LightPath Technologies Inc (LPTH) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to your Q1 2004 LightPath Technologies earnings conference call.

My name is Jean.

I'll be your conference coordinator for the day.

At this time all lines are on a listen-only mode.

After our presentation, we will open the call to questions.

Should you require operator assistance while on the call, key star 0 and we will be happy to assist you.

I'd like to advise you that the conference is being recorded for replay purposes.

Now I'd like to turn the call over to your host, Ken Brizel, President and Chief Executive Officer.

Sir, you may proceed.

Good afternoon.

Thank you for joining our conference call to discuss LightPath Technologies' financial and business results for the first quarter of fiscal 2004, which ended on September 30.

With me today is our CFO Monty Allen and our Controller, Stephanie Paskowitz.

Monty, will you read the Safe Harbor statement of the '95 Act?

Yes.

As most of you know, this call is being webcast through a link on the Investor Relations section of the company's corporate web site at lightPath.com.

Please also note this conference call is the property of LightPath Technologies and any taping or any other commercial reproduction is prohibited without our prior consent.

These comments, including the Q&A session afterward, will contain forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, including statements about LightPath's prospective market opportunities, future business plans and financial performance.

These forward-looking statements necessarily involve risks and uncertainties.

LightPath's actual results may vary materially from what these statements suggest.

Additional information concerning factors that could cause actual results to differ from forward-looking statements can be found in LightPath's periodic filings with the SEC.

The forward-looking statements and the associated business and financial risks covered during this conference call are based on current expectations as of today.

LightPath assumes no obligation to update or revise them whether as a result of new developments or otherwise.

Regarding communications from shareholders today, I think it is worth noting that in addition to call participants, questions for this call can be submitted via our Investor Relations e-mail box.

It can be accessed on our web site from the Investor Relations button on the left side of the menu from there, click on e-mail IR contact.

That directs your e-mail to the following e-mail account. invrel@lightpath.com.

E-mails sent to any other address won't be seen or responded to.

Now back to Ken Brizel with some comments on the business.

Thank you, Monty.

As usual, on our call today, I'd like to update you on the business and inform you about the things we continue to work on in order to reach profitability and begin self-generating cash at LightPath.

After that, Monty will review our financial details, then I will conclude.

I'd like to start with my discussion on sharing my vision.

LightPath has developed many exciting technologies over the last 18 years, including graded index glass, known as GRADIUM, for large aspheric formed lenses, custom molded glass for high performance aspheric lenses.

Automated manufacturing for uniformally produced isolators and laser-welded used collimators and so on.

We sold these technologies into applications for industrial laser systems, medical devices, test and measurement equipment, communications apparatus, aerospace and defense.

Over the last year, we have begun focusing our efforts on key applications within each target market segment using the technologies we've created.

Over the next quarter, we will begin to disclose the new opportunities we've begun developing.

So, let me go further and explain what key assets of LightPath, beyond the technologies and beyond the equipment, it's our people.

We have some of the best optics and manufacturing engineering in our industry.

The bottom line is that LightPath customers have us develop custom optical designs that they can't get anywhere else and we turn these concepts into manufacturable products using our technologies.

Being a company with limited resources, LightPath carefully evaluates each opportunity and its potential long-term sales value.

That's how -- that's how our shareholder value is being built.

LightPath's fiscal fourth quarter of sales were $1.8 million.

Sales were flat against the prior quarter.

We had anticipated, based upon new design cycles and product introductions by our customers.

Our sales team is driving for an increase in top line sales and has developed new accounts and design wins that we anticipate will fuel our growth over the next few quarters.

We have recently hired a leader for the sales team, that's Jim Magos, who brings a level of industry and trade channel experience required to energize our business toward our future growth.

Our manufacturing team continues to take costs out of the business.

We've brought margins from one year ago being double-digit negative to now being double-digit positive.

We've reached the right head count to accomplish this and what we need now is working hard to improve yields and productivity per employee per shift in the plant.

We are continually improving operations as we now have a a full quarter of operations with all three of our primary product offerings being manufactured on the same floor.

People may be familiar with the company and you maybe remember, of course, that we had only our lens product in production in Orlando just one year ago.

At this time, let me reemphasize the importance of sales growth to our business.

As you may remember last year we refocused our efforts developing customer applications outside of telecom.

If telecom comes back strongly, which we don't see happening in the near future, we still produce some valuable products for that market and we might benefit from that.

Our strategy, as I stated before, is to supply high-performance, high-quality standards and custom products to the entire marketplace for applications demanding optical products.

Any new customer sales cycle is demanding and takes time.

We share similar characteristics to the semiconductor manufacturers and must often assist in the design of optical prototypes for customers and then sample them for test of their products.

Only then do we have design wins that lead to being a long-term component supplier to that customer for that product.

Afterwards, there's a replacement optics sales opportunity for us, when the product is used on the factory floor, in the hospital, or even in the laboratory.

We've organized our sales force to constantly be working on the details of this sales cycle and assisted each salesperson several strategic accounts for which they're responsible.

We place the highest level of support on these new opportunities with engineering assistance during evaluation and tests at the customer site.

While I can't disclose the details of these efforts at this time, watch for expected announcements over upcoming quarters.

Now I'd like to turn the discussion back to Monty who will review our financials.

Thanks, Ken.

Note that we filed our Form 10Q this morning with the SEC and that is currently available on the SEC Edgar web site.

The press release concerning the quarterly results was filed in that 10Q as an exhibit.

