehicles and light trucks.

Shmuel Rubin: As expected also the Nouvel talked extensively about night time performance and the use of thermal imaging.

Shmuel Rubin: The extended timeline of implementation, which is longer than originally thought instead to beat touch in order to provide call and technology companies enough time to improve the nighttime performance of this system.

Shmuel Rubin: Disciplined volt together etsy.

Shmuel Rubin: This is great news for us.

Shmuel Rubin: Not only are we significantly ahead of the pack on this, but we've already field-qualified by one company, from which we've learned a lot about that process, and we're working closely with other companies. The timeline of five years for implementation also benefits us now, as it provides us with time to evaluate the best way to approach scaling up our production for this market without distracting us from our growth or impacting negatively the growth in our two other major pillars of growth, cameras and defense.

Shmuel Rubin: Not only are we significantly ahead of the pack from this we already feel we already field quantified by one company from which we've learned a lot on that process and we're working closely with other companies.

Shmuel Rubin: The timeline of five years for implementation also benefits us.

Shmuel Rubin: As it provides us now is the time to evaluate the best way to approach scaling up our production for this market without distracting us from our growth or impacting negatively the growth in our two other major pillars of growth cameras and defense.

Shmuel Rubin: In short, I think it's safe to say that this pillar of growth is now back to being active, and the potential there has grown even further than we initially assumed. Last thing, I will update you on inferred materials and replacing geomania. To recap, Lightbuff has developed over the years, and mainly over the last two years, some exclusive, unique materials that can be used instead of germanium in infrared imaging. These materials, like the new BDNL4, offer not only alternatives to germanium but also improved performance in many applications. China announced on July 4th export restrictions on germanium, and with China being the largest exporter of this material, this has become a big deal.

Shmuel Rubin: In short I think it's safe to say, it's a display of growth is now back to being active and the potential has grown even further than we initially estimated.

Shmuel Rubin: Last thing I will update on input materials, and replacing Joe Mania.

Shmuel Rubin: To recap Lightbox has developed over the years and mainly over the last two years. Some exclusive unique materials that can be used instead of Joe mania in infrared imaging systems.

Shmuel Rubin: These materials like the new BD and therefore also not only alternatives to germanium, but also improved performance in many applications.

Shmuel Rubin: China announced on July 4th export restrictions on germanium and with China being the largest exporter of this material. This has become a big deal.

Shmuel Rubin: Since then, and even prior to that, we've been working diligently with customers to have their systems redesigned to use our materials instead of children's. These efforts are going very well, and we're seeing strong adoption in the market. As we indicated when we reduced the amount of geomanium work six months ago, our manufacturing capacity is now being filled with those new non-geomanium products, which not only have lower supply chain risk but also better margins for us.

Shmuel Rubin: Since then and even prior to that we've been working diligently with customers, perhaps their systems re designed to use our materials instead of chill media.

Shmuel Rubin: These effects. These efforts are going very well and we're seeing strong adoption in the marketplace.

Shmuel Rubin: As we indicated when we reduced the amount of germanium was six months ago. Our manufacturing capacity is now being filled with dose no new non germanium puck.

Shmuel Rubin: Which not only have lower supply chain risk, but also better margins for us.

Shmuel Rubin: Yes.

Shmuel Rubin: One hurdle for the long-term adoption of black diamond glass over germanium has been the lack of a recycling process for these types of materials, which drives up their overall lifetime. We're happy to announce that earlier this week, our efforts to kickstart the development of a recycling process have taken root with Yosemite College and the University of Central Florida, where the US Department of Defense, via AmeriCom, will fund this effort. Developing a recycling capability now will pay back down the road, as more and more black diamond glass is used, and more scrap and leftover materials will be available for recycling. We expect this to help drive down the long-term costs of adopting thermal imaging in mass-market applications such as automobiles.

Shmuel Rubin: One hurdle for long term adoption of Black Diamond Glaceau for germanium has been the lack of a recycling process for these type of materials.

Shmuel Rubin: Which drives up its overall lifetime cost.

Shmuel Rubin: We're happy to announce that earlier this week our efforts to kick start development of a recycling process has taken root with Youll see college and University of Central Florida, where the U S Department of Defense thought Yeah Merit Com would fund this effort.

Shmuel Rubin: Developing a recycling capability now will payback downs devote as more and more black diamond glasses used and more scrapping leftover materials will be available for recycling.

Shmuel Rubin: We expect this to help drive down the longer term cost of adopting thermal imaging in mass market applications such as automotive.

Shmuel Rubin: And, as always, I would like to thank our employees and stakeholders who have continued to work diligently through the various transitions and hurdles we encountered. The efforts I described earlier to continue to drive down our cost structure were all driven by our team, and would not happen without them, and for that, I thank them greatly. We see a bright future ahead and a growing company because of the dedication, patience, and hard work. With that, I will now turn the call over to our CFO, Al Miranda, to review our third quarter financial results. Al?

Shmuel Rubin: And as always I would like to thank our employees and stakeholders, who have continued to work diligently through the various transitions and hurdles we encountered.

Albert Miranda: The efforts I described earlier to continue to drive down our cost structure, all driven by our team and would not happen without them and for that I find some greatly.

Albert Miranda: We see a bright future ahead, and a growing company because of the dedication patience and hard work of the team.

Albert Miranda: With that I will now turn our call to our CFO out in Nevada to review third quarter financial results al. Thank.

Albert Miranda: Thank you Sam.

Albert Miranda: 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 we'll be including the 10-Q for the period. I encourage you to visit our website at lightpath.com to access these documents.

Albert Miranda: 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 for the period they.

Albert Miranda: I encourage you to visit our website at Lightpath Dot com to access these documents.

Albert Miranda: I'll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company on a consolidated basis. Revenues for the fiscal third quarter were $7.7 million, compared to $7.4 million in the year-ago period. Sales of Infrared Components were $3.6 million, or 47% of the company's revenue in the fiscal third quarter. Revenue from visible components was $2.7 million, or 35% of revenue. Revenue from assemblies and modules was $0.8 million, or 10% of total company revenue.

Albert Miranda: I'll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company.

Albert Miranda: On a consolidated basis.

Albert Miranda: Revenues for the fiscal third quarter were $7 7 million.

Albert Miranda: Compared to $7 4 million in the year ago period.

Albert Miranda: Sales of infrared components were $3 6 million or 47% of the company's revenue in the fiscal third quarter.

Albert Miranda: Revenue from visible components was $2 7 million or 35% of revenue.

Albert Miranda: Revenue from assemblies modules was <unk> 8 million or 10% of total company revenue.

Albert Miranda: Revenue from engineering services was $0.6 million, or 8% of total company revenue. Infrared component sales increased approximately 0.5 million, or 16%, primarily due to an increase in shipment against an annual contract for an international military program. This contract was also renewed during the first quarter of fiscal 2024 for a higher dollar value than the previous contract.

Albert Miranda: Revenue from Engineering services was <unk> 6 million or 8% of total company revenue.

