LightPath Technologies Inc (LPTH) 2005 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to LightPath Technologies' fiscal first quarter 2005, conference call. At this time all participants are in listen only mode and a brief question and answer session will follow the formal presentation. [Caller instructions.] And as a reminder this conference is being recorded. Is now my pleasure to introduce your host, Ken Brizel, President and Chief Executive Officer of LightPath Technologies Incorporated. Thank you. you may begin.

Good afternoon and thank you for joining us to discuss LightPath Technologies' financial and business results for our first quarter of fiscal 2005 which ended on September 30. On the call with me today is Monty Allen our CFO. Monty, will you read the Safe Harbor Statement?

Yes. Your call today is being webcast through the Homepage and Investor Relations Section Company's corporate website at lightpath.com. A transcript of the call will be posted on our website as soon as possible as has been our practice. Please note that this conference call is the property of LightPath Technologies and any taping or any other commercial reproduction is prohibited without our prior written consent. Now for the Safe Harbor statement. The following discussion including the Q&A 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 possible future financial performance. These forward-looking statements necessarily involve risks and uncertainties. LightPath's actual results may vary materially from any such statements made.

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 particularly our 10K. The forward-looking statements and associated 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. Lastly, I want to remind listeners today 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 website from the Investor Relations button on the left menu. From there click on: Email IR Contact and that directs your e-mail to the following e-mail account, inv_rel@lightpath.com. Email sent to any other address will not be seen or responded to. Ken, it's over to you. Thanks.

First, I'd like to say I'm very pleased to report a new quarterly high for our sales since I joined the Company. Yesterday we reported 2.595 million in sales for our first quarter versus 1.75 million in the same quarter for fiscal 2004. That's a 68% increase and reflects some recovery in subset of our markets. A continued strong effort in our sales team and improvement in meeting our customers' needs for manufacturing here in Orlando. Backlog remains strong as well. As of September 30 our disclosure backlog was $4 million. With the introduction of several new products over the last year, our revenues continue to contain a larger portion of new products in each of our product lines. Isolators continue to be strong and we've recently set our best collimator orders in several years with the introduction with high power applications. Growth in these products demonstrate our diversity, since we often also supply lens with, or built into these products. As I've mentioned in recent reports to you we have worked hard for some time to improve our sales picture by developing more significant customer relationships. That allows us to serve our customers with long production runs. Permitting us to improve our costs throughout the manufacturing cycle.

Deliveries to our customers took our highest priority during the course of our first quarter. Gross margins for the quarter were not what we hoped they would be as we struggled with increased costs in the first quarter caused primarily by the disruptive affects of 3 hurricanes. That came at us in August and September. That was Charlie, Frances and Gene. These storms, beginning with Charlie in mid-August, did not cause any particular physical damage on our site. But they did cause us to lose an aggregate of 6 production days during the quarter from electric outages and from our employees' disrupted work and home schedules. We had some production time lost after each one of these storms. After Charlie, was the most disruptive and continuing throughout the balance of the quarter. We added a third shift. We increased shift lengths. We added additional weekend shifts as part of our operations to enable us to catch up and maintain our customer delivery schedules. These additional shifts led to increased labor costs. For the subsequent storms, we procured a backup generator for the electric power at extra cost. Further we had lower process yields that we had recently seen due to the disruptive nature of the starts and stops in production.

We also had some lower yields in vendor related processes during this quarter. Largely as a result of these matters our gross margin came in at 20% for the quarter which is below plan. We are now now - - not alone with regards to the impact of these storms. Other central Florida based public technology companies have reported similar effects from these same storm events. We're getting back on track to our recent normal efficiencies and labor usage and deals. And early indications from this current second quarter are that our margins are back to the higher level closer to the fourth quarter of fiscal 2004. That's the June quarter. Hurricane season is done now and the weather is beautiful. We're continuing our work towards our number one goal of sustainable cash flow generation. New product sales continue to gain a larger percentage of our new business. To review: These products include our DuraYAG assemblies using GRADIUM lenses, our Tx isolators and Tx lenses, our Circulight lenses, for red and blue laser applications. Both products of course our from our precision molded glass optics technology. And our ruggedized collimators for high powered fiber laser applications. We will have to redouble our efforts for the balance of fiscal 2005 to continue to extend our recent gains. I want you to know that the team is working very hard to do just that. Now, I'd like to turn the call back over to Monty so we can review the financials in more detail.

