LightPath Technologies Inc (LPTH) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the LightPath Technologies third-quarter earnings release conference call. At this time, all parties are in a listen-only mode and a brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ken Brizel.

Good afternoon. We're pleased that you could join us for the conference call to discount LightPath Technologies business and financial results for the third-quarter of fiscal 2004, which ended on March 31st, 2004.

With me today is our CFO, Monty Allen, and our Controller, Stephanie Paskiewicz. Monty will lead off with a reading of the Safe Harbor statement of the 1995 act, designed to encourage fuller disclosures about the future of publicly held businesses such as ours.

Hi. And good afternoon. I assume that most of you who are listening to our call today are doing so through the webcast. Just as reminder, that is accessible through a link on the Investor Relations section of the Company's corporate website at lightpath.com. Please note that this conference call is the property of LightPath Technologies and that any taping or commercial reproduction is prohibited without prior written consent.

The comments we make here, including the Q&A afterward, (technical difficulty) forward-looking statements made pursuant and to the Safe Harbor Provisions of the Private Security 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. Our 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 our 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, either as a result of new developments or otherwise.

Regarding communications from shareholders today, we want to note again that in addition to call participants, questions for this call can be submitted via our a investor relations e-mail box. That can be accessed on our website from the Investor Relations button on the left (indiscernible). From there, click on e-mail IR contact, and that directs your e-mail to the following e-mail account -- invrel@lightpath.com. E-mails sent to any other address will not be obtained or responded to.

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

Okay. Following our usual format, I will update you today on the business and inform you about the work we continue to do regarding our continuing goal to reach profitability and positive cash flow. After that, we will cover our financials and then I will conclude.

We believe that we're seeing some recovery and rebound in a few of the markets that we serve. Our sales group is doing a great job presenting our value proposition to our customers. And we're winning many new orders.

We're succeeding with our goals to work with key customers and move more of our business to longer-term supply agreements and supply contracts. We're working hard at turning our customer orders into sales and then profits for LightPath.

Our fiscal third quarter sales were almost $2 million. This compared favorably with the same quarter last year when we had about 1.7 million in sales -- a 15 (ph) percent increase grade

For the first nine months of fiscal 2004, our sales were 5.56 (ph) million -- an increase of 11 percent over the same nine months in the fiscal 2003 year.

Sales growth and gross margin improvement continue to be our primary goals in order for us to reach our cash flow positive and profitability status. We're well on our way.

The last quarter is our third consecutive quarter of positive gross margin. While our gross margins continue to grow, through constant cost reduction and leveraging manufacturing efficiencies, our gross margins in the fiscal third quarter could have still been better.

We're not done yet working on gross margins.

As our backlog continues to grow, it has been a somewhat different mix than we have expected. This mix difference has required us to quickly add new operators throughout our operation, including (indiscernible) limited (indiscernible).

The training pipe (ph) for operators, with its higher initial cost and low productivity caused lower-than-expected gross margin and some shipments to move into the current quarter. As we continue through this quarter we're ramping up our production and believe that we will continue to show gains in gross margin levels as sales move up and our cost reduction efforts take hold. These cost reduction efforts are oriented both towards lowering material costs and increasing productivity output -- both affectively lowing per-unit cost.

In this quarter we rounded out the management team at LightPath with Bob Reichert, our new Vice President of Manufacturing, which we announced in March. Bob brings us more than 20 years of relative experience and manufacturing leadership. (technical difficulty) similar to our processes and ranges from startup to top tier manufacturing operations. LightPath (indiscernible) its efforts towards operational excellence through Bob's leadership.

Our sales bookings continue to trend up. Our sales team we formed in the late summer and fall of 2003, is now achieving our objective for changing our business away from mostly turns business, and gaining more and larger longer-term orders, more (ph) supply contracts, which allow us to plan production better day by day and operate more efficiently.

We have mentioned in some of our SEC filings, press releases, and calls like this one, that our backlog has been growing. In the last two quarters, reflecting our sales efforts, and the improving economy.

In our 10-Q filed this morning, we have disclosed our backlog quantitatively for the first time and are for your evaluation.