Albert Miranda: Infrared component sales increased approximately <unk> 5 million or 16%, primarily due to an increase in shipment against an annual contract for an international military program.

Albert Miranda: This contract was also renewed during the first quarter of fiscal 2024 for higher dollar value than the previous contract.

Albert Miranda: Visible, excuse me, visible component sales decreased approximately 0.4 million, or 13% primarily due to a decrease in sales to customers in the defense and medical industries and sales to customers in the telecom industry in China. Assembly Solutions revenue decreased approximately 0.2 million, or 16%, primarily due to timing of shipments against a multi-year contract with a defense customer, partially offset by the addition of Vizumed revenue. Engineering Services increased approximately 0.4 million, or 211%, primarily driven by Vizimed's contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones. Bruce Morgan.

Albert Miranda: Visible.

Albert Miranda: He was my visible component sales decreased approximately <unk> 4 million or 13%.

Albert Miranda: Primarily due to a decrease in sales to customers in the defense and medical industries.

Albert Miranda: Sales to customers in the telecom industry in China.

Albert Miranda: <unk> solutions revenue decreased approximately <unk> 2 million or 16%, primarily due to timing of shipments against a multiyear contract with a defense customer partially offset by the addition of <unk> revenue.

Albert Miranda: Engineering services increased approximately <unk> 4 million or 211%.

Albert Miranda: Primarily driven by a <unk> contract with Lockheed Martin where revenue is generally recognized based on achievement of milestones.

Albert Miranda: Gross margin.

Albert Miranda: Yes.

Albert Miranda: Excuse me. Gross margin in the third quarter of fiscal 2024 was approximately 1.6 million, a decrease of 0.9 million, or 37%, as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $6.1 million for the third quarter of fiscal 2024, compared to approximately $4.9 million for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 21% for the third quarter of fiscal 2024, compared to 34% for the same quarter of the prior fiscal year.

Speaker Change: Excuse me.

Albert Miranda: Gross margin in the third quarter of fiscal 2024 was approximately $1 6 million a decrease of <unk> 9 million or 37% as compared to the same quarter the prior fiscal year.

Albert Miranda: Total cost of sales was approximately $6 1 million for the third quarter of fiscal 2024 compared to approximately $4 9 million for the same quarter of the prior fiscal year.

Albert Miranda: Gross margin as a percentage of revenue was 21% for the third quarter of fiscal 2024 compared to 34% for the same quarter of the prior fiscal year.

Albert Miranda: The decrease in gross margin as a percentage of revenue is due to two main factors. First, the decrease in visible component cells is offset by an increase in AR component cells, which typically have lower margins than visible components. Second,

Albert Miranda: The decrease in gross margin as a percentage of revenue is due to two main factors.

Albert Miranda: The decrease in visible component sales offset by an increase in our component sales.

Albert Miranda: Which typically have lower margins than visible components.

Albert Miranda: Second quarter.

Albert Miranda: The quarterly revaluation of inventory at standard cost resulted in several hundred thousand dollars of cost taken out of the income statement. A little more color on this event. This was not a normal quarterly review. This was the result of physically consolidating Orlando manufacturing into one building and subsequent combining of the two operational entities into one ERP database. The two events removed manual handling steps and quality inspection steps that simply do not occur anymore.

Albert Miranda: Quarterly revaluation of inventory at standard costs resulted in a several hundred thousand dollars of cost taken to the income statement.

Albert Miranda: A little more color on this event.

Albert Miranda: This was not a normal quarterly review.

Albert Miranda: This was the result of physically consolidating the Orlando manufacturing into one building and.

Albert Miranda: And subsequent combining of the two operational entities into one ERP database.

Albert Miranda: The two events removed manual handling steps and quality inspection steps that simply do not occur anymore.

Albert Miranda: Therefore, the process change, along with some raw materials and outside service cost reductions, decreased the standard manufacturing costs and thus brought down the inventory value. Selling General and Administrative costs were approximately $3.2 million in the third quarter of fiscal 2024, an increase of approximately $412,000, or 15%, as compared to approximately $2.8 million in the same quarter of the prior fiscal year. The increase in SG&A costs is primarily due to an increase in wages, including the addition of employees, with the acquisition of Dizzee Man.

Albert Miranda: Therefore, the process change along with some raw materials and outside service cost reductions decreased the standard manufacturing cost and thus brought down the inventory values.

Albert Miranda: Selling general and administrative costs were approximately $3 2 million for the third quarter of fiscal 2024 and.

Albert Miranda: An increase of approximately 412000 or 15% as compared to approximately $2 8 million in the same quarter of the prior fiscal year.

Albert Miranda: The increase in SG&A costs was primarily due to an increase in wages, including the addition of employees.

Albert Miranda: The acquisition of <unk>.

Albert Miranda: We also incurred additional legal and professional fees in the third quarter of fiscal 2024 associated with the rescheduled annual meeting and the Delaware Chancery Court proceedings. EBITDA, a non-gap financial measure, is helpful for investors to better understand our underlying business operations.

Albert Miranda: We also incurred additional legal and professional fees in the third quarter of fiscal 2024 associated with the rescheduled annual meeting and the Delaware Chancery Court proceedings.

Albert Miranda: EBITDA a non-GAAP financial measure is helpful for investors to better understand our underlying business operations.

Albert Miranda: Our EBITDA for the quarter ended March 31st, 2024 was a loss of approximately $1.5 million, compared to $242,000 for the same quarter the prior fiscal year. The decrease in EBITDA in the third quarter of fiscal 2024 was primarily attributable to lower sales and gross margin coupled with increased operating costs. Turning to results for the nine months ended March 31st, 2024, revenue for the first nine months of fiscal 2024 was $23.1 million, a decrease from $23.2 million in the same period for the prior fiscal year. Sales of infrared components were $11 million, or 48% of the company's consolidated revenue in the nine months ended March 31. Revenue from visible components was $8.1 million, or 35% of consolidated revenue.

Albert Miranda: Our EBITDA for the quarter ended March 31.

Albert Miranda: 2024 was a loss of approximately $1 5 million.

Albert Miranda: Compared to 242000 for the same quarter the prior fiscal year.

Albert Miranda: The decrease in EBITDA in the third quarter of fiscal 2024 was primarily attributable to lower sales and gross margin coupled with increased operating expenses.

Albert Miranda: Revenue from Assembly Solutions was $3.1 million, or 13% of total company revenue. Revenue from engineering services was 0.9 million, or 4% of total company revenue. In the first nine months of the fiscal year, Infrared component sales increased almost 1.4 million, or 15%.

Albert Miranda: Turning to results for the nine months ended March 31, 2020 for revenue for the first nine months of fiscal 2024 was $23 one.

Albert Miranda: $1 million.

Albert Miranda: Decrease from $23 2 million in the same period.

Albert Miranda: The prior fiscal year.

