LightPath Technologies Inc (LPTH) 2005 Q2 法說會逐字稿

Welcome to the LightPath Technologies, Inc. quarterly conference call. At this time, all participants are in a listen-only mode to prevent background noise. 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, President and Chief Executive Officer and acting Chief Financial Officer of LightPath Technologies.

Good afternoon, and thank you for joining us to discuss LightPath's financial and business results for the second quarter of our fiscal 2005, which ended on December 31st. Your call today is being webcast through the homepage and investor relations section of the 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 other commercial reproduction is prohibited without our written consent.

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, 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 containing 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 10-K. The forward-looking statements and associated risks covered during the 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 that in addition to call participants, questions from this call can be submitted by our investor relations e-mail box, can be accessed through our website from the investor relations button on the left side of the menu. From there, click on the e-mail IR contact. That directs your e-mail to the following e-mail account, which is inv_rel@LightPath.com. E-mails sent to any other addresses will not be seen or responded to.

Okay. I'd like to start my discussion today by reinforcing to the audience that sustainable cash flow generation is the top priority of the entire team, and that we intended to attain this elusive metric over this fiscal year. Over my last 2.5 years with LightPath, the Company has undergone significant change through consolidation and market diversification. We have overcome obstacles and gingerly walked through mine fields. LightPath is now stronger, than we have been in any prior quarter. This isn't to say that we don't have issues, just to say many older issues are behind us know.

LightPath reported 3.31 million in sales for our first quarter versus 1.85 million in the same quarter for fiscal 2004. That's a 79 percent increase, and reflects continued strong effort by our sales and manufacturing teams. We continue to make good sales progress. I commend Jim Magos and his sales team on these efforts. However, I continue to be disappointed by the progress with regard to margin improvement, and I'm personally focusing efforts there. We are striving to reach a gross margin percentage of about twice our current level, in order to be industry comparable and to reach our initial goals, set when we began restructuring the company over two years ago.

In the last quarter, the Company experienced an unusually high scrap rate, which accounted for 8 points of gross margin. The margins were impacted negatively by the work in process inventory adjustment of $265,000 in our lens products. We have programs in place to address our scrap rates and manufacturing going forward.

Backlog remains strong, as well. At December 31st, our disclosure backlog was nearly $3 million. Over the last year, our revenues continued to contain a larger portion of new products. New product sales for the last quarter were greater than 25 percent of our revenue. Our molded lens products remain the largest product sales, while collimators over the last two quarters have shown the largest increase in orders in several years, due to introduction of high-power collimator applications.

Our revenue from the communications market have continued to be a smaller percentage of the total, but continues to be a notable portion of our business base. Revenue from our largest communications customers are slowing, due to their overall business conditions.

Diversification in our non-communications customers' applications and markets is why we have moved forward as far as we have. This diversification has, for the most part, increased our average selling price and gross margin levels over the last 2.5 years.

Before we get into the detailed financials, as we released earlier today, I would like to welcome Sohail Khan to our Board of Directors. Mr. Khan is an Executive Vice President and Chief Strategy and Development Officer for Agere Systems. Agere is a global leader in semiconductors for storage, wireless data and public and enterprise networks. Mr. Khan provides strategic support across Agere's business, identifying new business opportunities and developing technology platforms that can be leveraged across numerous applications. Sohail Khan's distinguished career and strong strategic background will be a valuable asset to the Board, and we look forward to benefiting from the experience he brings.

We also announced today the resignation of Jim Adler from our Board of Directors. The Board management and employees of LightPath would like to thank Mr. Adler for his seven years of dedicated service and many contributions. We will miss the thoughtful guidance he provided as a member of the Board.

Let's move on to more details regarding the financial results. As usual, when we discuss our financials, we're speaking of our consolidated results only. Second-quarter sales finished at 3.31, as I noted previously. This represents an increase of about 79 percent over the 1.85 million in the same quarter of the prior year. We are very pleased with these results. Similarly, even on the quarter-over-quarter basis, it was an increase of 12 percent. Our disclosure backlog, as we defined that term in our annual report on the Form 10-K, remains relatively strong. It tallied 2.98 million at the end of December. That was a decrease from the prior quarter, and calculates to a quarterly book-to-bill of approximately 0.7 to 1 for the quarter. Last quarter, as we mentioned, we didn't think we could sustain the book-to-bill that we reported then. While comcerned about that it had slipped below 1, we've received some very good bookings in collimators and other products since December 31st, and remain confident that we can keep our revenues on an upward slope.

Gross margins, while higher in dollars for both the quarter and six months so far in this fiscal year, remain disappointing to me, as I mentioned. We have reported a 17 percent gross margin level in this second fiscal quarter and an 18 percent level in the first half.

We have achieved the sales gains, and now need to improve profitability on those gains on a consistent basis. We have booked an adjustment in cost of sales in the recent quarter for $265,000. That reflects the result of an interim physical inventory adjustment related to scrap material in the process. Scrap rates that we are incurring are running at a higher level than in our standard costs, and we are working the issue of scrap control more closely than ever, hence driving yield improvement. I will be paying close attention to those efforts. For the most part, the rest of our operation, we are finding incremental improvements in material prices and controlling our labor costs, as we continue to move our unit volumes higher and higher to support our customer orders.

Expenses throughout the rest of the business, especially SG&A, were well-controlled. SG&A was reduced nicely, as we have achieved savings in insurance programs, particularly D&O and in legal costs as we generally conclude legal matters from the past. I do want to note that with regard to the amortization of our intangibles, we've reached the end of the amortization period of a large amount of our intangibles, and were able to report a total expense in this area of just $38,000 in the second quarter, compared to $466,000 in last year's second quarter.