We first defined a term called "disclosure backlog." And then disclose the amount. The amount we've disclosed as of March 31st, 2004, is the backlog that has been scheduled for production and delivery within the following 12 months. And the customer has accepted at that scheduled date.

We also reviewed the line-by-line components of this backlog to determine if there's (ph) anything that is notably questionable to our ability to produce. Or whether there is any reason to think that the customer might cancel the order before delivery.

With that definition in place, I can state our disclosure (ph) backlog of March 31, 2004, was 2.8 million. At the same date in a prior year it was 1.6 million. We believe this bodes well for the future sales increases.

Nevertheless, we're still serving somewhat volatile technology markets. We do not plan to forecast or guide sales or other financial measures at this current time.

Now I would like to turn it back over to Monty, who review the financials from the 10-Q in more detail.

As Ken said, we filed our form 10-Q this morning. And it is already available on the SEC (indiscernible) website. We have filed the press release concerning this quarterly results in that 10-Q as an exhibit.

We had we have noticed today that one popular financial website, which is Yahoo! finance, has had technical difficultly picking up our press release this morning. It is currently there, but it got there late. If you have not been able to view our press release and would like to, I might suggest an alternate website, such as CBS MarketWatch, or even our own website where it is already posted.

Once again, however, I would encourage you to read the 10-Q. It has far more information that we can present in these brief conferences.

To reiterate what we said earlier, for our fiscal third quarter, we have reported total sales of 1.95 million compared to 1.69 million for the same quarter in fiscal 2003. That's a 15 percent increase. As Ken explained, our sales backlog mix, and the adjustments that we have been making in production in this last quarter, while providing positive growth and positive gross margins, was lower than our expectations.

The productivity gains are realized in this quarter. We should see further product output to assist in continued sales gain.

For the nine months that were ended March 31st of this year, 2004, we reported sales of 5.56 million versus 5.00 million in the prior year's nine months period. That's an increase of about 11 percent.

To analyze sales a bit -- domestic sales were 81 percent of this quarter sales, with the remainder, the 19 percent, being almost solely in Europe, where we had a sales presence. We're not ignoring the Asian market, it is a robust economic region at this time. And we are working at developing sales relationships in markets there. Once again in this quarter we had only one customer in excess of 10 percent of sales -- that customer logging in at 14 percent of sales.

As I said, gross margin on our sales was once again positive this quarter. Our comparisons to prior periods in both the quarter and for the nine months, serve as a reminder that only a year ago we could not claim positive gross margins.

But, at the same time, they are not where they need to be. Working on margin improvement as a key aspect of our Bob Reichert work at LightPath.

We anticipate reporting better margins than the recent high teens and 20 percent range in the future.

We continue to believe that our business should be at, gross margin of over 45 percent. We believe we'll get there through factory efficiencies, material cost reductions, and pricing.

In other business expenses, we continue to manage selling, 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 required to maintain the business.

Compared to the same quarter of the prior fiscal year, our combination of NPD, new product development, and SG&A spending was down by over 26 percent or 0.5 million in the quarter. SG&A costs in the current quarter included approximately 50,000 of legal costs that relate to the legal settlement we booked in the quarter. Similarly, last quarter's SG&A line contained over 100,000 of such legal expenses.

But, the settlement of the lawsuit, which I will discuss a little bit later, these legal fees (indiscernible) after February.

Major cause of the continuing comparative reduction in our NPD expenses is the effect of the consolidation of the New Mexico and California facility which occurred last year. The results of those reductions a significant part of the cost base of NPD contained then in all three locations was eliminated.

With that being said, however, we have added selectively during these last two quarters to the NPD staff to be sure and bring developing new products to market, and to serve customer's technical needs when they arise. This was truly one of our competitive foundations in our markets.

SG&A headcount is down slightly in this most recent quarter.

I think it is worth discussing our intangibles amortization, as a P&L line component. To foster understanding of this cost.

We continue to carry intangibles from the acquisition of (indiscernible) in fiscal 2001 that have a net book value remaining of about (indiscernible) million dollars.

The quarterly rate of amortization of these booked assets is almost $5,000 currently.

A major element of the amortization of these assets becomes fully amortized during the quarter that ends September 2004. That's two more quarters.

