LightPath Technologies Inc (LPTH) 2005 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the LightPath Technologies Inc. earnings conference call. (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 of LightPath Technologies Inc. Thank you, Sir. You may begin.

Thank you. Good afternoon, and thank you for joining our conference call to discuss LightPath Technologies' financial and business results for the full year of fiscal 2005 and our fourth quarter which ended June 30th.

In our conference call today is Rob Burrows, our CFO. Rob, will you read the Safe Harbor statement?

Thank you, Ken. Good afternoon. On the legal side of the equation, it's necessary for listeners to be informed that the following discussion, including the Q&A, will contain forward-looking statements that are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, including statements about LightPath's perspective 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 Securities and Exchange Commission. 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.

Okay, with that read into the records, I would like to remind our listeners that in addition to call participants, questions can be submitted via our investor relations e-mail box that can be accessed on our website from the investor relations button. From there you can click on e-mail IR contact and it will reach us.

Now I will turn the floor back over to Ken Brizel, our President and CEO.

Thank you, Rob. I'd like to again tell the shareholders how pleased I am with the overall progress the LightPath team has made in shaping the Company for the future. Fiscal year 2005 was another difficult year for us. In the beginning of fiscal year '05 we had a very strong communications order board and a growing non-communications segment. As we were ending the first half of fiscal '05, our communications based customers began to slow down a bit, if not stall. We were anticipating our second half to be the same as our first for fiscal year '05, but found that the second half was down a bit in the communications product sales. The good news was that all of the work that we did to introduce all the new products, non-communication products, helped us to offset some of the shortfall in our communications sales space, but not enough to completely overcome.

LightPath's fiscal fourth-quarter sales for 2005 were 2.4 million, which was down from 2.8 one year prior, which is a 13% decrease. We had a marked sales improvement from precision molded optics, and followed by isolators and then collimators. Isolator sales were stronger in the first half than the second half of the fiscal year, while showing overall gaining year-over-year.

We've worked throughout the year to improve our total sales picture by establishing some significant new product -- new market opportunities and customer relationships. The introduction of blue lenses, high-powered collimators and infrared optics we anticipate will deliver continued growth opportunities going forward. We are continuing to make investments in these areas and to generate robust top line growth.

Of interest are market and geographic business changes made this past year. Our sales to defense have grown to 8% from nearly 0 over the last few years. Also, we've put in place representatives in Asia-Pacific, and seen some early orders from new customers generating about 3% of our sales in new growing markets offshore. While not significant part of our revenue yet, we anticipated it will be in the future.

Our factory has been steadily improving our on-time delivery over the prior years from only 50% a few years ago to nearly 90% in most of our product areas. Shipments made on-time are only counted if we ship 100% of each line item on our committed schedule. These improvements have made by the concerted effort of the entire team.

Manufacturing gross margins declined year-over-year, in some part due to the effects of inventory adjustments that we had in the second quarter and some reduced selling prices of a few standard products. Our manufacturing team has put controls in place to carefully monitor the flow of materials throughout production. We are continuing to develop this manufacturing process, and we must increase our gross margins for the business. And Rob actually will talk more to this in the financials.

We've introduced two new glasses. First, the European Parliament has established a specification called RoHS, which is Restriction of Hazardous Substances. And the Japanese have established Green requirements in 2003 for the elimination of certain hazardous substances used in electronic equipment. Our new ECO550 glass is both RoHS and Green compliant and contains virtually no lead or other restricted materials. The ECO550 glass optically and mechanically performance is very similar to the T0550 leaded glass. We have successfully introduced the new glass to many customers demanding this compliance.

Second, LightPath has recently introduced a new moldable chalcaganai (ph) glass which opens the dynamic range of our molded glass products up to 14,000 nm from our 2000 nm prior limit. This new glass, which we call Black Diamond, enables us to mold infrared lenses for the IR imaging market.

We have aggressive goals for fiscal 2006 to continue to extend our recent gains. We have a very supportive Board, a great management group, and many dedicated and hard-working employees. We have more work to do. We face more challenges ahead, particularly during the first half of fiscal '06, and must execute flawlessly to take full advantage of our opportunities. As I said I'm optimistic we're poised for still better performance in this year.

Now I would like to turn the call over to Rob to cover the financial information in some more detail.

Thank you, Ken, and I'd also like to thank everybody who has joined us this afternoon for our call.

The information that I will be covering will be on a consolidated financial statement basis, and it will also be -- you can review this also in the press release and filing that we are issuing in conjunction with this call.

This fourth quarter was very challenging in light of the significant decrease in telecom orders that we experience. But we're also pleased to see the ability of our sales organization to broaden our customer base into the industrial, medical, and military markets. These areas accounted for some of our biggest percentage increases during the year. This helped mitigate the drop off, as Ken mentioned. And we believe it gives us a good foundation to build on in the new year.

