LightPath Technologies Inc (LPTH) 2006 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the LightPath Technologies Inc. fourth quarter and full 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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, Mr. Brizel, you may begin.

Thank you. Good afternoon and thank you for joining the conference call to discuss LightPath Technologies' financial and business results for the fourth quarter as well as full year of 2006, which ended in June 30th of 2006. Joining me on the conference call today is our Chief Financial Officer, Dorothy Cipolla. Dorothy, would you please read the safe harbor statement?

Good afternoon. First, I want to mention that this call is being webcast through the home page and 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 tapping or other commercial reproduction is prohibited without our prior written consent.

It is necessary for listeners to be informed that the following discussion, including the Q&A, which 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 expected 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 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-mail box. It can be accessed on our home web page 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, investinc_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. First, I'd like to state that I'm very proud of the work that's been done by the entire team. Our total fiscal 2006 revenue increased over 2005 and incrementally each quarter our team has delivered an increase over the prior quarter. We've had growth in the market in several areas, including defense and communications. In the beginning of this fiscal year, we established a wholly owned foreign entity in Shanghai, China and by the end of the fiscal year, we quickly ramped up to 30% of our molded optic production.

The fourth quarter of fiscal 2006 has shown over 11% increase over a year earlier, with healthy growth in both defense and communications. The backlog increased to 4.3 million at fiscal 2006 end, as compared to 2.6 by the one year earlier. That's a 66% increase. Our backlog continues to strengthen and it appears as if it will continue to increase going forward.

I want to state again that I'm extremely happy to say that in the fourth quarter, our manufacturing team executed better than the third quarter, with an increase in production output and significantly reducing the delinquent backlog, enabling more orders and reducing lead time. This trend continues into the new fiscal year.

Also as we mentioned previously, Jim Gaynor joined our team as the Corporate Vice President of Operations, with both manufacturing and engineering responsibility. Jim is a mechanical engineer with 25 years of business and manufacturing experience in volume component manufacturing, electronics and the optics industries.

The past quarter, the communications market appears to be somewhat stronger. We still don't have enough information to say that the communications business has legs, but it appears to be moving in the right direction. While we've managed and improved our cash usage in the quarter -- The work that needs to be done to produce cost reductions in manufacturing and we still need to improve our gross margins. We anticipate additional investments in sales and new product development to sustain a higher rate of sales growth, higher than the 4% achieved in the last fiscal 2006. The additional resources resulting from the recent 3.5 million private placement of common stock puts us in a very strong position to pursue our growth objectives and manufacturing expansion.

We continue to work on any infrared imaging applications. Imaging is a large market. LightPath has the ability to mold precision optics in these applications. The engineering team has delivered good results to the Naval Air Warfare Center against the grant that we announced last quarter to produce molded infrared glass lenses. Lockheed Martin continues to support us as we work through this program. We're seeing many new infrared optics customers interested in our ability to mold precision infrared optics and we're pursuing these applications as well.

In August, at the SPIE annual meeting of optics and protonics down in San Diego, our engineering team presented papers on aspheric design. This has stimulated a lot of interest in our aspheric development.

I would like to turn the call back over to Dorothy. Please cover the financial information in some more detail.

Thank you, Ken. I'll be discussing the financials on a consolidated financial statement basis. As noted in our press release, our fourth quarter revenue was reported at $3.4 million compared to $3.1 million for the previous year's fourth quarter. This represents an increase of about 11%. This is also a 10% increase compared to $3.1 million of revenue for the third quarter of this fiscal year. Net loss for the fourth quarter was $0.83 million or $0.18 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 fourth quarter of fiscal 2006 compared to the same period last year was lower at 13% from 26%. The total manufacturing cost of $3 million was $0.7 million higher in the fourth quarter of fiscal 2006 than it was in the same period of the prior fiscal year. Because of a significant shift in production mix during the fourth quarter of fiscal 2006, we spent more in overtime costs to increase production volumes from molded optics. The decrease in gross margin in this fourth quarter was mainly attributable to the scheduling and planning issues which caused increased labor inefficiencies.

We incurred an increase in SG&A expenses of $0.22 million due to our new operations in Shanghai and recruiting costs. 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 the 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.