Albert Miranda: Sales of infrared components were $11 million or 48% of the Companys consolidated revenue in the nine months ended March 31.

Albert Miranda: Revenue from visible components was $8 1 million or 35% of consolidated revenue.

Albert Miranda: Revenue from Assembly solutions were $3 1 million or 13% of total company revenue.

Albert Miranda: Revenue from Engineering services was <unk> 9 million or 4% of total company revenue.

Albert Miranda: The first nine months of the fiscal year end for a component sales increased almost $1 4 million or 15%.

Albert Miranda: The increase in infrared component sales is primarily due to an increase in shipments against an annual contract for an international military program. However, visible component revenue decreased approximately 2.1 million, or 21%. Again, this was primarily due to a decrease in sales to customers in the defense industry and sales to customers in the telecom industry in China. Assembly Solutions revenue was flat at approximately $3.1 million for both periods, primarily due to timing of shipments against a multi-year contract with a defense customer, which was partially offset by the addition of the Vizimed revenue.

Albert Miranda: The increase of info a component sales was primarily due to an increase in shipments against an annual contract for an international military program.

Albert Miranda: Visible component revenue decreased approximately $2 1 million or 21% again. This is primarily due to decrease in sales to customers in the defense industry in sales to customers in the telecom industry in China.

Albert Miranda: Similarly solutions revenue was flat at approximately $3 1 million both periods.

Albert Miranda: Primarily due to timing of shipments against a multi year contract with the defense customer, which was partially offset by the addition of the busy med revenue.

Albert Miranda: Engineering services increased approximately 0.6 million, or 213%, primarily driven by BusyMed's contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones, as well as revenue from one of our space-related funded research contracts.

Albert Miranda: Engineering services increased approximately <unk> 6 million or 213%, primarily driven by <unk> contract with Lockheed Martin where revenue is generally recognized based on the achievement of milestones as well as revenue from one of our space related funded research contracts.

Albert Miranda: Gross margin as a percentage of revenue was 26% for the first nine months of fiscal 2024 compared to 34% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue for the first nine months of fiscal 2024 is driven by the aforementioned factors impacting gross margin for the third quarter of fiscal 2024, of which nearly half was due to the standard cost change in Q3.

Albert Miranda: Gross margin as a percentage of revenue was 26% for the first nine months of fiscal 2024 compared to 34% for the same period of the prior fiscal year <unk>.

Albert Miranda: Decrease in gross margin as a percentage of revenue for the first nine months of fiscal 2024 is driven by the aforementioned factors impacting gross margin for the third quarter of fiscal 2024 of which nearly half was due to the standard cost changes.

Albert Miranda: In Q3.

Albert Miranda: SG&A costs were approximately $8.7 million for the first nine months of fiscal 2024, an increase of approximately $263,000, or 3%, as compared to approximately $8.4 million for the same period of the prior fiscal year. The increase in SG&A costs is primarily due to an increase in wages, partially offset by a decrease in stock-based compensation.

Albert Miranda: SG&A costs were approximately $8 7 million for first nine months of <unk>.

Albert Miranda: Fiscal 2024.

Albert Miranda: An increase of approximately 263000 or 3% as compared to approximately $8 4 million in the same periods of the prior fiscal year. The increase in SG&A cost is primarily due to an increase in wages, partially offset by a decrease in stock based compensation.

Albert Miranda: The company also incurred approximately $97,000 in costs associated with the acquisition of Vizimed, which closed in July 2023, as well as additional legal and professional fees in the third quarter of fiscal 2024 associated with the rescheduled annual meeting and Delaware Chancery Court proceeding. Other income for the first nine months of fiscal 2024 includes a gain of $190,000 for the return of funds previously misappropriated by the company's former Chinese management team as a result of the legal proceedings there.

Albert Miranda: The company also incurred approximately $97000 of costs associated with the acquisition of <unk>, which closed in July 2023, as well as additional legal and professional fees in the third quarter of fiscal 2024.

Albert Miranda: <unk> with the rescheduled annual meeting in Delaware Chancery Court proceedings.

Albert Miranda: Other income for first nine months of fiscal 2024 includes a gain of 190000 for the return of funds previously misappropriated by the company's former Chinese management team as a result of the legal proceedings there.

Albert Miranda: Okay.

Albert Miranda: EBITDA for the first nine months of fiscal 2024 was a loss of approximately $2.4 million compared to $427,000 for the same period of the prior fiscal year. The decrease in EBITDA in the first nine months of fiscal 2024 was primarily attributable to lower revenue and gross margin, coupled with increased operating expenses, and partially offset by the aforementioned other income of the companies.

Albert Miranda: EBITDA for the first nine months of fiscal 2024 was a loss of approximately $2 4 million compared to 427000 for the same period of the prior fiscal year. The decrease in EBITDA in the first nine months of fiscal 2024 was primarily attributable to lower revenue and gross margin coupled with <unk>.

Albert Miranda: Increased operating expenses and partially offset by the aforementioned other income of the companies.

Albert Miranda: As of March 31st, 2024, we had working capital of approximately $7.8 million and total cash and cash equivalents of approximately $3.0 million, of which greater than 50% of our cash and cash equivalents was held by our foreign subsidiary. Cash provided by operations was $456,000 for the first nine months of fiscal 2024 compared to cash used in operations of $920,000 for the same period of the prior fiscal year. Cash provided by operations for fiscal 2024 was largely driven by a decrease in accounts receivable as sales were higher in the fourth quarter of fiscal 2023 than in each of the previous quarters.

Albert Miranda: Chinese subsidiary.

Albert Miranda: As of March 31, 2024, we had working capital of approximately $7 8 million and total cash cash equivalents of approximately three point.

Albert Miranda: Zero million of which greater than 50% of our cash and cash equivalents was held by our foreign subsidiaries.

Albert Miranda: Cash provided by operations was 456000 for the first nine months of fiscal 2024 compared to cash used in operations of 920000 for the same period of the prior fiscal year.

Albert Miranda: Cash provided by operations for fiscal 2024 was largely driven by a decrease in accounts receivable as sales were higher in the fourth quarter of fiscal 2023 and each of the previous quarters.

Albert Miranda: Capital expenditures were approximately $1.9 million for the first nine months of fiscal 2024 compared to approximately $2.3 million in the same period of the prior fiscal year. Spending in the first nine months of fiscal 2024 was largely driven by the Orlando facility expansion. We also expended approximately $847,000 net of cash acquired to acquire Vizumed during the first half of fiscal 2020.

Albert Miranda: Capital expenditures were approximately $1 9 million for the first nine months of fiscal 2024 compared to approximately $2 3 million in the same period of the prior fiscal year.

Albert Miranda: Spending in the first nine months of fiscal 2024 is largely driven by the Orlando facility expansion.

Albert Miranda: We also expanded approximately 847000 net of cash acquired to acquire <unk> during the first half of fiscal 2024.

Albert Miranda: Yes.

