LightPath Technologies Inc (LPTH) 2005 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the LightPath Technologies Incorporated third quarter fiscal year 2005 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 anyone should require operator assistance during the conference please press star 0 on your telephone key pad. 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 Incorporated. Thank you, sir.

Thank you. Good afternoon, and thank you for joining us to discuss LightPath financials and business results for third quarter fiscal 2005 which ended on March 31st. On the call with me today is Rob Burrows, our CFO. Rob, will you open with the Safe Harbor statement.

Yes, thank you, Ken. I'd also like to thank everyone for joining us today. The call today is being Webcast through the home page in Investor Relations section of the Company's corporate website at LightPath.com. The transcript of the call will be posted on our website as soon as possible, has been our past practice. Please note that the conference call is the property of LightPath Technologies and any taping or other commercial reproduction is prohibited without our prior written consent.

Now for the Safe Harbor statement. The following discussion, including the q&a, will include forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Including statements about LightPath perspective market opportunities, future business plans and possible future financial performance. The forward-looking statements necessarily involve risks and uncertainties. LightPath's actual results may vary materially from any such statements made. Although 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 10(K), 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 that in addition to call participants, questions for this call can be submitted via our Investor Relations e-mail box, that can be accessed on our website from the Investor Relations button on the left side menu. From there click on the e-mail IR contact, that directs your e-mail to the following e-mail account; inv_rel@LightPath.com. E-mails sent to any other address will not be responded to. Ken, back to you.

Thanks a lot, Rob. First, I'd like to say that I'm very pleased to report the third consecutive quarter where sales exceeded $3 million. Today we reported 3.07 million in sales for the third quarter, versus 1.95 million in the same quarter for fiscal 2004. That's a 57% increase over the same time last year and reflects the continued strong effort by our sales team and improvement in meeting our customers needs for manufacturing. Our revenue and communications market is essentially flat, as compared to the last fiscal year, and the majority of our growth has come out of the noncommunications products sales, therefore, bookings were soft due to communications mark up, with an increase in terms during the quarter and our disclosure backlog was 2.5 million as of March 31.

With the introduction of several new products over the last year, our revenue continues to contain a larger portion of new products in each of our product lines. Our molded optics products continue to be our largest product area and grew in revenue over 50% over the last year as we've introduced new designs. Collimators over the last two years have grown to be nearly 10% of revenue, Radium remains a steady contributor to sales and gross margins. Isolator product line continues to suffer from the unpredictable communications market at this time. Overall, growth in these products continue to demonstrate that our path to diversification across many new markets has helped us sustain and grow our business.

LightPath has made significant improvements on the operation side of our business. We still have more work to do. We've increased our operational efficiency and now produce more product at higher yields than ever before. Gross margins for the quarter were 26%, compared to 17% for the same quarter last year. This is our third consecutive quarter of gross margin improvement. We've been engaging our suppliers and partners to find new ways to reduce cost for support of our customers, which I intend to explain in a little more detail in upcoming quarters. New product sales continue to gain a larger percentage of our new business.

To review, these products include the Oasis, Tx Lenses, Tx Isolators, High Power Collimators, Connectorized Collimators, Blue Optics, Hybrid Aspherics and most recently Black Diamond. Each one of these product areas is an extension of our existing know how and intellectual property. For example, in the TND products we will mold a new IR glass, [Ampere], which LightPath is one of the first companies to successfully mold this glass in the United States. This will extend the range of our available light spectrum from our present glass limit of 2-microns which is near infrared, to 14-microns which is deep into the infrared spectrum.

Also, we'll be introducing, shortly, larger molded lenses from our present limit of 15 millimeters to over 30 millimeter molded lenses. Both of these additions to the precision molded optics line will enable many new applications that we could not service before. The projected market for these molded IR lenses is nearly $10 million, and expected to double over the next calendar year. I want you to know that the entire team is working very hard to expand and grow our business.

Now, I'd like to turn the call back over to Rob to review the financial information in more detail.

