LightPath Technologies Inc (LPTH) 2002 Q3 法說會逐字稿

I'd like to thank everyone for holding this morning. And more computer conference call today with Mr. Ripp. At this time, sir, I'll turn the call over to you, and thank you for using Sprint Conferencing Services.

Thank you,

. Good morning, everyone. This is Bob Ripp. Joining us on call this morning will be Donna Bogue,

. I'd like to make a few comments, and then I'm gonna turn it over to each of the speakers. You know, we had our press release this morning. I have to go through just a few summary items. You know the headline sales number, 3.6 versus 10.3 million, 10.3 million a year ago.

However, as we have been seeing, our large customers from prior quarters,

, Corning, and the

now of our JDSU, if you take those customers out, what we refer to as our strategic customers,

from about 2,300,000 in the third quarter of '01, to 2,735,000 in the third quarter of '02. And if you look at our third quarter strategic customers, compared to about 1.5 million in our second quarter, all of our strategic growth, I'm sorry, all the

growth, has come from those strategic customers in this

quarter.

Likewise, if you look at the operating income, the headline number if five

dollar a loss of last year, versus a 9.7 million loss for this quarter this year. However, if you adjust for a

and litigation expenses, the net operating loss is 3.2 million for this quarter versus 1.5 million loss a quarter a year ago. Given the significant decline in sales of 6.7 million, one would have expected a greater loss this quarter.

However, our cost and expense actions have improved the operating efficiency of the company. Most notable is the sequential improvement, excuse me, where the adjusted 3.2 million loss compares with an adjusted $4.9 million loss in the second quarter of '02. Similarly, our reported cash used for the quarter of 3.9 million is $300,000 less than last quarter's 4.2 million, and we have been 3.1 million, or 1.1 million less, if we had not prepaid $800,000 of insurance.

So net, net, I'm pleased with our progress today. We're expanding our customer base and

in the business. Although that had

in charge of sales. He comes to LightPath with over 20 years in his profession, and the last five in the optical space. We look forward to his leadership to continue to increase LightPath presence and market share in the short haul

.

And to continue to add new customers, and mean value added integrated platforms are with a wide range of customers.

We are making significant progress in reducing our costs, and Dennis Yost will comment on our actions there. Also continue to

our product line, and Bob

will comment on our

there. While the overall telecom industry capital spending remains in decline certain sectors are growing and LightPath is using this period of uncertainty to position itself to deliver innovative packaged solutions to a broad range of customers.

In my view we are succeeding in that effort. Before Dennis and Bob speak I want Donna Bogue to give some additional detail on the quarter's performance. After all the executives have spoken I will give some concluding remarks and then turn it to over to you to answer your questions. Donna if you would please take it over.

Good morning. Before proceeding with calls I'd like to remind that all this month that the news release made public by Light Tech earlier today is while it's up the information provided in this teleconference and webcast it includes (sounds like) forward looking statements made pursuant to the (sounds like) Safe Harbor provision of the Private Securities Litigation Reform Act Of 1995.

This information may involve risks and uncertainties that could cause actual results to differ materially from those forward looking statements. The fact that could cause or contribute to such differences include, but are not limited, to those facts or details by Light Tech in its filing with the FCC. For the quarter end of March 31 the company reported total revenues of 3.6 million compared to total revenues of 10.3 million for the third quarter the previous fiscal year.

A decrease of approximately 65 percent. Revenue increased 1.2 million or 51 percent sequentially from the second quarter of April 2002. The decrease is primarily attributable to the decline from prior year of 6.1 million or 69 percent in the Telecom product sales and traditional office decrease approximately (sounds like) 600,000 or 42 percent.

As Bob discussed we analyzed our sales by customer classifications and our

accounts in essence went to zero. We had gains in our strategic customers and a slight decrease in our

business. Our recurring

decreased 2.4 million for the quarter compared to prior year after excluding 1.6 million a prior year litigation settlement.

Due to decline in admin and manufacturing (sounds like) for personnel our R&D decreased slightly so the drop

project in the previous quarter. Net loss for the quarter was five million which includes approximately 1.7 million in non cash charges and

1.6 million for the amortization of acquisition intangible assets and goodwill.

And 100,000 for stock face compensation expense. Net losses for the third quarter was 9.2 for fiscal 2001 was 9.2 million. Which includes approximately 6.5 million non cash charges and 1.6 million for litigation settlement. The net lost applicable, the com share holders for their third

of fiscal 2002 was 5 million or lost 26 cents per share.

Compared to a net loss applicable to (sounds like) con share holders of 9.2 million or 38 cents per share for the third quarter of fiscal 2001. Excluding the non cash and litigation charges from both fiscal periods which contributed nine cents and 32 cents

to the net loss per share, the net loss would have been 17 cents in fiscal 2002 and six cents in fiscal 2001.