Albert Miranda: Our backlog at March 31st was approximately $22 million, a decrease of 17% as compared to $26.6 million as of March 31st, 2023. However, compared to the end of fiscal 2023, our total backlog increased by 1% during the first nine months of fiscal 2024. The decrease in backlog as compared to March 31st, 2023, is primarily due to shipments against several annual and multi-year contract renewals, orders of which were added to the backlog in prior periods.

Albert Miranda: Our backlog at March 31 was approximately $22 million, a decrease of 17% as compared to $26 6 million as of March 31 2023.

Albert Miranda: Compared to the end of fiscal 2023, our total backlog increased by 1% during the first nine months of fiscal 2024.

Albert Miranda: The decrease in backlog as compared to March 31, 2023 is primarily due to shipments against several annual and multiyear contract renewals.

Albert Miranda: Which orders were added to the backlog in prior periods in.

Albert Miranda: In previous years, we typically received a significant contract renewal from our largest customer for infrared products made of germanium during the second fiscal quarter. However, as previously disclosed and Sam touched on earlier, we've decided to reduce the amount of optics we produce from germanium, both to reduce our risk of supply chain disruption and, more importantly, to work with customers to convert their systems to use optics made of our own black diamond material.

Albert Miranda: In previous years, we typically received the significant contract renewals from our largest customer for infrared products made a true Tim.

Albert Miranda: During the second fiscal quarter. However.

Albert Miranda: However, as previously disclosed Sam touched on earlier, we have decided to reduce the amount of optics, we produce from germanium both to reduce our risk of supply chain disruption and.

Albert Miranda: And more importantly to work with customers to convert their systems to use optics made of our own black diamond materials as.

Albert Miranda: As such, in the second quarter of fiscal 2024, we did not book our typical annual renewal order for germanium optics with this customer. Instead, we continue to work with this customer as well as other customers to convert their systems to Black Diamond Optics. The timing of multi-year contract renewals is not always consistent, and thus, backlog levels may increase substantially when annual and multi-year orders are received and decrease as shipments are made against these orders. Lastly, as Sam mentioned, we have begun the realignment process to shift resources towards LightPath 2.0 and 3.0. The real Ironman has three elements.

Albert Miranda: As such the second quarter of fiscal 2024, we did not book our typical annual renewal order for germanium optics with this customer.

Albert Miranda: Instead, we continue to work with this customer as well as other customers convert their systems to black Diamond optics.

Albert Miranda: The timing of multi year contract renewals are not always consistent and thus backlog levels may increase substantially with annual or multiyear orders are received and decrease as shipments are made against.

Albert Miranda: These orders.

Albert Miranda: Last week at <unk>.

Albert Miranda: Sam mentioned, we've begun the realignment process to shift resources towards white pad two and three.

Albert Miranda: The realignment has three elements first reducing overhead and manufacturing are shifting production employees towards new products.

Albert Miranda: First, reducing overhead in manufacturing is shifting production employees toward new products. Second, reducing G&A expenses in most areas and increasing expenses for product development and marketing, and lastly, consolidating our manufacturing footprint in China. We began these efforts in Q3 and will continue them in Q4. In Q4, we expect non-recurring expenses related to these activities. We anticipate the lower costs to begin in Q1 and be fully realized in Q2. With this review of our financial highlights and recent developments concluded, I'll now turn the call over to the operator to begin the question and answer session.

Albert Miranda: Reducing G&A expenses in most areas and increasing expenses for product development and marketing.

Albert Miranda: Lastly, consolidating our manufacturing footprint in China.

Albert Miranda: We began these efforts in Q3 and we will continue in Q4.

Albert Miranda: In Q4, we expect nonrecurring expenses related to these activities.

Albert Miranda: We anticipate the lower cost to begin in Q1 and be fully realized in Q2.

Albert Miranda: With this review of our financial highlights and recent developments concluded I will now turn the call over to the operator to begin the question and answer session.

Operator: At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your phone now, and you will be placed in the queue. Once again, to ask a question, press star one on your phone now. We are now ready to begin. Our first question comes from Glenn on behalf of Landenburg-Salmon.

Speaker Change: At this time, we will conduct a question and answer session.

Glenn: I would like to ask a question. Please press star one on your phone now and you will be placed in the queue.

Operator: Once again to ask a question press star one on your phone now we are now ready to begin.

Operator: Our first question comes from Glenn <unk> with Landon Berg Aman.

Glenn George Mattson: Thanks for taking the questions, congrats on all the progress, there's a lot going on, as you guys both referenced. I'm particularly interested in the second defense program for the new BDNL material. I know the press release which came out, I guess, about a month ago, talked about 150,000 lenses and an existing program of record. Can you give us a little more detail as to what that is going into and maybe, like, the time frame of when you think that stuff might start and how long of a contract that might be?

Glenn: You may begin hi, yes.

Glenn: <unk> taken the.

Glenn George Mattson: For taking the questions.

Glenn George Mattson: On all the progress.

Glenn George Mattson: Going on.

Glenn George Mattson: Did you guys both referenced the.

Glenn George Mattson: Particularly interested in the in the second defense program for the new BD Enel material.

Glenn George Mattson: I know the press release, which came out I guess.

Glenn George Mattson: About a month ago, so about 150000 lenses.

Glenn George Mattson: The existing program of record can you give us a little more detail as to.

Glenn George Mattson: What that is going into and maybe like the timeframe of when do you think that stuff might start and how long.

Glenn George Mattson: The contract that might be.

Shmuel Rubin: Yeah, absolutely. I think the number of 150,000 lenses is definitely correct, but things have changed a bit since then for the better in the sense that we're now going to build the complete system. So we're not going to be selling them as 150,000 individual lenses but rather build them into, I think it's something like 30,000 systems, roughly five lenses per system, something along that line. I don't know yet the price per unit for that.

Glenn George Mattson: Yes.

Glenn George Mattson: Absolutely.

Shmuel Rubin: I think the number of a 150000 lenses, it's definitely correct.

Shmuel Rubin: Things have changed a bit since then for the better in the sense that we're now going to build the complete system. So we're not gonna be selling them at 150000 individual lenses, but 12 of build attending too I think it's something like 30000 systems.

Shmuel Rubin: Roughly five levinson system, something along that line.

Shmuel Rubin: I don't know yet the price per unit for that so I can't comment on that but it's a pretty complex assembly. So it's not going to be.

Shmuel Rubin: So I can't comment on that, but it's a pretty complex assembly, so it's not going to be Insignificant, say. I do know that the development part of it has started now, and it's going to be probably a year. In a year's time or so, prototypes, followed by LRIP, low-rate production, and then, if all successful, starting rolling out to 30,000 systems, which would probably take a few years, I'd say most likely over a five to eight year period for the entire project, since this is an upgrade to existing aircraft I think that's about what I can share with you.

Shmuel Rubin: Insignificant lets say.

Shmuel Rubin: I do note that the development part of it is started now and it's going to be probably a year is what we're looking into in a year's time also.