Thank you, Ken. I will be discussing figures for LightPath on a consolidated financial statement basis only. As Ken noted and from the press release last evening, you can see that our first quarter revenue was reported at $2.95 million compared with 1.75 million for the last year's comparable first quarter. This is a raise of about 68%. And on a quarter over quarter basis it was a more modest 6%. But that was with the storm difficulties hindering us. Our disclosure backlog remains strong. It tallied $4 million at the end of September. That's an increase of $700,000 for the quarter. That means our book-to-bill was at 3.67 million to 2.95 million which computes to 1.24 to 1 for the quarter. We don't think we will sustain that level. But we are aiming to keep that level above 1 to 1.

Customers generally continue to be stingy with orders due to their own cautiousness about visibility of the course of their own in-demand. Ken has gone into some detail already, in his comments about gross margin. More comments: Our analysis shows that only in very approximate levels, the increased labor factor cost us about 6 margin points in the quarter. The higher costs directly attributed to the storms, about another point of margin. And the yield reductions some 3 margin points during this quarter. As Ken said our first look at margins in this current, second quarter, demonstrate that our margins are likely to be back to a more significant level. Overall, analyzing our financials, one can see that margin improvement still remains key to our goal of becoming self sustaining on cash use. Expenses throughout the rest of the business were little changed in the quarter when compared to same quarter in fiscal 2004. And I won't comment further on them. Going lower in the P&L below the operating income or loss line in the statement of operations: We did record a charge in the current quarter for $70,000 representing the conclusion of a dispute that had been outstanding for many years at the Company's GelTech subsidiary.

We also recorded the final quarter of amortization charge relating to a line of credit we procured a year ago. That non-cash charge has been running about $79,000 per quarter for each of the last 4 quarters. Net loss then for the first quarter was 1.58 million or a negative 49 cents per share. This compared with the first quarter of the last fiscal year when we reported a net loss of 1.38 million or a negative 53 cents per share. We did have approximately 25% more shares outstanding in the loss per share calculation. Primarily from our equity financing in February of this current year. I have a couple of other points to make about our first quarter financials. We have been carrying a $333,000 per quarter cost for 4 years now. Representing the amortization of the developed technology asset GelTech Inc. by LightPath in 2000. At September 30 we concluded the amortization of this asset. And going forward our quarterly intangible amortization charge will be more on the order of $130,000 per quarter instead of the $466,000 level that we reported in the first quarter.

While this has no impact on cash flow it will help to close the gap between our cash flow and our reported profit and loss numbers. We also had modest capital expenditure in this first quarter, only 27,000. Regarding capital expenditures we did make an $80,000 capital spend in October. Which is after the end of this first quarter to support our molded lens business. And chose to finance it under capital lease, to relieve us of the cash flow impact of a spend of that size. We may choose to do that with further capital expenditures as they are required in the business. Comments on cash flow: I will reiterate again, as Ken did, that we think about things every day here with regard to the cash and the cash flow impacts. We're still committed first to achieving positive cash flow. But we are also growing of late and growth requires working capital. That is the balance we are working on right now. Growth will be required to reach positive cash flow. But growth in the short term uses higher cash for higher levels of material purchasing and for more receivables outstanding. As our business in Europe grows for example it further adds to this equation. And because the average payment days from our European accounts is more than twice that of our U.S. accounts.

In the first quarter aggregately, we had a total cash usage of $430,000, almost identical to that of the fourth quarter of fiscal 2004. Quarter end cash and cash equivalents was 2.1 million as noted in our press release. We have more work to do here. Due to the storms this quarter it felt somewhat like the one step back after the two steps forward. But there were some positive factors in this quarter. Notably continued strong orders and higher sales than the quarter before. And this current quarter is continuing to extend that progress. Just as a continuing not we do not offer any official forecast or guidance on future quarter. Or for the full year of fiscal 2005. So Ken, I will let you conclude now while we check for email questions.

All right. I don't really have any further comments. We are moving forward again after this crazy summer we've had in Florida. We are reducing the labor component in our product cost again and seeing a return to our earlier process yield levels. I remain enthusiastic about opportunities in our business because of the uniqueness of many things that we do. We're sometimes our customers only solution to an optical systems problem. Other times we're pitted against competition and we bring our best technology to bear. That's how we continue to create value; by providing these customers with the best solutions. We will not open up the lines for questions from our shareholders. As well as to check to whether or not we have questions from the Investor Relations website.

