LightPath Technologies Inc (LPTH) 2006 Q3 法說會逐字稿

Greetings, ladies and gentlemen and welcome to the LightPath Technologies Incorporated third-quarter fiscal year 2006 results conference call. At this time, all participants are in a listen-only mode. We will be answering questions through e-mail after 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 of LightPath Technologies Inc. Thank you. You may begin.

Good afternoon and thank you for joining our conference call to discuss LightPath Technologies' financial and business results for the third quarter of fiscal 2006, which ended on March 31, 2006. In the conference call with me today is our new Chief Financial Officer, Dorothy Cipolla. Dorothy, will you open with the Safe Harbor statement?

Good afternoon. First, I want to mention that this call is being webcast through the homepage in the Investor Relations section of the Company's corporate website at Lightpath.com. A recording of the call will be posted on our website by tomorrow as has been our usual practice.

Please note this conference call is the property of LightPath Technologies and any taping or other commercial reproduction is prohibited without our prior written consent. It is necessary for listeners to be informed of the following discussion, including the Q&A, will contain forward-looking statements made pursuant to the Safe Harbor provisions 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 on 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. With the Safe Harbor statements read into the record, I want to remind listeners that in addition to call participants, questions for this call can be submitted via our Investor Relations e-mailbox. It can be accessed on our home website from the Investor Relations button on the left menu. From there, click on 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 seen or responded to. Now I'll turn the floor back over to Ken Brizel, our President and CEO.

Thank you, Dorothy. Thanks to all the shareholders for your continued support and good wishes as many of you have either called or sent e-mails since the last quarterly call to express your feelings about positive work that the LightPath team has done to grow and change the direction of the business. We appreciate that and I wanted to assure you that we continue to work hard for you.

This quarter has again been a difficult quarter for LightPath. We had a healthy increase in our order board this quarter. We found ourselves unable to quickly meet the demand. Also, we had not forecast the product mix that we received for our orders in this quarter, which included a large increase in molded optics. We had planned for higher volumes and had established the capacity, but were not able to execute as well as we should have to deliver to our customers.

We experienced greater demand for our molded optic products while we lost some momentum on the isolators and collimators. In aggregate, we were unable to fill all the orders we should have in the quarter and as quickly as requested. Our objective is to be able to meet our revenue targets even if our production mix results from orders received and changes significantly.

Our backlog continues to strengthen and it appears as it will continue to increase. As we reported today, our revenue was $3.11 million, which is both higher than the second quarter in fiscal 2006 and the third quarter of fiscal 2005. We are seeing an increased demand from some of the communications customers along with other markets we serve.

Our diversification strategy, which we have been following for the last 3.5 years, has been working. Approximately 60% of our sales are outside communications market. Last fiscal year, we had over 8% of our revenue in defense and this year so far it appears to be stronger at about 15%.

Over the last year, our engineering team has engaged in the development of infrared imaging applications. Imaging is a large market and LightPath has the ability to mold glass optics for these applications. We were very excited when we recently announced that LightPath was awarded a grant from the Naval Air Warfare Center and directed by the Air Force Research Labs to produce molded infrared glass lenses. Lockheed Martin is supporting us as we work through this program.

Also, we are seeing many of the infrared optics customers are interested in our ability to mold these infrared glass optics. In April at the SPIE Security and Defense Conference in Orlando, our engineering team presented a paper on infrared chalcogenide glasses. Customers in the firefighting, industrial and defense area have been discussing their designs.

I am very proud also of our Shanghai team. Since our last quarterly call, they are now producing production products. During the third quarter, they stretched to produce about 15% of the molded requirements. This fourth quarter, they are anticipating producing about 30% of our requirements for molded optics.

The Orlando manufacturing team has also stepped up to the challenge by the end of the quarter. While we didn't produce product volumes as required when required for our customers, this was a shortcoming of our management, not our individually contributing employees.

Now, I would like to turn this call back over to Dorothy so we can cover the financial information in more detail.

Thank you, Ken. I will be discussing the financials on a consolidated financial statement basis. As noted in our press release, our third-quarter revenue was reported as $3.11 million compared to $3.07 million for the previous year's third quarter. This represents an increase of about 1%. This is also a 5% increase compared to $2.95 million of revenue for the second quarter of this fiscal year.

Net loss for the third quarter was $1.12 million or $0.29 per share compared to a loss of $0.31 million or $0.09 per share in the same period a year ago. Our gross margin percentage in the third quarter of fiscal 2006 compared to the same period last year was lower at 10% from 26%. The total manufacturing costs of $2.79 million was $0.53 million higher in the third quarter of fiscal 2006 than it was in the same period of the prior fiscal year.