Shmuel Rubin: Type <unk>.

Speaker Change: <unk> bye.

Shmuel Rubin: The late production and.

Shmuel Rubin: And then if all successful starting rolling out to 30000 systems, which would probably take a few years I'd say most likely over a five to eight year period for the entire project.

Shmuel Rubin: This is an upgrade to existing aircraft.

Shmuel Rubin: And therefore needs to be done gradually as their costs come in for service.

Shmuel Rubin: I think that the belt, what I can share at this point.

Glenn George Mattson: Yeah, no, that's very helpful. Um, second, just quickly, I'll move on to the, uh, the, uh, highway safety stuff. Um, yeah, you know, uh, since that came out, has there been, uh, you know, I realize it's really recent, but, uh, have you been back in touch with some of the automotive customers and just, uh, what's your thought in terms of when they would have to sign on with projects in order to begin the ramp and all that stuff. And would you expect some people to kind of roll it out earlier than the mandated time frame and all that kind of stuff?

Speaker Change: Yes, no thats very helpful.

Glenn George Mattson: Second just quickly I'll move on to the.

Glenn George Mattson: Sure.

Glenn George Mattson: Highway safety stuff.

Glenn George Mattson: Yes.

Glenn George Mattson: So that came out is there a bit.

Glenn George Mattson: I realize it's really weakened but.

Glenn George Mattson: Have you been back in touch with some of the automotive customers and just.

Glenn George Mattson: What's your thought in terms of.

Speaker Change: Good afternoon, Mike.

Glenn George Mattson: On part with projects in order to begin the ramp and all that stuff.

Glenn George Mattson: Would you expect some people to kind of get it rolled out earlier than the mandated timeframe and all that that kind of stuff would be great.

Shmuel Rubin: Yeah, definitely communication has picked up, including the large customers that went into sort of hibernation for a while. I'd say that at first, communication was mainly all of us high-fiving each other, celebrating the success of getting this in.

Speaker Change: Yes definitely.

Shmuel Rubin: Communication, that's picked up by cap, including the large customer that went into sort of hibernation for a while.

Shmuel Rubin: First the communication was mainly all of us high Fiving each other.

Shmuel Rubin: I mean, we're all very excited, right? Besides the business prospect of it having better safety on the roads is something for all of us. I'm pretty sure that at least two companies that are already in a fairly advanced stage are not going to wait until then to start rolling it out. What is probably more likely, and this is just my assumption right now, but not based on much, is that they will start rolling out some systems like that in a couple of selected models or so, to start getting more data, more experience with it, and the five-year timeframe gives all of us in time to take that data, take that feedback, fine-tune it, fine-tune the system, and so that by the time it actually does hit the road on the mandated date, it's a far better system, and that's really the intention of DOT, I think.

Shmuel Rubin: <unk> is getting deferred.

Shmuel Rubin: Well I mean, well take fight that fight besides the business prospects of it having better safety on the roads is something for all of us.

Shmuel Rubin: Putting shaw.

Shmuel Rubin: At least two companies that are already in a fairly advanced stage are not going to wait until then to start rolling it out what is publicly more likely and this is just my assumption right now not based on much is that they will start rolling out some systems like that and a couple of selected models.

Shmuel Rubin: So to start getting more data more experience with it.

Shmuel Rubin: The five year timeframe gives all of us in time to take that data take that feedback fine tune it fine tune the system and so that by the time it actually does hit the vote of the mandated date, that's a far better system and Thats really the intention of <unk> I think if you read through the rule.

Shmuel Rubin: They specifically called out there what are the areas in terms of the night time performance that need to be improved.

Shmuel Rubin: They even talk about, you know, the testing subjects need to emit heat so that the thermal imaging cameras can see them, things like that. It's quite a bit of work to do that. For us, it's really good. A short time frame means we would have to throw a lot at it now, and it would significantly distract us from many other areas of growth. The longer timeframe lets us do it right, and possibly look for a partner to work with on this. So there are a lot of really good options going forward now.

Shmuel Rubin: They even talk about the testing subjects' need to now a mid teens to the thermal imaging cameras with data things like that.

Shmuel Rubin: A bit of work to do with that.

Shmuel Rubin: For us it's really good.

Shmuel Rubin: A short timeframe means we would have to.

Shmuel Rubin: So a lot of assets now and it would significantly distract us from many other areas of growth.

Shmuel Rubin: The longer timeframe lets us do it Tonight.

Shmuel Rubin: Possibly look for a partner to work with on this.

Shmuel Rubin: There's a lot of really good options going forward now.

Glenn George Mattson: Yeah, that's great. Thanks for the update, Sam, and congrats.

Speaker Change: Yeah, that's great. Thanks for the update and congrats again.

Speaker Change: Thank you.

Jaeson Allen Min Schmidt: Our next question comes from Jaeson at Lake Street.

Glenn George Mattson: Our next question comes from Jason at Lake Street Capital.

Jaeson Allen Min Schmidt: Hey guys, thanks for taking my questions. I just want to start with gross margin in the quarter. Appreciate all the color that you provided. I guess a two part question: what would gross margin have been without that inventory write-down? And then how should we think about margin or returning to a more normalized level going forward?

Jaeson: Hey, guys. Thanks for taking my.

Albert Miranda: That's you, Al. Sorry, Jaeson, I have a second part to that question.

Speaker Change: Thanks for taking my questions I, just wanted to start with gross margin in the quarter I. Appreciate all the color that you provided I guess a two part question what what would gross margin have been without that inventory write down and then how should we think about margin narrowed turning to a more.

Albert Miranda: Normalized level going forward.

Albert Miranda: Yes.

Jaeson: Sorry, Jason I had a second part of that question.

Jaeson Allen Min Schmidt: Just how should we think about gross margin going forward?

Albert Miranda: Just how we should think about gross margin going forward.

Albert Miranda: So I guess it was several hundred thousand for the adjustment. So if you apply that to $7.7 million in sales, if we do the math on it, we get to around about 30% without the inventory cost adjustment. And margins should be in the low 30s for the next couple of quarters. As we shift towards 2.0 and 3.0, we expect that to go up.

Speaker Change: So I guess it was.

Speaker Change: It was several hundred thousand was the adjustment.

Albert Miranda: So if you apply that to $7 7 million in sales.

Albert Miranda: If we do the math on it when we get to.

Albert Miranda: Round about 30% without the inventory cost adjustment.

Albert Miranda: And.

Albert Miranda: Margins should be in the low thirties.

Albert Miranda: The next couple of quarters as we shift towards 2.3 point out we expect that to go up but.

Albert Miranda: Okay, perfect. And then I would say I'm going to qualify that and say, independent of non-recurring expenses, because I did give you a heads up that you're going to see some non-recurring expenses in Q4 as we drive more costs out of the organization.

Speaker Change: Okay, Perfect and then I would say.

Albert Miranda: I'm going to qualify that and say independent.

Albert Miranda: Independent of non recurring expenses, because I did give you a heads up that lease.