Thereafter, this quarter P&L charge will be reduced to little more than 100,000 per quarter. This amortization is a non-cash charge in our P&L in our statement of operations, and has been one of the (indiscernible) in our struggle here to reach profitability.

During the fiscal third quarter we favorably settled a lawsuit that we had brought in the prior year. That settlement is recorded as a gain of 790,000 shown below the operating loss line.

The cash impact of this in the quarter was about a $600,000 increase, simply because we had to pay our final legal bills from the proceeds of the gross settlement.

Some of the legal bills that account for this nearly $200,000 amount were incurred and charged in the second fiscal quarter, specifically about 135,000. And some in the third fiscal quarter, (indiscernible) operations, that was about 50,000.

A bonus to the settlement, of course, as mentioned earlier, is that the legal fees relating to this matter has now ceased.

When summed up at the net loss line, in the fiscal third quarter, our net loss was 1.07 million, or $0.37 per share. That's an improvement of 1.76 (ph) million compared with the third quarter of the last fiscal year. When we reported a net loss then the 2.8 million, or $1.10 per share.

Our nine month loss was $4.43 million, or $1.64 per share. This is also an improvement from the prior year's nine month period, when we had a recorded loss of 19.02 million, of which notable portions were asset impairments.

I'll turn now our cash position and our cash flow situation.

In the second quarter, we had a total net cash increase of $1 million. This needs to be parsed out into five major parts.

First, we raise the net 1.9 million from our February sale of common stock to (indiscernible) investors.

Second, we added, as I mentioned, the $600,000 to our cash provision from the legal settlement.

Third, we incurred about $123,000 cash usage in the quarter for capital expenditures. Which was primarily expansion of our grading (ph) Capacity.

Fourth, we made a cash payment on our annual D&O, directors and officers liability insurance premium of $360,000. Lastly, then, this leaves a net usage from the base business of cash of about 1.00 million in the quarter.

While there are several components to this base business usage, including a modest amount of working capital which is about $200,000, most of that usage is in the core cash flow of the business, and speaks to why our goal of profitable sales increases are job one, to reaching the conclusion phase of the turnaround that Ken has set out to accomplish here.

Clearly, future cash usage improvement will depend primarily on achieving sales growth and per unit product cost reductions.

As of March 31st, of this year, 2004, our cash and cash equivalents position totaled $2.95 million as noted on page one (ph) of today's press release.

It is time for me to rewrap up. Once again, I urge you to read our 10-Q for the quarter. Ken, your closing comments?

Thank you, Monty. We continue to see improvements in our markets. In our sales growth and in our continuing positive gross margin. Our customers are placing longer-term purchase agreements and contracts.

We are narrowing the gap in our financials and delivering cash flow breakeven and positive net income results.

On the engineering development side, we are introducing new products, including in this last quarter, Circulight and high power collimators. I am as inpatient as you are to achieve our goals, and the team that we have assembled enables to LightPath to compete as a world-class producer of aspheric optical products.

We'll now open up the lines for questions from our shareholders as well as check whether we have any other questions from our investor web site.

Thank you, gentlemen. (OPERATOR INSTRUCTIONS). Gentlemen, it appears there are no questions at this time.

Okay. Thank you very much for listening. We're going to get back to work now. Have a great day.

Excuse me, sir.

Yes?

We just had a question come into the queue from Orin Harshman (ph).

Okay.

Good. Can you comment a little bit, on one or two questions, general questions. Can you comment a little bit -- obviously the bookings must've been strong last quarter to elevate the backlog -- are you continuing to see that same trend?

Yes, we are. I guess I can comment on that. It appears that we have had some of the markets improving. And the backlog has been growing.

And do you think it is broadly, or narrowly? Or is there one or two highlights in terms of specific areas?

You mean in particular markets?

Yes.

Okay. I could say now that there is some amount of pickup in the industrial sector. A bit in the communications area and a bit in the defense area, of course.

Okay. Great. Thank you.

Thank you, sir. Gentlemen, there are no further questions in the queue.

Okay. Well, again, thank you for listening. And we are going to get back to work. And have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.