For the nine months that end in March 31 the company reported total revenues of 9.5 million compared to total revenues of 21.1 million the nine months the previous year. A decrease of approximately 55 percent. The decrease was primarily attributable to a decline from prior years of 11.1 million or 64 percent in Telcomm product sales and traditional office half a million or 13.5.

If the December 2000 apparition had occurred at the beginning of the first quarter of fiscal 2001 revenues of 9.5 million would be compared to

revenue of 23.6 million or 60 percent decrease. Again our analysis that's filled by customer classification shows some gains and losses. Our prior year account which really represents three large accounts went from 12.8 million to 500,000 or a decrease of 96 percent.

Our lens business decreased slightly from 3.7 million to 3.2 million or a decrease of 13.5 percent. But our strategic customers which represent both current new and prior (sounds like) sales com business increased 25 percent from 4.6 million to 5.8 million. The sales backlog does not represent sales. Rather it is an indicator of customer orders received by the company.

Sales revenues from orders will be recognized in each quarter generally nine to 12 months as the products (sounds like) will ship. At March 31 our consolidated backlog of 4.1 million consisting of 3.2

optical components and 1.2 million in orders for lenses. This compares to a December 30th backlog of 4.4 million. The company is tracking its operational improvements of by review of the total manufacturing costs as far as admin and R&D expense.

It includes charges that are not operation related such as our non

items and

compensation. And untrained charges as

expense. We have reports, we have seen progress in this area. For the nine months our operational expenses were 22 million in the fiscal 2002 compared to 29.1 million in fiscal 2001.

This represents a decline of 7.1 million. Sales in the same nine month period declined 11.6 million therefore our operational lot increased 4.5 million. For our third quarter alone operational expenses decreased to 6.8 million from 11.8 million a year ago or a decrease of five million. The sale decline in the third quarter was 6.7 million therefore our operational loss increased 1.7 million.

The decrease in our expense is impressive when you consider that within our operational costs is a fixed portion for depreciation a month which we had little room to reduce this time. For the nine months of fiscal 2002 this fixed amount represented 3.2 million or 34 percent of our year to date sales whereas in the prior year it was less than 15 percent of year to date sales due to the greater sales state.

As our revenues improved

costs will decline quickly improving our bottom line. But the net loss of the nine month period were 33 million which includes approximately 18.5 million in non cash charges which were seven million for the

intangible manufacturing assets. 6.7 million per

of acquisition of intangible assets and goodwill and stock raise compensation expense of 4.8 million.

In addition the company has reported legal costs of 1.57 million. The majority is our estimate for the cash and the non cash charge to settle the

litigation concerning

. And 1.2 million for inventory write off. Non cash charges in fiscal 2001 were (sounds like) 27.3 million to a prior in process R&D, amortization and

compensation. In addition fiscal 2001 nine month resolve contained a legal settlement of 1.6 million.

Net loss applicable to comshare holders of the nine month of fiscal 2002 is 33.1 million or a loss of $1.69 per share. Compared to a net loss applicable to timeshare holders of 35 million or a $1.85 per share for nine months fiscal 2001. If I exclude the non cash and other charges from both fiscal periods which attributed $1.09, $1.52 effectively the net loss per common share would have been 50 cents on a loss of 11.8 million for fiscal 2002 and 33 cents on a loss of approximately 6.1 million in fiscal 2001.

We'll begin our cash utilization for this third quarter in the nine months. The net loss adjusted for non cash charges was 2.6 million in the third quarter verses 5.6 million in the second quarter and 4.1 million in the first quarter. This results in a first quarter cash views for operations of 4.2 million which includes approximately 800,000 for prepaid insurance.

Excluding this prepayment operational cash used was 3.4 million. Total cash used in the third quarter decreased approximately 300,000 from the prior quarter, 1.1 million dollar decrease issued through the prepaid insurance. Net cash used for operations was 10.9 million for the nine months of fiscal 2002 compared to 11.5 million for the nine months of fiscal 2001.

Of this amount 1.1 million was provided from working capital verses fiscal 2001 where 5.8 million was used for working capital. Primarily an increase in receivables and inventory. We had no significant change in our receivable during the quarter although we had incurred losses on receivables and generally smaller

. And we continue to monitor our collection.

Our inventory

decline due to reduced sales from 6.9 to 4.2

. At March 62 percent of our inventory was raw materials while

represents 38 percent. We continue to control our investment of property and equipment with approximately 2 million dollars to date verses 5.9 million in fiscal 2001. In addition another 7.2 million would have

during fiscal 2001. That concludes my financial mark. Bob.

Now thank you Donna.

if you would give a short summary report on your activities to date?