Thanks, Ken. The numbers I'll be reviewing for LightPath will be on a consolidated basis only. As Ken noted earlier, our third quarter revenues were reported at 3.07, compared to 1.95 for the comparable quarter last year, an increase of 57%. Our quarter over quarter basis it was a modest 8% decrease from 3.3 to 3.1. This reflected some continued softness in the communications market which we have alluded to before. For the nine months our sales of 9.3 million were up 68% from 5.6 million for the same nine-month period last year. Our disclosure backlog stood at 2.5 at the end of March, a decrease of .5 million from December 2004 and a slight $300,000 decrease, compared to March, 2004. This again is attributable to mostly to a decline in the order volume from our communications customers, while the total disclosure backlog has decreased we've seen a marked increase in orders for other noncommunications applications.

Ken has gone into some detail already in his comments about gross margin. Our analysis shows that in approximate levels the increase labor efficiency contributed about three margin points to the improvement quarter to quarter, with the remainder of the improvement coming from reductions in our manufacturing overhead costs. Continued margin improvement remains a top priority for our production operations. Operating expenses decreased just short of $1 million at $980,000 when compared to the same quarter in fiscal 2004. The major decreases were in amortization, compensation benefit costs related to lower headcount, and Investor Relations and outside services costs. Below the operating income loss line this quarter we recorded a minor amount of interest income. The net loss for the third quarter was approximately $300,000, or $0.09 per share, this compared with the third quarter last fiscal year when we recorded a net loss of 1.07 million, or $0.37 per share. We do have approximately 15% more shares outstanding in the 2005 loss per share calculation, primarily from our equity financing in February of 2004.

As Ken mentioned already, we are very focused on the cash flow impact of our operating and investment decision. We are also very committed to achieving positive cash flow. In the third quarter we had a total cash usage of approximately $260,000 excluding some one time cash payments of approximately 115,000, which made the operational cash used comparable to that of the second quarter of fiscal 2005, and it also made it significantly less than the $1.4 million in cash used in operations in the same quarter one year ago. Our quarter end cash and cash equivalents stood at 1.5 million, as we noted in our press release.

We have more work to do and there were several positive factors in the quarter to build on. Notably, continued reductions in operating expenses and higher margins in the quarter before and the comparable period last year. Just as a continuing note, we do not offer any official forecasts or guidance on future quarters or for the full year fiscal 2005.

Ken, I'll conclude now and turn it over to you.

Thank you. Before we leave the call, I would like to summarize all the hard work that's been done. We've increased the top line revenue year over year by over 50%. We've improved gross margin and reduced our operating cost. We've expanded our product line and broadened our customer base. All of this work has helped us to reduce our burn rate and drive the Company towards an operational cash flow neutral position. As we're very close to this goal we are not yet done. The Company needs to continue to grow revenue and reduce our operating costs.

Our third quarter results point to our ability to get there, but the weakness in the communications market has partially overshadowed some of the growth in other markets we've worked so hard to build over the last two years. At about $3 million in revenue rate per quarter our improving gross margin levels we believe we can approach operational cash flow break even this coming quarter. Our revenue in the communications market is essentially flat as compared to the last fiscal year, and the majority of our growth has come out of the noncommunications product sales. Going forward, our year-over-year comparisons will reflect the growth of noncommunication markets as the communications market continues to plateau.

In closing, I'd like to say that we continue to create value for our shareholders; by providing our customers with the best optical solutions and they reward us with new business opportunities.

We'll open up the lines for questions from the shareholders, as well as check whether or not we have any questions from the Investor Relations website.

[Caller Instructions]. Our first question comes from Mr. Orin Hirschman with AIG Investment Partners.

Hi, how are you?

Good afternoon, Oren.

I was just wondering if you could go through a few items. One with Gradium, Gradium was the big revenue mover going back a few quarters ago, and then it kind of plateaued, and part of the reason I believe is, that you mentioned it plateaued is because performance of Gradium has been almost too good. Are there possibilities for further growth for Gradium, or is it just the existing customer base that at least is consistent stream but it's not going to grow?

Gradium. Gradium has -- we've been seeing some growth in Gradium. We've begun to remarket Gradium a different way to some of our customers, not just selling finished lenses but some of the other raw pieces of the materials. That's actually beginning to work for us. We've also expanded, and you'll see going forward, some of the effort in what the performance of Gradium. So we are very hopeful to continue to grow the prospect of selling more Gradium.