Ladies and gentlemen at this time we will be conducting the question and answer session. [Caller instructions.] Our first question will come from Orin Hirschman of OH Investments.

A few questions. On the financial side you mentioned the amortization going away. And you also mentioned that there will no longer be in non-cash charge for the warrant deal that was part of a line of credit. If I'm correct those 2 items add up to about 400k a quarter in non-cash charges that are going to go away going forward?

Yes, Orin that's right. It's actually about something like 410 per quarter out of the P&L. But again just to reemphasize those are non-cash charges. So they don't immediately help our cash flow.

Okay. And you'd also mentioned obviously, with a very strong book-to-bill and it sounded like that orders continue to come in nicely. At the same time you also kind of mentioned that you don't know if you could achieve that kind of book going forward. Does that mean that orders have dropped off or is it just being cautious because of the fact that there's short lead times out there?

Good question. I think that we're not speculating on what's going to be happening out there. But we are seeing that orders are remaining at the levels that we were at before. and continuing. Although the market itself is still kind of stingy as Monty had mentioned before. Customers towards the end of the calendar year tend to be a little bit stingier than they were previously. So we're just being a little conservative I think as far as what we're going to do.

And you also mentioned the gross margin, thank God, has rebounded nicely. When did it actually begin to rebound? And how will that affect that overall gross margin during the quarter?

It's interesting that the hurricane lasted from the middle to the end of the quarter with the last one that we had. So really beginning the new quarter did we see some rebound in our gross margins, through the effect of doing some cutting it back on some of the things we had to do through that quarter. As well as the efficiencies and the yields coming back up to normal.

And you've mentioned at some they should point bounce back to the previous levels. But what was that level numerically again?

Well, if you go back to the fourth quarter of statements that we had for 2004, they were in the low 30's.

It was about 34 in that quarter.

Okay. And finally, just any general comments and the state of some of your markets. Just brief comments. And also any general comments in terms of I know you've been working on some new products including lenses that might be able to be used in high density DVD's and the like. Can you report any progress in that area?

Yes. Well, we made a new product announcement yesterday. On a product for a broad color correction capability on a lens. Which is unique. But going back to your other questions on product introduction that we've made. We are seeing some nice takes on orders in high-power fiber lasers with our collimators. And we have been doing rather well with the introductions of the Tx lenses and the Tx isolators for the communications area. Which is a broad communications area for data comm and hybrid fiber coax. We have also as we've announced, in the beginning I guess of this quarter, been introducing more in the blue area, blue for lenses in glass molded objects. We had another lens, the 671, that was introduced and taken very nicely by customers for the [Nicchia]. As well as the Sony, Sanyo, Hitachi and those laser clones that are for blue laser applications. So we have been seeing some nice play with some of our products. More recently we've also been selling or I should say sampling our Circulight products to customers and that's been a very exciting. Customers are trying to push us harder to get those out to them sooner.

That's for which application again?

The Circulight area goes for - - first in the blue where we circularized beams. And that's for industrial applications to start with. But it is applicable across the board for lasers trying to get more efficiency out of the laser.

And it's for which end application?

It's used today in industrial applications, medical applications, data storage. Blue is an exciting new technology that people have been working with and been producing new capabilities and just in the last few years.

Thank you so much.

[Caller instructions.] Gentleman, we appear to have no further questions. Would you like to make some closing statement?

Well, Ken we do have one email question that has come in. A Mr. [Neece] asked the following. He says: "I would like to know if your recent hiring will continue for the foreseeable future? And in which area of your business are you seeing the majority of your growth?"

Okay. Thank you, Mr. [Neece] for your question. We did do a fair amount of hiring in March and through September. Additionally, as we've discussed already we did run a lot of overtime. Which stretched to meet a large increase in orders. We have however in the current quarter but reducing our headcount selectively through attrition. And reducing the amount of overtime back to normal levels and more manageable to increase our labor efficiency. I think this has been working. Our yields are improving compared to the first quarter that we are reporting today. Regarding the second point: We are seeing growth as I mentioned before to the other question, growth throughout major segments of our market. Compared to this time last year some of the more significant growth is probably in the isolators and collimators. And finally PMO of course which is our largest product line we're seeing increases there as well. Okay. Well that appears to be all for now. Thanks again for your interest, attention and your continued support.

Ladies and gentlemen thank you very much for your participation in today's audio conference. You may all disconnect your lines at this time. And have a wonderful day.