LightPath Technologies Inc (LPTH) 2004 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the LightPath Technologies, Inc. earnings conference call.

At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If any one should require operator assistance during the conference please press star 0 on your telephone keypad. As a reminder this conference is being recorded.

It is now my pleasure to introduce your host,, Mr. Ken Brizel, President and Chief Executive Officer of LightPath Technologies, Inc. Thank you, sir. You may begin.

Good afternoon. Thank you for joining our conference call to discuss LightPath Technologies business and financial results for the second quarter of fiscal 2004, which ended on December 31, 2003.

With me today is our CFO, Monty Allen, and our Controller, Stephanie [Paskowitz]. Monty, would you read the Safe Harbor Statement of the 1995 Act.

Yes, most of you are probably listening to our call today through the webcast. That is accessible through a link on the Investor Relations section of the company's corporate website at lightpath.com.

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

These comments to come, including the Q&A afterwards, will contain forward-looking statements made pursuant to the Safe Harbor Safe Harbor provision of the 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 these 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, of course, 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 today that in addition to call participants, questions for this call can be submitted via our Investor Relations e-mail box, and that can be accessed on our website from the Investor Relations button on the left [silo] menu.

From there, click on e-mail IR contacts. That directs your e-mail to the following e-mail account: it's invrel@lightpath.com. E-mails sent to any other address won't be seen or responded to.

Ken is up now with some comments now on the current state of the business.

Thank you, Monty. As usual on our call today, I would 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 sustainable self-generating cash at LightPath. After that, Monty will review our financial details, then I will conclude.

On our call last quarter, I shared our vision at LightPath and explained that the combination of talented employees and the numerous developments over the last 18 years in gradients, aspherics, isolators, collimators, and assemblers, are coming together in order to fuel our growth in applications for industrial laser systems, medical devices, test and measurement equipment, communications systems, aerospace, and defense.

We have made progress in this quarter on a number of fronts. During the last quarter, our sales organization has begun to have an impact in increasing our order flow, and hence, backlog. We established several new key customers within new markets with whom we expect increasing volumes in coming quarters. While I can't disclose these customer's names at this time, several of them are household names you would most certainly recognize.

We are also pleased to be seeing some of the rebound in communication product requirements. While I wouldn't declare that this is being a significant industry trend, I can say that the opportunities have been growing. That's not only evident in our order book, but also in the attendance and interest at the recent Photonics West Conference in San Jose, California, at which we presented our latest new designs.

At the show, we received many inquiries resulting from our demonstration of Circulight, an anamorphic lens designed for circularizing 405 nanometer blue lasers, used for example, in next generation storage products. Also, we introduced our new high-powered ruggedized collimators for 1064 nanometer fiber lasers, used in laser marking and welding.

LightPath's fiscal quarter sales were approximately 1.9 million. Sales increased more than $100,000 compared to the prior quarter, as we continue to develop new applications and penetrate new markets. Our sales team is driving for an increase in topline sales and has developed new accounts and design wins that we anticipate will fuel our growth over the next few quarters.

Sales growth continues to be the primary focus of the company's continued drive to reach cash flow positive and profitable status. Our manufacturing team continues to manage costs toward the lowest achievable level. We have reached the right head count to accomplish what we need to, and are now working very hard in improving yields, productivity per employee, and per shift in the plant.

We believe this coming third quarter will continue to show improvement. Our gross margin in the second quarter is down from the first, due in part to accruing a charge related to technology licensing agreements, which is a one-time event. The average gross margin percentage for the first half was 22%. We're confident that in the upcoming quarters you will see improvement over this figure, moving us towards cash flow break-even.

As we outlined in the last quarter, our third quarter will contain several significant insurance payments. We are pleased to have obtained significant reductions in premiums from our D&O insurance carrier, enabling LightPath to save cash for operations.

Our bookings are up significantly walking into the third quarter compared to the last, a good indication that our sales team is achieving our objective of changing our business away from mostly turns business, which is usually unpredictable and uneven.

Instead, the complexion of recent orders have been blanket purchase orders that stretch out many months. Our sales, marketing, and engineering teams are growing modestly to increase penetration of markets and serve our new customer applications in high powered lasers and high performance aspheric lenses.

The manufacturing organization continues to make significant improvements in yields and unit output per shift in each product line, which reduces our unit product cost.

Now, I would like to turn this discussion back over to Monty who will briefly review our financials.

Okay. Note that we will be filing our Form 10-Q by the end of this week with the SEC, which is its due date, and it will be thereafter available on their website. We plan to file the press release from this morning concerning these quarterly results in that 10-Q as an exhibit. I would encourage you to read 10-Q once it is available. It has far more information than we can present in these brief conferences.

From the second quarter of fiscal 2004, which, of course, ended on December 31 of '03, the company reported total net revenue of 1.85 million, and that compared to 1.75 million for the first quarter of fiscal 2004.

That is the quarter-over-quarter sales comparison. This represents an increase of about 6%. For the year-over-year comparison, we have about an 11% increase as the second quarter sales in the prior year was 1.66 million. Most encouraging right now, as Ken has already said, is the increase we have recently seen in orders, which should translate into higher sales in the the coming quarters.