Okay. I'm Bob Cohen, Executive Vice President for

and integration at LightPath as well as president for the

. I'd like to spend a moment reporting on LightPath's ongoing transformation from a manufacturer of

subcomponents.

If you or a certain group of

to a provider of subcomponents and integrated assemblies for a growing list of customers across a wide range of telecom they become applications. In the past LightPath was focused solely on producing

subcomponents to a select group of customers. Specifically

in Orlando offered a catalogue of lenses.

LightPath in Albuquerque are the

and we had Horizon and Wal-Mart offered the volume based isolator product up to primarily one or two customers. As a result of ongoing

company integration during the last three quarters LightPath has leveraged its capabilities. And now

arrived at possibly an active late line optical assemblies for numerous (sounds like) same trust applications.

Our new product offerings include

isolator collimator assemblies,

isolators for both the line of high end collimators and

. And customer specific

isolator assemblies. The lighting proposition for these and other

is to help our customers align and manage light in a more efficient and cost effective manner.

By

these discreet components in an integrated sub assembly you're now dividing value and solution to our

customers. As a result of process and integration we've also achieved a number of

lens with those

assemblies manufactured by

specifications on our

. These integrated products have been qualified in a wide variety of next generation systems including transmitter, amplifier switch and

.

These next generation systems are being qualified and deployed by our customers

telecom and

and

markets including core, access,

. Of course time will tell whether we

support these design whims. We'll soon be participating in the

current design by

where we'll working with traditional

com companies as well as newer players with

technologies and

.

As we had hoped LightPath has proven to have a very complimentary collection of manufacturing platforms and engineering talent across the individual economies. We were able to show the first fruits of this integration effort this year at OFC and we are now responding to a nice level of customers interest. We are encouraged by our recent sampling efforts while overall

spending is down we do see some signs of growth in some of the shorter reach markets

channel and the related access segments.

Thank you Bob. Dennis, if you would give us a summary of the activities that you've been working on.

Sure. Good morning. I'm Dennis Yost, Chief Operating Officer at LightPath Technologies. I'm responsible for the Albuquerque and Orlando business operations. Over the last nine months we've really been focusing on four main activities. Product qualification, cost of goods over reduction,

expansion and most importantly, customer extension in design and

.

And I think we're pleased with the performance of these goals. All our products are now tested to GR1209 12 21 or GR468

requirements depending upon the application usage. Our existing products now meeting the respective testing requirements and this is just the standard part of our drill in this cycle to insure all products are meeting these our subquarterly

. With respect to our current release products we've made some very significant progress on our cost

.

Geltech our

business unit is being

on cost reduction. They achieved the charge at Q4 numbers for the entire month of March which was a month earlier than planned. This was really due to achieving higher yields and higher production efficiency. The same is true for our Gradium business. In the collimators operation business we're meeting our cost objectives and on track for meeting our Q4 cost charges.

Although we're still under utilizing some of our capital equipment in manufacturing. In the product area we've introduced four new product families recently the OFC

. But each of these families actually have a number of individual

offering. As an example the

lens product line is actually a family of lenses that meets the specific requirements for a customer's diode resulting up to ten to 15 percent increase coupling efficiency.

And this is the same situation with our new

product line which is available in our (sounds like) medium sized and working distance offerings. As well as customizing the customer's specific needs. Our strategy of delivering customized customer specific product does map very well onto our manufacturing strategy. We sell a quick turnaround low volume production to achieve customer design win, then migrating the customer to higher volumes

profits are significantly higher.

We have and continue to design our products and production processes through all our manufacturing facilities to allow customers to purchase customized products to meet their exact needs and deliver them in high volume production quantities. All our new product is designed to this customized efficient manufacturing strategy. Which really means that the products and the production processes are a designing combination.

All of our new product offerings offer either significant

improvements or significant product performance enhancements. Or both. Which enables our products to potentially offer superior value to our customers verses the competitor or maybe in this type of market versus existing inventory. This last quarter we had more than 14 new design

with over 50 percent of those coming from our new introduced product lines that we recently

.

Implementation and production

of our new products to operating, are

our cost models and are on track to meet our standard performance and costs learning curves. All of our new products

are out of the R and D phase and have been transitioned into manufacturing. Over the next six months we will focus on product differentiation, product line expansion, as well as accelerate our cost of goods sold reduction to drive our design

and progress on customers.

And progressing our customers into volume orders. We must continue our rate of new product introduction. And this will allow us to meet our goal of a minimum of 25 percent new

in order to meet our gross targets. We've made very positive progress in our cost to goods sold of our standard products, and by continuing to increase our automation and manufacturing efficiency, reducing our material costs and improving those in

we believe we'll be able to extend our current demonstrated learning curve in the future.

We're being very careful with capital investments to be sure we

time requirements. But we still insure progress on our development activities. Thank you, and I'll turn it back over to you Bob.