Turning to the matter of our cash flows and cash position, we had anticipated a minimal cash usage coming off the third quarter when we had increased inventory and accounts receivable level. For the year ended June 30, 2006, cash increased this period by $1.3 million compared to a decrease of $0.07 million in the prior fiscal year.

During the third quarter ended March 31, 2006, we engaged in the private placement of our common stock, resulting in net proceeds of $3.6 million after payment of placement agent fees and commission. Operating cash used in the year ended June 30, 2006, was high at $2 million due primarily to operating losses. Our quarter-end cash and cash equivalents was at $3.8 million. This compares to fiscal 2005 year-end cash and cash equivalents of $2.5 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, I was very pleased with the work that was done by the entire team. They met the challenges of shifting markets and product mix and put the business on a proper footing for future growth opportunities. Our manufacturing team in the last quarter has made great strides in capacity for future growth, and I know under the direction of Jim Gaynor that the team will continue to improve their performance. We have aggressive goals for 2007 to continue to extend the recent gains. We have a supportive board, a great management team, and many dedicated and hard working employees. There's more hard work to do facing more challenges ahead. We must execute flawlessly to take full advantage of our opportunities and as I've said before, I'm very optimistic and we're poised for still better performance. Thank you for your continued interest and support of LightPath. I'm now going to open up lines for questions from the shareholders.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Bob Engbinder with Montauk Financial.

Hi, Ken, Dorothy.

Hi, Bob. How you doing?

Good, good. Congratulations on the progress you're making. My first question is with regard to the infrared technology that you've been working on. Could you give us a little more color as to where that infrared technology stands and when we could look forward to sales maybe in that area and when we can see an impact on the balance sheet?

Sure. LightPath has been a leader in molding precision optics. We intend to continue to lead in the infrared area and we're working on that. Just let me give a little bit of background on the market. The cager for the infrared imaging area is 19%, approximately, with about $100 million in market today and growing. This is a new, emerging area, and it continues to diversify and grow. The applications, just so you understand, firefighting, predictive maintenance, homeland security, surveillance, automotive, and defense, so it's a fairly broad market. Infrared systems are just beginning. They're finding applications outside the defense area, and the cost of these systems become a very important factor in the growth and deployment. And we believe using LightPath's molded technology for the infrared optics will enable a lot of these systems to be more competitive than other infrared technologies. You're going to see more growth over the course of this year in some of the work that we're putting out and you'll see some new customers coming on. I hope that helps explain.

Absolutely, and just a follow-up question. With the addition of the VP of Management and the manufacturing capabilities in China, can you elaborate on what the China facility can currently produce for you in terms of revenue and helping you achieve positive cash flow as we move forward into 2007?

Sure. We've had a very successful start with the Shanghai, China, facility. It was only a year ago we were talking about the possibilities of what we can do in China and as I mentioned before, we've grown to 30% of our molded optic production out of Shanghai, and that continues to grow. We're doing more and more of our product production from that facility, but you've got to realize that the growth of the business also in China, China allows us to have a launching point for new sales into the China market and that's going to be enabling us to get into some new sales areas that we hadn't sold into before, with larger volumes of optics. So those are some of our expectations. We also anticipate, of course, that the new facility will enable continued cost reductions for us throughout our operations. We're taking advantage, as we could, in a lot of the savings that we can do throughout the business. We're beginning to demonstrate, by the way, some of our aspheric optics to new customers within the entire Asia region and they're finding some very interesting volume opportunities and designs. We have a few conferences -- it's pretty new to us, I've got to explain that we have some conferences we're showing some of our aspherics at, like the CIOE conference in Shenden that's coming up in September. And then the ILO conference, these are optics conferences in China. The ILO conference happens in December in Beijing. So having a launching point in Shanghai enables us to go off and deal with customers in the Asia Pacific region.

Very good. Thank you very much, Ken. I look forward to your next conference call.

Thank you very much, Bob.

Mr. Brizel, I'm showing no further questions in queue at this time.

Well, okay. Then on behalf of everyone at LightPath, it was great speaking to you today and I look forward to talking to you again next time.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.