LightPath Technologies Inc (LPTH) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the LightPath Technologies Incorporated second quarter fiscal year 2006 results conference call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded.

It is now pleasure to introduce your host for this afternoon, Mr. Ken Brizel, President and Chief Executive Officer of LightPath Technologies Incorporated.

Thank you, sir. You may begin.

Good afternoon, and thank you for joining our conference.

This is the LightPath Technologies' financial and business results for the second quarter of fiscal 2006, which ended on December 31.

First, I want to mention that this call is being webcast through the home page, in the Investor Relations section of the Company's corporate website at LightPath.com. A transcript of the call will be posted on the website by tomorrow as has been our usual practice. Please note this conference call is the property of LightPath, and any taping or other commercial reproduction is prohibited without our written consent.

It is necessary for listeners to be informed that 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 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.

Additionally, 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.

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. That all said, let me first say thank you to all of our shareholders for your continued support and good wishes. Many of you have either called or sent e-mails since the last quarterly call to express your feelings about the positive work that the LightPath team has done to grow and change the business, and the direction we're following. We appreciate that, and I want to assure you that we continue to work hard for you.

Now, let me get started on this call today. I will review the work that we've done since our last call, the financials recently released, answering live questions, answer questions we have received via e-mail or phone call.

As we reported last -- reported this morning, our revenue was higher at 2.95 than the first quarter fiscal 2006, but still below the second quarter of fiscal 2005. As I reported last quarter, the reason the second quarter was lower than the first, one year earlier, was the cyclic nature of the communications market.

The first and second quarters revenue in fiscal 2005 benefited from a temporary upswing in telecom sales, which proceeded to decline substantially in the second half of fiscal 2005, and into the first quarter of our current fiscal year. The diversification strategy that we've been following for the last 3.5 years has been working. Last fiscal year, we had over 8% of our revenue in defense, and this year, so far, it appears to be stronger than -- it is about 15%.

Telecom, which in the summer of 2002 was over 90%, is now about -- under 15% of our total business as we've added other communications markets, taking the total communications market to approximately 40% of our sales.

I'm very proud of the work our sales and marketing team has done to work through our strategy, and we have many new customers building designs using our products.

Our engineering team has developed new fiber delivery products supporting fiber lasers, and as we announced last summer, and again in January, we are just beginning to sell into industrial and space applications. We announced about one year ago, also, the Black Diamond product line. Our engineering team has also engaged in the development now of infrared imaging applications. We anticipate these new designs will continue to add new revenue over the upcoming quarters. Imaging is a large market, and LightPath has the ability to mold glass optics for these applications.

Since our last quarter, we've been working hard to bring our Shanghai manufacturing team on line, and producing molded glass aspheric there. We began in September, October of last year, signing the facility agreement and building our clean room and gray lab, then completing the installation around the Christmas time. After hiring and training in January, and just before Chinese New Year, they shipped us the first production runs from our new facility. These products look great. The entire manufacturing team has done an outstanding job in very short order.

Now, what I would like to do is look at the financials, and the results I will be discussing here are on a consolidated financial statement basis.

As noted, in our press release, the second quarter revenue was reported at 2.95 million, compared to 3.31 million for the previous year's first quarter. This represents a decrease of 11%. As I mentioned earlier, the decreased sales was primarily due to lower orders in communication for isolators and molded aspheres. While the non-telecom piece of our business continues to grow and expand, it did not offset enough to telecom decline in that quarter over the prior year.

Our gross profit percent increased to 25.2%, compared to 16.6% for the same quarter last year, driven mainly by our work in lower materials, labor, and overhead costs. We're striving for margins above 30 and believe bringing our Shanghai China facility on line and new product initiatives, that will allow us to reach that level.

We continue to work diligently at expense control throughout the business. We continue to reduce by carefully evaluating all expenses in areas of SG&A and new product development. Those combined costs excluded amortization of intangibles, declined by about 3% from 2005 levels, which was approximately $40,000 in quarter-over-quarter reduction. Our plans for this year include selectively adding personnel, particularly in new product development and sales, to support the growth we are projecting. These increases will be mostly offset by savings in other operating expenses such as professional fees, outside services, supplies, and facility costs.