Similarly, for the six-month period, the reduction was approximately 50 percent, which translates into a six-month improvement in operating loss of about $500,000. Below the operating income loss line in the statement of operations, we had no activity in the current quarter and a $70,000 charge during the first six months that we discussed in the last-quarter call. This is also our first reported quarter since the conclusion of warrant amortization expenses relating to a line of credit we procured a year ago.

So, to sum up the quarter, it reports out as a net loss of $893,000 or 27 cents per share. This compares to the second quarter of the last fiscal year, when we reported a net loss of 1.8 million or 76 cents per share. Note that we did have approximately 25 percent more shares outstanding in the loss-per-share calculation, primarily from our equity financing about one year ago.

We continue to control capital expenditures very closely. During the second quarter, we expended about $25,000 for capital goods. As was mentioned in the last-quarter call, we closed on approximately a $75,000 mold coating (ph) machine that we financed with an acquisition lease, which relieved us from cash use.

In the general area of cash flow, many of the comments I have made above impact our net cash flows. Our increasing sales puts pressure on our cash requirements to support increased working capital. However, I am pleased to note that our net working capital investment was reduced during the quarter from 3.8 million to about 3.5 million. We continue to manage working capital as capital well (ph) to help offset the demanding effects of sales growth. The net result of the operating activities and balance sheet management was that we had total cash usage of about $250,000 in the second fiscal quarter. That was an excellent improvement from the $427,000 usage in the prior quarter. It was also better than the $579,000 cash usage we had in the same quarter of the prior year. We are continuing to get closer to our cash flow goal.

Well, that concludes the financial comments. Just as a continuing note, we do not offer any official forecasts or guidance on any future quarter or for the full year of fiscal 2005.

To conclude, LightPath is stronger and better positioned to products for applications in a wide range of markets. We still have issues to resolve, but we are better positioned with the team that we have now than ever before.

Okay, we will now open up the lines for questions from the shareholders, as well as check whether we have any questions from our investors website.

(OPERATOR INSTRUCTIONS).

You indicated, even though the book-to-bill did fall back below 1 from how strong it was, that -- you said that the incoming orders within the intra-quarter looked promising to be able to continue growth. Can you give us some more color? You mentioned one area was collimators. What type of collimators, and are there any other areas which are also contributing to the growth in the incoming orders?

As we have said before, in the prior quarter, that we didn't think the high level that we had, 1.4 to 1, was sustainable, but that where we are today, we have seen some growth in just the last month, where in the collimators, as I mentioned, that's really in the applications for high-power fiber applications that we were working for over the course of the last 12 months. Also, beyond that, we have seen some growth in some of the lens applications that we had been selling into.

You give us an update on GRADIUM?

Yes. I'd say that the GRADIUM product line has been fairly flat over the course of the last year, but we have had, more recently, some new marketing opportunities that we are pursuing with the GRADIUM line.

In terms of additional products, products such as the lenses aimed for Blu-ray and things of that nature and other consumer applications, can you give us any update there?

As a matter of fact, I am planning to be out in Japan in the next month to go visit and see what the status of some of the work that we have been doing in blue laser applications and how it's been going, but I don't have an update at this time.

And my final question is, it appears that intra-quarter you've had some good progress at different points in the last few quarters, in terms of getting the gross margin more towards high 30s and low 40s. If you had to sum up what keeps happening after those intra-quarter booms that create the bust down again, what would you say?

Well, I would say that, as I said, we have been walking through some mine fields gingerly around here. But I'd say that we've gotten past many issues that have kind of haunted the team through the past. And we have been working through them as we go forward in intra -- into the quarters. We are clearly on a better footing than we were in the past, and that continues to grow for us. Driving to the 30 percent and higher range in gross margin is quite achievable for this product line, and we're going to be moving there very quickly.

(OPERATOR INSTRUCTIONS).

Well, it appears that we have two e-mail questions to address.

The first is from Clay Nees (ph). I remember Mr. Nees from before. Thank you for your continuing interest, Clay. Mr. Nees has three questions. Let me read them. First, at the current business level, will LightPath be cash flow breakeven by the end of your business year?

Okay, we believe we can achieve this by the fourth quarter of this fiscal year. We, of course, cannot offer any guarantees, but we are now very close to achieving the goal. It's our most important goal. We are seeing the opportunity for further savings in some G&A costs like decreased insurance premiums, but it will hinge mostly on continued sales and gross margin improvements.

Mr. Nees also asks if our volume of business picked up in this quarter over last year.

Yes, as I indicated in our press release and these comments, we continue to seek nice sales gains.

And lastly, looking beyond the current quarter, he asked, how does business look for the remainder of the year?

Okay. As I noted at the end of the prepared remarks, we don't offer official guidance or forecasts at the current time in the business. Just to say we are cautiously optimistic would be the best way to answer this question.

Oh, and there's one more e-mail from Clay. He asks whether we have any sales projections for the flexible beam expander.

While LightPath has pursued some homerun strategies, our present strategy is to pursue some singles and doubles, as well. The flexible beam expander is a new product recently announced which provides an extension to our growing collimator product line.

Okay, that appears to be all for now. Thanks again for your interest and attention and continued support.

Ladies and gentlemen, this concludes today's teleconference. Thank you all for your participation. You may disconnect your lines at this time.