Domestic sales were about 86% of this quarter's sales, with the balance being in Europe, where we have a salesperson and several distributor relationships established. Gross margin on our sales was, once again, positive. As you can see by the prior years' comparisons, it has not been too long since our gross margins were still negative.

As Ken mentioned earlier, our gross margin in the second quarter is down from the first quarter, due in part to accruing a charge related to a licensing agreement, which is a one-time event. This accounted for about 7 gross margin points.

In the first quarter of 2004, as you may recall, we had sales of product in that first quarter that included inventory previously written off, and therefore had attractive reported gross margins. We expect our gross margins now to show improvement as our business base converts from a turns business to a longer term and level-loaded business. Our long-term goal through pricing and cost reductions and factory efficiencies is to have gross margins grow to over 45%.

In other business expenses we continue to manage selling and marketing, G&A and new product development spending to levels that our business can sustain in the near future and still offer the service levels that are required to maintain the business. Compared to the second fiscal quarter of last year, the combination of NPD and SG&A spending is down by over 44%, or 1.4 million. Quarter-over-quarter, however, it increased about 27%, or approximately $380,000.

This increase consists of about $159,000 net increase in stock-based compensation, which is the sum of a credit in the first quarter reflecting the remaining head count reductions in the business to a debit or a charge in this second quarter. Also a part of the increase was $135,000 increase of legal expenses relating to some ongoing litigation.

Moving on to the net loss line in the second fiscal quarter, our net loss was 1.98 million, or 76 cents per share, which was a decrease, or an improvement, of 6.1 million, compared to the second quarter of the last fiscal year when we reported a net loss of 8.1 million, which was negative 314 per share. This 8.1 million prior year figure included the company's $4.2 million asset impairment charge that was taken in recognition of our telecom customer market declines at that time.

In this first half of fiscal 2004 we had purchased some equipment to either replace existing production machinery or for equipment needed for capacity expansion in products that were not typically purchased by the telecom companies.

For example, this includes new furnace capacity for our proprietary gradient refractive glass technology, which is a product area that looks very promising for future sales increases in certain laser markets.

So capital spending in this first half of fiscal 2004 has amounted to $176,000. We made additional progress in this quarter in the liquidation of other unproductive equipment that had been moved from our other locations. We raised over $100,000 in cash from those sales.

I will turn now to our cash position and our cash flow situation. In the second quarter we had a total cash usage of 830,000. That was an increase of 244,000 compared to the prior fiscal quarter. The increase is mainly due to annual expenses that relate to legal costs, proxy, and annual meeting costs, and audit fees at that time. All of these expenses come in our fiscal second quarter. In the third quarter we face our insurance renewals.

We are pleased that we are seeing a significant reduction in our D&O costs for that renewal next week and, ironically, are also pleased that our increases in property and casualty, as well as employee health insurances, are only in the high single digits instead of the double digit rates that we had seen in the prior year's renewals.

Future cash usage improvement will depend primarily, though, on achieving sales growth and per unit product cost reductions for more output per shift. As of December 31, 2003, our cash and cash equivalents totaled $1.95 million, as noted on Page 1 of today's press release.

We believe that our ongoing sales level per quarter to achieve break-even is less than 3.0 million. Our immediate internal sales goals are geared to achieving this level. Once again, before I conclude, I would urge you to read our 10-Q for the quarter, which will be filed shortly. And now, Ken will close up with some comments.

Thank you. As stated earlier, LightPath has seen continued improvement this quarter and is foreseeing future growth in sales as we continue to drive toward break-even. Our financials continue to look better on the topline and bottom line views. This is a testament to the work and the effort of the whole organization.

Going forward, our emphasis continues to be on revenue generation. Lastly, today, I'm pleased to announce that yesterday we settled some litigation involving the company that should result in a cash payment to us. Further information regarding this will be included in our 10-Q, which will be filed soon.

We will now open the lines up for questions from our shareholders as well as check whether we have any questions on our investor relations website.

Thank you. The floor is now open for questions. [Operator Instructions] Gentlemen, we show no questions on the phone lines at this time.

Okay. We do have one question that came in via e-mail, and we will address that at this time. A [Mr. Clay Neece] e-mailed us and asked: Does Mr. Rip still own directly the same number of shares as he did when the last annual report was filed?

And I will answer that question. We last filed the definitive proxy statement on Form 14-A with the SEC on October 10th. And the holdings of Mr. Rip at that time are presented in that document in accordance with the proxy rules of the SEC. Now, since that time, there has been no activity in Mr. Rip's shareholdings with the company except for vesting that may have occurred with regard to previously reported restricted stock awards.

Going forward, should there be reportable activity in Mr. Rip's holding of company securities, either directly or indirectly, we will report it on his behalf with an appropriate and timely filing with the SEC , which they will post on their [EDGAR] website.

Offer another comment as well. It's worth noting that there are many free and subscription services available, mostly via the internet, to access filings on officers and director and insider holdings for public companies.

We would recommend that to access or to find the most up to date and valid information, that you seek that at the SEC's [EDGAR] website, and not necessarily from information presented by services that may be subject to the vagaries of either their inaccurate query criteria or delayed database updates.

That is the only e-mail question that we have received. Is there anything out there, Dan, on the telephone?

We show no questions at this time on the phone lines, sir.

Okay. Well, thank you very much. We'll go back to work now, and have a great day everybody.

This concludes today's conference. Thank you for your participation.