Net loss for the second quarter was $620,000, which is 17% -- $0.17 per share. This is almost 31% lower than the second quarter of last fiscal year when we reported a net loss of $890,000, or minus $0.27 a share.

Turning to the matter of our cashflow and cash position, we had anticipated a decrease in cash usage coming off the first quarter when we had increased inventory levels. Our total cash usage for the quarter was $108,000, compared to 249,000 for the prior year. We recorded, for the first time ever, a moderately positive operating cashflow of $24,000 for the current quarter. The principal use was equipment investments made to support our new product development and set-up our China facility.

Our quarter-end cash and cash equivalents was at 1.6 million. This compares to fiscal 2005 quarter 2 cash and cash equivalents at 1.9 million. We anticipate cash usage will fall in line with our objectives in the coming quarters, including achieving positive cashflow on a quarterly basis.

In summary, we've developed a business model and strategy with long-term financial objectives to position the growth of the business. We believe that our business model should be able to track up to at least 20% year-over-year, and in an effort to establish a model positioning us toward some of the best-run companies in the United States, we're working toward 20% return on equity over the next five years.

We have aggressive goals for fiscal 2006 to continue to extend our recent gains. We have a supportive Board, a great management team, and many dedicated and hard-working employees. There is more hard work to do, facing more challenges ahead. We must execute flawlessly and take full advantage of all of our opportunities. As I said before, I'm optimistic. We're poised for still better performance in this year.

Before we leave the call today, I would also like to summarize again what we achieved.

We continue to diversify our product lines into new markets. We improve our production capacity and performance. We design more new products. We're increasing the scale of our product for our new China location, as well as to expand our geographic sales to reach Asia-Pacific markets.

Thank you for your continued interest and support in LightPath.

I'm now going to open up the lines for questions from share holders, as well as check whether there's any questions on the investor website.

Thank you, sir.

Ladies and gentlemen, at this time, we will be conducting a question-and-answer session.

[OPERATOR INSTRUCTIONS]

Mr. Brizel, it appears that there are no questions from our participants at this time.

Okay.

Well, we've received several e-mails and phone calls recently, which have a common theme, so, I've encapsulated the questions for you.

Let me ask the first question. Will the contract with Ball and the operation in China put LightPath in a break-even cashflow position by mid-year? If not, then will LightPath be cashflow neutral this fiscal year?

As I stated earlier today, we've had good results on our operational cashflow, and now, we continue our efforts in reducing the use of cash while maintaining our growth.

The ball contract is one of a number of companies that we're working with in the defense area. Defense programs have gone from zero in the last few years to 8% last fiscal year, to about 15% today. These programs are growing and just beginning. We hope to see more growth from all of our defense applications over the next few years.

Finally, the China facility question -- if you look at it this way, it helps us a lot in producing larger-volume optics, and we hope to see the benefit within the next few quarters.

Another question that came in is -- how soon can we expect to see replacement for the CFO?

Well, I engaged a search firm over the last few weeks, and I've been interviewing and the Board has been interviewing some qualified CFO candidates from both public and the private side. We're closing in on a few of the best candidates, and I hope to make an offer very soon.

Another question that came in, on a similar subject, which was -- when are we expecting to replace the Chief Technology Officer? Is that in the near future?

On this front, I don't intend to hire a new CTO very soon. We have opted to hire more very talented optical engineers and managers instead. We have been working closely with our customers in optical design outside of the telecom area.

Our requirements on the CTO, for a new business strategy, has been changing. I have interviewed many possible candidates, but not found a strong technology leader for the breadth of products we produce. This hasn't slowed us down in the least towards our goals, but instead, has led us to be more nimble when dealing with new customers on developments. When the right candidate comes along, we will put them in place.

Okay. On behalf of everyone at LightPath, it was good to speak to you all, and I look forward to speaking to you next time.

Thank you.

Thank you, Mr. Brizel.

Ladies and gentlemen, this concludes today's teleconference.

We thank you for your participation, and you may now disconnect your lines.