As noted, we reported revenues of 2.4 million in the fourth quarter compared to 2.8 million, a 13% decrease. Our decrease in sales was primarily due, as we mentioned, to the telecom business isolators specifically. And the non-telecom piece of our business in PMO collimators and other areas I will go through (ph) could not entirely offset the decline that we had in the telecom market.

For the full fiscal year ended June 30, 2005, our sales came in at 11.8 million versus 8.3 million in the prior year. This was a 41% increase. It has been the result of improvements Ken has already mentioned -- our diversified market strategy, strong sales efforts by our team, and our successful manufacturing response to the increase in PMO and isolator business for the total year.

Other sales achievements that are noteworthy is that our international sales continue to represent double-digit numbers at 12% of sales in this past year. Sales outside the United States continue to be predominantly made in Europe. And our customer base continues to diversify beyond the telecom markets.

Only one customer, Intel, accounted for more than 10% of our sales last year. They came near to approximately 13%. Four other customers accounted for more than 5% and we had well over 100 making up the rest of the Vanguard, and a very strong customer contingent in particular.

For a second year in a row we achieved positive gross margins in all four quarters. That compares to our experience in 2003 where we were only able to achieve one quarter of positive gross margins.

Our gross profit declined on a year-over-year basis, mainly as a result of a onetime inventory charge that Ken mentioned earlier, some competitive pressure in the isolator market, and some related early stage production costs of some of our new lens products that we brought out in the second half of the year. We are striving for margins above the '30s. And we will continue and are making business adjustments to reach that level.

We continue to work diligently at expense control throughout the business. Our cost reductions are stemming from basically evaluating all expenses in the areas of SG&A and new product development, particular SG&A. Those combined costs, primarily in the general and administrative area, declined by about 16% from 2004 levels, which is approximately $1 million in year-over-year savings.

That being said, we will be adding some personnel in 2006 particularly in new product development and sales to serve growth needs that we're projecting. We continue to use contract employees as starting personnel in our production facility. Also, we will need to invest in working capital such as inventory to meet our anticipated demand in the coming year as well.

The net loss for the fourth quarter was 0.7 million or $0.21 per share. This compared with the fourth quarter of last fiscal year when we reported a net loss of 1.17 million and $0.36 per share. For the full fiscal year of 2004 our net loss was -- sorry, for the full fiscal year of 2005 our net loss was 3.5 million or $1.05 per share. This was down from 2004's loss of 5.6 million, which worked out to 1.98 per share.

During fiscal 2005 we had approximately $125,000 in spending for capital equipment including equipment financed with the lease line. Based on our budget roll ups and review, we anticipate spending more in 2006 to accommodate resource needs in our production quality groups. And capital expenditures are a direct cash outflow, and they will be closely examined and alternatives also looked at before any commitments are made.

Turning to the matter of our cash flows and cash position, we still remain heavily committed to moving this business to a cash flow positive position. 2005 was a year of continued progress, but not the year of achievement. We expect to make substantial progress toward this goal in 2006.

In the fourth quarter we had total cash usage of less than $75,000. For the whole fiscal year of 2005 we had total operating cash usage of about 1.1 million, which is much improved over the 2.5 million in the prior year. Our year-end cash and cash equivalents were 2.5 million, which included the fourth-quarter private stock sale of 1 million. This compares to fiscal 2004 cash and cash equivalents of 2.5 million, essentially no change.

We believe we are well poised for 2006. As a Company policy we continue not to offer any official forecast or guidance on any future quarter or for the full year 2006.

Ken, take over while we check for our e-mail questions.

Thank you, Rob. Before we leave call, I'd like to summarize all the hard work that's been done over the past year. There's a lot of top line revenue growth in fiscal 2005. There was an increase of 41% over fiscal 2004. We continue to reduce our operating costs and cash usage while broadening our product lines.

We're closing in on our goals, but we've not achieved them yet. As the business continues to expand we draw upon some cash reserves for some working capital. In the upcoming months we will explain new plans to push through previous barriers for our business.

Thank you for your interest and support of LightPath. We will open up the lines for questions from our shareholders, as well as check whether we have any questions from the investor relations website.

(OPERATOR INSTRUCTIONS) Stephen Donovan (ph), private investor.

Ken and Rob, thank you for your comments. Could you say anything about the current backlog?

At June 30 our disclosure backlog was 2.6 million. It was actually up a little bit from the third quarter, which was 2.5 million. And we are optimistic that that's going to continue to improve throughout the year, especially with some of the new products and business initiatives that Ken has mentioned.

Thank you.

(OPERATOR INSTRUCTIONS) Gentlemen, there are no further questions.

Well, we don't have any e-mails that have come in at this time, but I want to thank everybody for joining us on the call. And again, I look forward to speaking to you in the future. Thank you.

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