Albert Miranda: Youre going to see some nonrecurring expenses in Q4.

Speaker Change: As we drive more costs out of the.

Albert Miranda: Organization.

Albert Miranda: Okay.

Operator: Chester, do we lose you?

Albert Miranda: Jason.

Albert Miranda: <unk>.

Operator: All right, I think that's the end of that question. If you would like to ask a question, please press star 1 on your phone now. All right. Looks like there are no further questions. Oh, Jaeson is... back in a second.

Speaker Change: Alright, I think thats the end of that question.

Operator: If you would like to ask a question. Please press star one on your phone now.

Operator: Alright.

Speaker Change: It looks like there are no further questions Jason Jason is back one second.

Jaeson Allen Min Schmidt: Hey guys, sorry about that. Just following up on the auto opportunity, just to clarify, you guys won't have to be requalified. It isn't a new SPAC, it's sort of just progressive. Your current relationships just continue to progress, is that fair?

Jaeson: Hey, guys, sorry about that.

Jaeson Allen Min Schmidt: J J you up on the <unk>.

Jaeson: Sorry about that just following up on the auto opportunity just to clarify you guys won't have to be re qualified.

Speaker Change: It is in the new stack, it's already just progressed your carrier relationships. Just continued progress is that fair.

Shmuel Rubin: Yeah, I mean, for that specific customer, right? Every design is different for every customer, and every customer does their qualification process, right? That's a given in the auto world.

Jaeson Allen Min Schmidt: Yes.

Jaeson Allen Min Schmidt: For that specific customer.

Shmuel Rubin: Every design is different for every customer every customer qualification process right given in the auto world.

Shmuel Rubin: If that specific customer chooses to continue with the system that we're working in, that we're qualified for, then we do not need to get re-qualified. I don't know yet if that customer is simply going to brush off the dust now and go back to that exact same system. Or if that customer will say, well, you know what? This now gives me time to redesign my entire car, redesign everything, and therefore, we're back to square one.

Shmuel Rubin: If that specific customer chooses to continue with the system that we're working in that way. It qualify. It didn't then we do not need to get to be quantified.

Shmuel Rubin: I don't know yet to that customer.

Shmuel Rubin: It's simply going to brush off the dust now and go back to that exact same system or is that customer will say well what is it now gives me time to redesign my entire car redesign everything and therefore, we're back to square one in any case it does give us a tremendous advantage.

Shmuel Rubin: In any case, it does give us a tremendous advantage since we've already shipped a large number of those, had them in the field, and tested them. So there's quite a bit of credibility and learning curve behind it.

Shmuel Rubin: We've already shipped a large number of those had them in the field have been tested.

Shmuel Rubin: So there's quite a bit of credibility and loading curve behind clips.

Shmuel Rubin: Okay.

Jaeson Allen Min Schmidt: Gotcha. No, that's really helpful. And then just the last one from me, and I'll jump back into cue.

Speaker Change: Got you no. That's really helpful. And then just the last one from me and ill jump back into queue. The European defense manufacturing license seems pretty significant.

Jaeson Allen Min Schmidt: The European Defense Manufacturing License seems pretty significant. Just curious about the timeline you're thinking about as far as when it really will have an impact. I assume you've been assuming you would get this, and does this mean that you could see a quicker impact, or will this take some time as you kind of start to negotiate with these agencies?

Jaeson Allen Min Schmidt: Curious the timeline.

Jaeson Allen Min Schmidt: You were thinking about as far as when it really will have an impact I assume you've been assuming you would get there.

Jaeson Allen Min Schmidt: Does this mean that you could see a quicker impact or will this take some time as you kind of start to negotiate with these agencies.

Shmuel Rubin: Yeah, we applied for it exactly 12 months to the day, almost from when it was when we received it, and I guess everyone sort of knew it would take exactly 12 months to the day, something in the bureaucracy or whatever, so to that extent, I know that we have at least two customers in Europe, two large defense companies in Europe that have started working with us in anticipation of us receiving it. So, at least from those two customers, I can say with With others, it might take longer.

Speaker Change: Yes, we applied for it exactly 12 months to the day almost from when it was.

Shmuel Rubin: When we received it and.

Shmuel Rubin: I guess, everyone sort of knew it would take exactly 12 months to the day something in this bill could see whatever so does that extend I know that we have at least two customers in Europe to large defense confidence in Europe that have started working with us in anticipation of a fifth significant so at least from those to come.

Shmuel Rubin: Customers, well I can say with a very high degree of confidence.

Shmuel Rubin: It's coming shortly.

Shmuel Rubin: The question is always like in those different businesses: do we step into an existing program and get qualified as a vendor for something that was already designed and done, or do they choose us for new programs and then the two-year cycle or whatever in those cases? I am pretty sure that it will be more of the first one. We're going to get stepped in and qualified into existing programs because the growth of defense spending in Europe has been so tremendous, and the supply chains there are so, so strange, that I think they're going to welcome having new suppliers for even existing programs, which works great for us, which is very positive.

Shmuel Rubin: Related to that we've offered it might take longer question is always like in those defense businesses do we step into an existing program and gets quantified that the vendor something that was already designed and done.

Shmuel Rubin: Or do they choose us for new programs, and then the two year cycle or whatever and dose case.

Shmuel Rubin: I am pretty sure that it will be both the first one we're going to get stepped in and quantified into existing programs because the growth of the defense spending in Europe has been so tremendous and the supply chain.

Shmuel Rubin: And that I think as they get a welcome having new supply and still even existing programs, which works great for us is very positive.

Jaeson Allen Min Schmidt: Okay, I know that's really good to hear. Thanks a lot, guys.

Speaker Change: Okay, No that's really good to hear thanks, a lot guys.

Speaker Change: Okay. Thank you.

Gene Inger: Our last question comes from Gene with IngerLetter.com.

Jaeson Allen Min Schmidt: Our last question comes from Jean with eager letter Dot com.

Gene Inger: I joined the call a little bit late; I've been under the weather, but in any event, I don't know if you expanded much on the potential from the Lockheed situation. I realize there's a competing prime contractor there, and if not, and the extent to which it at least introduces you to other projects in the realm, perhaps you can expand on that. And I'd also like you to update us, if you haven't already, on what's going on in the world of space communication.

Gene Inger: Please ask your question.

Gene Inger: Hi, Sam and thanks for your continuing hard work to develop the company big transformation.

Gene Inger: I hopped on the call a little bit late I had been under the weather.

Gene Inger: Event I don't know if you expand that much on the potential from the Lockheed situation I realize there is a competing prime contractor there.

Gene Inger: If not and the extent to which at least introduces you two other projects in the realm, perhaps you can expand on that and I would also like you to update us if you didn't already on what's going on in the world of space Communications.

Shmuel Rubin: Okay, yeah, definitely a lot there. And welcome, Gene. Sorry to hear you're feeling sick.

Speaker Change: Okay, Yeah definitely a lot the <unk> gene, so hey, you're feeling sick.