Because of the significant shift in production mix during the third quarter of fiscal 2006, we spent $0.20 million in over time cost to increase production volumes for molded optics. We also incurred about $0.15 million of startup costs for our subsidiary operating in Jiading, People's Republic of China.

We experienced reduced sales of collimators and isolators, which impacted our costs by another $0.18 million due to lower utilizations. We incurred an increase in SG&A expense of $0.35 million due to inflation of salaries, rents and property taxes and startup salaries for employees of our subsidiary in China.

We are continuing to strive for margins above 30% and believe bringing our Shanghai, China facility up to U.S. production yields and new product initiatives will allow us to reach that level.

We continue to work diligently at expense control throughout the business. 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.

We estimate that our one-time or non-recurring cost impacts from the third quarter were approximately $0.35 million. As compared to the second quarter of fiscal 2006, our costs and expenses were up $0.62 million. However, adjusting for the one-time or non-recurring cost impacts of startup costs of our subsidiary in China, product mix changes and overtime costs incurred in the third quarter, costs and expenses in this quarter would have been nearly the same as in the second quarter with approximately $0.15 million more in sales.

Turning to the matter of our cash flows and cash projections, we had anticipated a decrease in cash usage coming off the second quarter when we had increased inventory levels. For the quarter ended March 31, 2006, cash increased this period by $2.11 million compared to a decrease of $0.38 million in the same period of the prior fiscal year.

During the quarter ending March 31, 2006, we engaged in a private placement of our common stock resulting in net proceeds of $3.5 million after payment of placement in agencies and commissions. While we typically have a high use of cash in our third quarter due to seasonal factors, operating cash used in the quarter ended March 31, 2006 was unusually high at $1.42 million due primarily to profit impact of about $0.88 million and working capital requirements of $0.54 million.

However, if adjusted for the startup cost of our subsidiary in China, overtime costs incurred in the third quarter and a high level of accounts receivable for the period due to a higher than usual March shipment, cash usage for the quarter would have been lower by approximately $0.85 million.

Our quarter-end cash and cash equivalent was at $3.7 million. This compares to fiscal 2005 Q3 cash and cash equivalents of $1.5 million. We anticipate cash usage will fall in line with our objectives in the coming quarters, including achieving positive cash flow on a quarterly basis.

Now, I'll turn the conference back over to Ken while we check for e-mail questions.

Thank you, Dorothy. In summary, while we have had growth in the quarter, I was disappointed by the overall results achieved. With renewed vigor, we are tackling these issues and working to produce better results this quarter. We anticipate that with the implementation of an early warning financial metric by our new Chief Financial Officer and increase in production by our subsidiary in China and high level of morale and energy that the Orlando workforce is showing, I am confident that the fourth quarter of the fiscal year will get us back on track with respect to the trends that we started during the second quarter of fiscal 2006.

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

Thank you for your continued support and interest in LightPath. We will open up the lines for questions now from our shareholders, as well as check for any questions from the investor website.

We have a few questions now that came to us via e-mail and I would like to review them. One of our investors, [Mr. Neefs] asked the following two questions. He asked whether or not we found a new VP for Manufacturing yet. We have received a large number of resumes. We are reviewing and interviewing candidates at this time. I anticipate by the end of the quarter that we will have completed this search.

Another question -- will the issues from last quarter have a lasting effect into this quarter? The answer is that the late deliveries of last quarter are affecting the production requirements for this quarter. We are working through removing all the delinquencies as rapidly as possible. In the meantime, the order board is growing and we are increasing our capacity to handle the demand.

Another investor, [Mr. Seidel], asks the following question. Questions I should say. Why did it take a full quarter for the management to realize that there was an execution problem and didn't you see the problem as it was developing? Why did it take so long to address it? Will this problem affect the Company going forward or has it been corrected? How will not having a VP of Manufacturing and a Chief Technology Officer affect your growth?

Can we answer these questions? We began by seeing the delivery issues during the middle of the quarter and began taking actions to resolve those issues. During the March period, we shipped over 50% of our orders for the quarter and as I explained, we are working to correct the situation on the deliveries. I am filling the management position in manufacturing with the manufacturing team and reorganized the team to streamline our efforts. I'm confident that we will be able to provide better results.

For over a year, we have not had a Chief Technology Officer. This has not affected us. We interviewed many candidates, but they lacked some of the skills that we were looking for and that we needed. Last year, we opted to hire several new Ph.D.s in optics to bolster our engineering team. We did that instead of hiring a Chief Technology Officer.

Well, at this point, we have no further e-mails that have come in. Then on behalf of everyone at LightPath, it was good to speak to you all today and look forward to talking to you again next time. Thank you.