I know you had hired, I believe a distributor, a new distributor to help with Gradium. Did that yield any results or is it too early to tell?

It's still too early to tell on that. That distributor was focusing specifically on the market for a high powered YAG lasers, and they've been, while we've been selling into that market, they haven't penetrated it at the level, at this point, that we wanted to see.

Okay. And (inaudible) as future areas of growth, particularly in the military (inaudible), can you just go through a few of them and what kind of potential revenue markets they serve?

Well, I think what we are going to see going forward in the growth of our markets, if you look at the, you were asking about defense and specifically some of the work that's going on in IR is going to help quite a bit in our growth in defense. It's been a small portion of our total market share in the past, and as we get into these IR optics you're going to see a lot more penetration into IR applications. IR for us going forward is going to be a nice growth area for the molded optic products. It's, as I said before, it extends the reach of our line into the deep IR up from 2-microns all the way to 14-microns where there's a lot of work that's going on in IR from three to five and higher, spectroscopy and a lot of work in applications for heat sensing.

So, now, beyond just defense type applications, we are hopeful and expecting some growth in the industrial areas as well. Some of the work that, again we are doing in the IR area, overlaps nicely into industrial applications, and you're going to see some new areas that LightPath is going to be selling into for those products in the IR.

What is the strategic advantage from a technological point of view that you bring to the table or is it just cost?

It's, it's a mixture of things. The material itself, the Ampere that we're going to be molding, it's, it's -- has a better temperature performance than Germanium, which was typically diamond turned or polished, ground and polished, for lenses. The other interesting aspect of what we're doing with Ampere is, we're molding it into Asphers, which means that we could design the lens to really do a better job than an Aspherical lens by itself.

So, the technology is going to have advantages from a performance standpoint. It'll also have advantages, as you mentioned, from a cost standpoint. The amount of effort that it takes for a master optician to get involved in actually diamond turning or polishing and grind of a piece of Germanium, it takes quite a long time and there's a high cost associated with those kinds of products. By creating a molded technology, it allows us to replicate the design very quickly, and build it in volume.

And in terms of how long it may take to see design ins and that and when we might actually expect the revenue?

Well, we are already starting to quote some customers on the designs. But it will take sometime before you're going to start seeing some revenue generated from the IR optics. It usually takes between six to nine months for customers to go to some level of production.

Just one last question and I will let other people ask. You don't give guidance, you did mention that half the goal for this coming quarter would be (inaudible) a good approach, so a break even from operations on something in the order of 3 million in sales, which is what it would be needed to do that. Typically your sales have (inaudible) almost pretty closely to your backlog. Is there enough new -- is there enough turn business now, because, obviously, you had mentioned there has been a move towards more turns business to be able to make up the difference potentially between the backlog of 2.5 and getting closer to the 3 mark?

Good question. We have had, typically, over $1 million in turns in each quarter over the course of the last couple of years that I've been here. As we've grown our business, turns make up, they've been making up a smaller portion of our quarters over the last year or so, but they've recently, with some of the communications short falls, we've been picking up terms which is been helping us to lift up, for instance the last quarter, has helped a lot. So, what you're going to see, I think going forward, and into this quarter, is a lot of effort by our sales team and by our manufacturing team to produce products in the terms business. And I think it's doable. I think it's also, it's a lot of work, but I think it's a doable business for us.

Can you do it without hurting the gross margin?

Oh, yes, yes.

Okay. Thank you very much.

[Caller Instructions]. Mr. Brizel, there are no further questions at this time.

Okay. Well, with no other questions on the line, I'd like to respond to a recent common shareholder question that's come up. The question that we have had a large number of shareholders asking us is, why the stock is being treated the way it is? And simple answer, there is no good simple answer to this. We believe we are undervalued. The revenue rate is $12 million a year, and we've shown consistent, steady growth year over year. Our burn rate is down dramatically and our operational improvements have significantly helped to improve our gross margin quarter over quarter. This is inconsistent with our market price.

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