Shmuel Rubin: On Lockheed, we updated that we delivered on the first milestone on time, full performance, which is great. We didn't update much more after that since nothing has changed significantly, so we're still looking at the same time frame, we're still looking at the same hundreds of millions of dollars in potential production level sales, and it's all great. And as we indicated last time, Lockheed wants to start setting up production even within this year, ahead of time, here in Orlando, and that is something we have started working on, but we don't have much to report on that.

Shmuel Rubin: The Lockheed we updated that we delivered on the first milestone on time.

Shmuel Rubin: Performance, which is great.

Shmuel Rubin: We didn't update much more after that.

Shmuel Rubin: Nothing has changed significantly so we're still looking at the same timeframe. We are still looking at the same massive hundreds of millions of dollars.

Shmuel Rubin: In potential of production level sales.

Shmuel Rubin: And it's all great and as we indicated last time Lockheed wants to start setting up production even within this year ahead of time here in Orlando and that is something we started working on.

Shmuel Rubin: But don't have much to report on that yet.

Shmuel Rubin: Asking whether it opened up other opportunities is actually a pretty good question because it did open up additional programs for us at Lockheed. As expected, all the defense contractors tend to take a core technology that's developed and try and use it on multiple platforms. And this is no different.

Shmuel Rubin: Asking about does it open up other opportunities that's actually a pretty good question because it did open up all of any fast additional programs in Lockheed.

Shmuel Rubin: As expected all the defense contractors tend to take a core technology that <unk> developed and try and use it on multiple platforms and this is no different.

Shmuel Rubin: And we have some additional programs that we have at Lockheed that are in the R&D stage. And we're hoping that in the next six months, at least one or two of them will transition to become programs of record, and we'll be able to talk about them. The optical communication in space is going really well. Our prime customer there has, I think, increased their order. I'm assuming it means that they're delivering more satellites, but we don't know the exact full details.

Shmuel Rubin: And we have some additional programs that we have in in Lockheed.

Shmuel Rubin: The R&D stage.

Shmuel Rubin: We're hoping within the next six months at least one or two of them transition to become a program of record and will be able to talk about it but.

Shmuel Rubin: But it's pretty similar in the sense of doing similar product similar to similar core technology of light path.

Shmuel Rubin: The optical communication in space going really well our prime customers there has.

Shmuel Rubin: I think increased.

Shmuel Rubin: Although.

Shmuel Rubin: I'm, assuming it's been delivering more satellite we don't know exactly full details that one is a bit tight lipped and understandably on that.

Shmuel Rubin: Everyone is a bit tight-lipped and understandably so on that. There's a couple of other projects; there's a small development project that we have that is more related to quantum encryption of optical communication, same free space optical communication, and a few other things, but I'd say we're on a good steady rate of delivery and very good performance by our team on our biggest space program for optical communication.

Shmuel Rubin: There's a couple of other projects, there's a small development projects that we have that is more related to quantum encryption.

Shmuel Rubin: Optical communication.

Shmuel Rubin: Same fleet space optical communication and a few other things, but I'd say, we are on a good steady rate of delivery and very good performance by our team on our biggest space program for optical communication.

Gene Inger: Perhaps all you need to do is change the name of the company to LightPath AI, and people will finally find you.

Shmuel Rubin: Perhaps all you need to do is change the name of the company to Lightpath AI and people will finally find you.

Shmuel Rubin: Yes, I can try that. That's like back in the dot-com era, where everyone just added "dot-com" to their name.

Gene Inger: [laughter].

Speaker Change: Yes, I can try.

Shmuel Rubin: Back into the Dot com area, where everyone just added.

Shmuel Rubin: Dot com to their name right.

Gene Inger: including Mr. Dotcom, the fat German guy. I'm not familiar with that, yeah. Oh, it's true. And at one point, he controlled more domain names than anybody in the world.

Shmuel Rubin: Including Mr Dot com.

Gene Inger: German Guy.

Gene Inger: [laughter].

Gene Inger: Yeah.

Gene Inger: And then one point he controlled more domain names than anybody in the world.

Gene Inger: Alright.

Gene Inger: In any event, no, I think what you're doing is great. I think it doesn't take a rocket scientist, which a friend of mine happens to be, but it doesn't take a rocket scientist to recognize what Lockheed does in Orlando. And there is basically one division, which is called Missile and Fire Control. So I suppose you can't get more specific, but I have a rough idea what they work on there. And certainly, there is a need and quantity for things like infrared, camera modules, target acquisition sensors, and what have you.

Gene Inger: In any event no I think what Youre doing is great I think it doesn't take a rocket scientist of which a friend of mine happens to be but it doesn't take a rocket scientist to recognize what Lockheed does in Orlando and it's basically one division, which is called missile and.

Gene Inger: And that's on fire control. So I suppose you can't get more specific but I have a rough idea of what they work on there and certainly there is a need in quantity for things like infrared Cam.

Gene Inger: Camera model modules and target acquisitions sensors, and what have you.

Shmuel Rubin: Yeah, absolutely. I think one with a bit of diligence and digging in Google can also find out what programs Lockheed got awarded and what it's working on to connect the dots.

Gene Inger: Yeah, Yeah, absolutely I think I think one we have a bit of diligence and digging and Google can also find what what programs Lockheed got awarded and it's working on too to connect the dots.

Gene Inger: On the space scenario, what I'm talking about is also the idea of whether there are any recurring annuity-style revenues from developing communications within a constellation, whether it's for cellular, whether it's for a defense network. Obviously, the encircling Starlink or anybody else, they're going to encircle the globe, and they have to have downlinks to various points on Earth. And if you're doing a one-time sale of equipment, it's not the same as something that produces residual income.

Shmuel Rubin: On the on the space.

Gene Inger: Sit in that scenario.

Gene Inger: What I'm talking about is also.

Gene Inger: Yes.

Gene Inger: Whether there is any recurring annuity style revenues from developing communications within a constellation so whether it's for cellular whether it's for a defense network, obviously, the in circling starlink or anybody else, they're going in and circle the globe.

Gene Inger: They have to have downlinks to various points on Earth.

Gene Inger: And if youre doing a one time sale of equipment is not the same as something that produces residual income.

Shmuel Rubin: Well, I can share with you that the positive thing here is that the lifetime of those satellites is pretty short. And I believe that those satellites, if you look at Starlink as an example, I think they've publicly talked about the roughly two-year lifetime of a satellite. So while it is not a recurring revenue, as I would love to have, like a license and just a piece of software that you write once and keep getting back, it is a recurring revenue in the sense that even when the Constellation is fully deployed, we're going to need to provide optics and assemblies there and everything we provide on an ongoing basis to replenish the satellites that burn out.

Gene Inger: Well I can I can share with us the positive thing here is that the lifetime of those satellites is pretty short and I believes that.

Shmuel Rubin: Those satellites if you look at the Starlink as an example, I think they've publicly talked about a roughly two year lifetime over satellite.