Thank you Dennis. Let me make a few concluding remarks before I open up for questions. One, I, I hope, not only have a better understanding of our performance, but as you listen to the speakers, that you sense an optimism and confidence that we have a credible plan and that we are executing that plan. I'm very pleased with performance of the Light Path

in dealing with business issues at hand.

And why we cannot predict when we will see a dramatic upturn in telecom spending, based on our customer diversity and ability to renew contracts based on the value of

proposition of helping customers solve their problems of

in their

solutions, we do believe that for the remainder of 2002, we see sales growth of at least

percent in fiscal fourth quarter or a minimum of 4.2 million.

We expect our gross margins to improve about 25 percent in the fourth quarter, and also to continue

decrease our

. This should put us in the path to decrease our cash use in the first, in fourth quarter to about 2.1 million. This does not include, I might add, any cash outlays of

the proposed

litigation. So that concludes our prepared remarks with regard to our performance for the recent quarter. And now we will open it up to take any questions that you may have.

Okay, if anyone has a question at this time, if you'll press star one on your touch tone phone you will be placed in a queue until your name is announced. If somebody asks a question, you can remove yourself from queue by pressing the pound sign. Thank you for using Sprint Conferencing Services. If you have a question, please press star one at this time. And now there are no questions at this time, sir.

Well everybody, thank, I thank you for your participation in, in listening to the conference call.

Pardon the interruption, I, did get a call the, the question that came in from

you now have the floor sir.

Yes, David.

Mr. Ripp, a question regarding the cash to break even. Looking at our current cash on hand, a core, core quarter and the burn rate in recent months, I know we're going to be improving on that, we talk about a cash flow break even in December on an operational basis. What kind of, of, of capital or investment activities you anticipate that might deplete our available cash? Either the

Settlement or investment in

.

Let me break it down between an operational

and what you asked, David, and then I'm gonna talk about what I will call one time kind of event. On an operation basis what we have said, starting in January when we reported in that quarter about a four million dollar cash burn. This quarter we're 3.9 but we did prepay that insurance so that's a, in my judgment, a little more than three million.

And that positions us well to get what we said would be about two million cash burn rate by about our fourth quarter of this fiscal 02. And I think, given that path, we ought to be cash flow break even by the second quarter of fiscal, fiscal 03, or the fourth quarter of calendar 02. That includes what I'd call a business as usual investment of capital. You know, as I believe you heard Dennis mention, we do have a significant amount of the utilization of capital.

So we're not making significant amounts of

investments at the moment. However I would say, and we haven't even completed all of our planning work for the year 2003, there might be a need for us to want to continue to ramp up some of the investments we've been making in our California operation because as you heard

speak, the response that we are seeing to our integrated platforms have helped customers align the light and then

assemblies is growing quite rapidly for us.

So I feel as though we're pretty

position and getting in our current business strategy to deal with our business as usual

effects. With regards to your question about some of these other settlements with regard to litigation. We do have as, as Donna has reported, we've

the scrooge, the potential charge of settlement into our books of account as early as December of last year.

What we now have to do, and we're in the process of having the order that the judge had assigned distributed to the participants in that settlement. On, on a worst case basis, on a cash basis, that might cost the company maybe 1.2, 1.4 million dollars. So that's that one piece. With regard to Light Ship, Light Ship and I have to be careful, they are a privately held company. Our position in Light Ship is based on between our preferred and our common, maybe around 13 to 14 percent ownership.

They have a wonderful technology but they have not been immune from the telecom

reductions. So they're in the process of trying to secure some additional financing. The board is going to, the board of Light Ship, is going through what we're gonna do, an external round of financing or an internal round of financing. My view is we will, Light Ship will conclude over the next couple of weeks what it wants to do, the Light Path view is that we still believe very strongly in the Light Ship prospects.

We will most likely want to participate in that, but the final decision hasn't made yet. My sense of what that might entail from a Light Path point of view is maybe something on the order outside guess, two to three million dollars of cash. So what I'm trying to tell you in a very long answer to your question, David, is we have cash on hand, that's gonna get to break even by the fourth quarter of calendar 02.

That will still leave us with worth of about nine or 10 million dollars of cash on hand. We have these one or two other efforts that we would like to deal, that we may have to deal with that will

person there. So I'm very, feeling very good about the actions that we started as really as January to right size the business so we can get this company to a position of where it can fund us both going forward.

If we need to raise cash going forward because we see even more growth, we're gonna be better positioned to do that. But I want to be in a position to raise money because we want to, not because we have to. I hope that answered your question.

Thank you.

And that concludes the questions at this time, Mr Ripp.

Again, thank you everyone for coming to listen to the Light Path story. And we'll talk to you again as you may need to during the course of the quarter, but certain again at the end of the fourth quarter. Thank you again everybody. Bye now.