Onto the numbers now.

Again, as for -- for this first quarter of fiscal 2004, ended September 30 of 2003, the company reported total net revenue of $1.75 million compared to $1.64 million for the last year's fourth quarter.

This represents an increase of about 7%.

We now have five quarters of sales in this 1.6 to $1.8 million range.

We have discussed previously that a significant mix change has been under way in those five quarters away from telecom market products and applications towards industrial and other markets.

This mix shift has consumed sales force and engineering time because of the mix shifts, new customers are being added.

We believe we now have a couple of new opportunities that have been under development for several months that may start contributing to sales growth as Ken alluded to earlier.

As in recent quarters, our sales this quarter are primarily to U.S. customers.

Domestic sales were over 85% of this quarter's sales.

Sales that we do have outside of the U.S. were predominantly made in Europe where we have recently added sales presence.

Gross margin from sales was once again positive this quarter.

This is the second consecutive quarter of positive gross margin dollars contributing to the rest of our business expenses.

While we expect our gross margins to remain positive, we don't expect margin gains to be as dramatic as they have been through the facility's consolidation in the last two quarters.

Our long-term goal through cost reduction and factory efficiencies is to have our gross margins grow to over 45%.

In other business expenses, we continue to work to control both R&D and SG&A type spending.

Compared to the first quarter -- first fiscal quarter of last year, the combination of R&D and SG&A spending is down by over 54% or $1.6 million.

Quarter-over-quarter, the decline is about 26%.

We believe that most of the cost reductions that can be accomplished in these areas is complete.

Regarding R&D spending, while we have made cost reductions and will continue to there, we do remain solidly focused on supporting essential sales growth opportunities.

Moving on to the net loss line in this first quarter, our net loss was $1.38 million or 53 cents per share.

This compared with the first quarter of last fiscal year when we reported a net loss of $8.06 million or $3.12 a share.

This latter figure included the company's $3.5 million asset impairment charge taken in that quarter in recognition of our customer's market declines.

In fiscal 2003, we -- in total year, we had less than $200,000 in spending for capital equipment.

We've recently identified some equipment needed to either replace existing production machinery or equipment needed for capacity expansion in products that were not typically purchased by the telecom companies in the boom.

Capital spending in fiscal 2004, therefore, may exceed $200,000, but we currently don't anticipate it being significantly more than that.

On the positive side regarding capital equipment, we've made some headway in liquidating unproductive equipment that was moved from other locations for cash here in October and -- October and November.

Next topic is cash position and our cash flow situation.

In the first quarter, we had a total cash usage of $585,000.

There is very little in that number that was unusual or non-recurring.

It tracks with our prior quarter, after that is adjusted for a non-recurring cash inflow of that period, which namely was the light chip liquidation payment.

If there are no material additional savings to be realized from SG&A and R&D expenses as I said earlier, it implies that our margins must be improved by at least this amount per quarter from continuing production cost improvements and from sales gains.

These are both critical efforts that are ongoing in the company.

At September 30, 2003, our cash and cash equivalents totaled $2.8 million as noted on page 1 of -- of last evening's press release.

Another point to note with regard to cash is that the company has substantially all of its insurance policies renewing in its fiscal third quarter.

Last year these insurances, which include the D&O as well as property and casualty insurances totaled about $750,000.

We believe they will cost about the same again this fiscal year, to be paid in January and February.

These renewals and their cash demand will accelerate our need for sales and margin growth in these next two quarters.

As has been previously stated by us, we believe that our ongoing sales level per quarter to achieve break even is nearly $3 million.

Our internal sales goals are geared to achieving this level.

Until we see sales coming in from a number of new customer wins, we will be unsure about achieving this level.

My wrap-up is pretty straight forward.

I've been in the CFO role for about three months now here at LightPath.

I was in my second week with LightPath during the last quarterly conference call.

So, I now have a much better understanding and appreciation of what capabilities are here and also, frankly, where most of our works are.

I remain impressed as when I interviewed with Ken and others that this is a good business, that has value that can be realized.

We now simply need to achieve more sales mass so that the fixed cost of running this kind of a business can be overcome and a return generated on shareholders' value.

As a finance guy, I'm particularly impressed with how much effort goes into insuring that we accept only sales here that generate a reasonable margin for us so that our capacity is used to maximize the value of our franchise as a high quality optics supplier.

Okay.

I'm done.

Ken now will close.

Thank you.

As stated earlier, LightPath has developed many exciting technologies for the optics markets.

The key to our longer term sustained sales growth is our focus on strategic customers and developing new -- new designs, which deliver higher gross margin in value-added applications.

The latest customer applications we've developed in the last quarter give me the confidence that we're focused on the future rather than fixing the effects of the past.

Our emphasis going forward continues to be on revenue generation.

We will now open up the line for questions from the shareholders.

Thank you, sir.

If you have a question or comment, key star then 1 on your tone-now phone.

If you want to withdraw your question, key star 2.

Once again, star 1 for questions.

We will pause for just a moment for your first question.

Again, as a reminder, it's star 1 if you'd like to ask a question.

As a last reminder, it's star 1 on your own touch-tone telephone if you would like to ask a question.

Gentlemen, thank you for your presentation, you may proceed with your closing remarks.

Okay.

Thank you very much.

We appreciate you being a part of the call and everybody have a great Thanksgiving.

Ladies and gentlemen, thank you for your participation on today's call.

You may now disconnect.