Shmuel Rubin: While it is not a recurring revenue with I would love to have like a life sentence in just a piece of software that <unk> keeps paying back. It is a recurring revenue in a sense that even when the constellation is fully deployed we're going to need to provide.

Shmuel Rubin: Optics and assembly and everything we provide on ongoing basis to replenish the satellite fits burnout.

Gene Inger: You're basically saying you're not in a position to provide backspace management, if you will, of these systems, which would be a recurring revenue stream. And that is AI. Yeah.

Shmuel Rubin: You are basically saying you are not in a position to provide.

Gene Inger: Matt back. Thanks management, if you will of these systems, which would be a recurring revenue approach.

Gene Inger: And that is the AI.

Shmuel Rubin: Yeah, in this case specifically, in this program specifically, what we provide is a glass, a hard glass.

Gene Inger: Yes in this case specifically in this program specifically, what we provide it's a glass hardware.

Gene Inger: Well, and I hope it develops very well. By the way, one quick question, which might be odd, and then I'll jump off, which is: I saw that there was a new photonics department created at UCF. When I logged in, the first thing I heard was something about UCF and a joint project. Is that you? And I know that there was an electronics department; Eisenhoff, whatever his name is, was the co-founder of Luminar, which you may have provided lenses to. But is this the same thing, or is this a whole separate department, which they and the University of Arizona in Tucson appear to be the only places working on this?

Shmuel Rubin: Well and I hope it develops very well.

Gene Inger: Okay.

Gene Inger: And by the way I wanted to quick question, which might be odd and then ill jump off which is.

Gene Inger: Sure.

Gene Inger: There is a new photonics department created at UCF.

Gene Inger: Logged in I heard the first thing I heard was something about UCF and a joint project is that you and I know that there was an electronics department is enough whatever his name is was the co founder of <unk>.

Gene Inger: Alumina, which you may have provide lenses too.

Gene Inger: But is this the same thing or is this a hold separate department, which day and the University of Arizona and Tucson appear to be the only places working on this.

Gene Inger: Jaeson Eichelholtz is a good friend and is doing great things with UCF and with other organizations. This is not related to that, this is a collaboration with Dr. Kathleen Richardson, who is part of CREOL, the School of Optics, and has been for many years, and she's a well-renowned expert on the field of infrared glass, and is a very important collaboration in which DoD is spending $1.2 million with us and other members of that collaboration to develop this recycling technology, which down the road will help significantly reduce the cost of the materials.

Speaker Change: Yeah, Jason I can halt the good friend and ended up.

Gene Inger: Doing great things with CF and with other organizations.

Gene Inger: This is not related to that this is a collaboration with doctor of carefully and Richard.

Gene Inger: Who is part of the <unk> school of upticks and has been for many years.

Gene Inger: And she is the a.

Gene Inger: Well, we've announced expert on the field on infrared glass.

Gene Inger: And as a.

Gene Inger: A very important collaboration which Dod spending $1 2 million.

Gene Inger: With ups and other members of that collaboration to develop this recycling technology, which.

Gene Inger: Down the road will help significantly reduce the cost of the materials germanium has an advantage.

Gene Inger: Geomanium has an advantage where 30% of the material, roughly, that gets scrapped or is left over in production and so on gets recycled. So you can sell back the leftover germanium that you have for cents on the dollar, and then that gets thrown in and added to the next batch of germanium that has grown. We're trying pretty much to do the same with the chalcogenides with our black diamond glass. And that means that down the road, it would drive the price down quite a bit.

Gene Inger: 13% of the material of our fleet that get scrapped or it's leftover in production and so on get recycled. So you can sell back the leftover geraniums that you have for <unk> from the dollar and that gets phone, England and added into the next batch of Geovany them, such as devote we're trying pretty much to do.

Gene Inger: Same with <unk> with our black Diamond glass and that means that down the road it would drive prices down quite a bit.

Gene Inger: While we're at it, could I quickly ask whether you have any involvement in plasma channel laser systems, which have been bandied about for years but never made progress, but supposedly, the military is not only making progress but starting to equip ships with them. And I wonder if you're involved.

Speaker Change: While we're at it can I quickly ask.

Gene Inger: Whether you have any involvement.

Gene Inger: <unk> channel laser systems, which were bandied about for years never made progress, but supposedly the military is not only making progress that's starting to equip ships with it and I Wonder if you are involved.

Shmuel Rubin: It is possible. To be honest, I don't know.

Speaker Change: It is possible to be honest I don't know, we provide a lot of infrared optics to a lot of different players I don't keep track of every single project. If we do it from the level of the components.

Shmuel Rubin: We provide a lot of infrared optics to a lot of different players. I don't keep track of every single project. If we do, it's at the level of the components. I'm not aware of involvement at the level of engineering or subsystems that we have. Our subsystems and solutions, if you would, products all revolve around images.

Shmuel Rubin: Not a web of involvement in the level of.

Shmuel Rubin: <unk> engineering Gove subsystems that we have in our.

Shmuel Rubin: Our subsystem and sort of solutions, if you would.

Shmuel Rubin: Product all of overwhelmed imaging.

Gene Inger: So you're not involved in, for example, even in Israel, in something like Iron Beam?

Speaker Change: So you are not involved in for example, even in Israel and something like Iron beam.

Shmuel Rubin: Maybe we are, maybe we aren't. If we are, it's on the components. I got you. I appreciate it.

Gene Inger: Maybe we are maybe we asked if we are at some of the components level.

Gene Inger: I appreciate it. Good luck, guys.

Speaker Change: Got you I appreciate it thanks, a lot guys I know this is 90 days.

Gene Inger: <unk>.

Gene Inger: I appreciate it.

Operator: At this time, there are no further questions, so I'd like to turn it back over to our moderator, Albert Miranda, for closing remarks.

Gene Inger: At this time there are no further questions I'd like to turn it back over to our moderator Albert Miranda for closing remarks.

Albert Miranda: Okay, thank you everyone. Sam will make the closing remarks.

Albert Miranda: Okay. Thank you if you wanted to SaaS will make some closing remarks and thank you everyone for taking the time to follow like 12 technologist.

Shmuel Rubin: And thank you everyone for taking the time to follow Lightpath Technologies. I really appreciate the continued trust you place in us. We're on a long journey, and we're making good progress. We're at a turning point right now, and the coming quarters are going to be critical. And we're going to be seeing some of the fruit of the efforts start to come to fruition and deliver results. Thank you, and good night.

Shmuel Rubin: We appreciate the continued trust you placed with us.

Shmuel Rubin: A long journey and we're making good progress on the turning point right now and the coming quarters is going to be critical.

Shmuel Rubin: And we're going to be seeing some of the fruits of the efforts start to come to fruition and deliver results.

Shmuel Rubin: Thank you and good night.

Operator: This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.

Speaker Change: This concludes today's conference call. Thank you for attending.

Operator: The host has ended this call good.