LightPath Technologies Inc (LPTH) 2007 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the LightPath Technologies, Incorporated first quarter fiscal year 2007 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 my pleasure to introduce your host, Mr. Ken Brizel, President and Chief Executive Officer of LightPath Technologies Incorporated. Thank you. Mr. Brizel, you may begin.

Thank you, and good afternoon. We're joining our conference call to discuss LightPath Technologies' financial and business results for the first quarter of fiscal 2007 which ended September 30th of 2006. In the conference call with me today is our Chief Financial Officer, Dorothy Cipolla. Dorothy, would you open up with the Safe Harbor Statement, please.

Sure. Good afternoon.

First, I want to mention that in -- this call is being webcast through the home page and Investor Relations section of the Company's corporate website at www.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 and other commercial reproduction is prohibited without our prior written consent. It is necessary for listeners to be informed that the following discussions, 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 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 records, 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 -- 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.

First -- the first quarter of 2007 compared favorably with all fundamentals compared to the prior year. In the second half of fiscal 2006, the Company was having difficulty delivering on orders placed earlier. We had at the time order increases that caught our manufacturing team off guard. During that time, we made an effort to resolve these issues, and by the end of fiscal 2006 our manufacturing team was stronger and better positioned to handle new orders and resolve existing delinquent shipments. Our fiscal first quarter of 2007 was an example of our new ability to support our customers out of two manufacturing locations. The team drove down our delinquent shipments dramatically and delivered new orders on schedule, meeting customer requirements. Revenue for our first quarter was 4.4 million, which is composed of about $500,000 worth of delinquent shipments from prior quarters. I'm very proud of the manufacturing team efforts. They were, and are now, delivering consistently better on-time performance.

This past first quarter the communications market appeared to be somewhat stronger. Now we're in the middle of the second quarter. We're seeing a trend in orders moving out from second and third quarters into a number of -- from a number of communication customers. We're working quickly during the second quarter to back fill these orders with other applications as we strive to deliver growth. We are investing in our future. Our marketing and sales team continues to grow our business with new opportunities. To that end, we've straightened our -- strengthened our team with additional sales and marketing staff in the U.S. and Asia. The engineering staff is taking on new projects in infrared and high power collimators, and we're also increased our staff in engineering both in the U.S. and China to accommodate the additional new business. Finally we've added new equipment and increased our capacity in China.

Infrared imaging applications and the entire imaging market present a sizable opportunity to us to grow our optics business. We've delivered our first infrared imaging products to our customers, and we're beginning to deliver entire assemblies with multiple lenses, and this is new to LightPath. In the coming quarters, we'll grow into new applications. I anticipate that these designs will enable larger business opportunities than our prior quarter's were. While revenue to make up the short fall was challenging our business, we anticipate continued cost improvements throughout the year, providing better fundamental on profits and cash flow.

Now I'd like the turn the call back over to Dorothy and cover the financial information in more detail.

As noted in our press release, our first quarter revenue was reported as 4.4 million, which included 0.5 million in delinquent shipments from prior quarters. For the purpose of comparison, this would reduce the overall quarterly revenue to 3.9 million compared to 3.4 million for the previous year's fourth quarter. Comparing to this reduced revenue base represents an increase of about 15%. This is also a 44% increase compared to $2.7 million of revenue for the first quarter of last fiscal year. Net loss for the first quarter was 0.46 million or $0.10 per share compared to a loss of 0.81 million or $0.22 per share in the same period a year ago. Our gross margin percentage in the first quarter of fiscal 2007 compared to the same period last year was higher at 24% from 20%. This is partially due to manufacturing cost improvements generated by our Shanghai facility. Due to increased sales volumes of $1.5 million, the total manufacturing costs was 1.2 million higher in the first quarter of fiscal 2007 than it was in the same period of the prior fiscal year.

We continue to work diligently at expense controls 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 anticipate additional cost reduction during this fiscal year in both labor and outside services. To facilitate this, we expect to spend cash on additional capital purchases.

Turning to the matter of our cash flows and cash positions, for the quarter ended September 30th, 2006, cash decreased this period by 0.6 million compared to a decrease of 0.7 million for the same period in the prior fiscal year. In the first quarter we invested 0.3 million in fixed assets for our future growth. Operating cash used in the quarter ended September 30th, 2006, was high, at 0.3 million, due primarily to operating losses. Our quarter end cash and cash equivalents was at 3.1 million. This compares to fiscal 2006 year end cash and cash equivalents of 3.8 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, again, I was very pleased with the work done by the entire team this past first quarter. We continue to see challenges in shifting markets and our product mix. The team is stronger now than ever before and able to handle these business opportunities. As usual, we have a very aggressive set of goals for the remainder of fiscal 2007 to continue to extend our recent gains. We have a supportive Board, a great management team, and many dedicated and hard-working employees worldwide. There is 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 optimistic we're poised for still better performance. I want to thank you all for your continued interest and support in LightPath.

We're going to open up the phone lines for questions from the shareholders, as well as check for whether or not there are any questions from our investor website and through e-mails, and then after the question-and-answer session, I will answer any e-mail questions that have come in. Okay.

[OPERATOR INSTRUCTIONS]. Bob Engbinder, Montauk Financial.

Hi, Ken, Dorothy.

Hey, Bob.

Hello.

Congratulations on the growth.

Thanks very much.

We really appreciate as investors the execution here in the second half of '06, and we look forward to a solid '07. My first question, Ken, would be if you could give a little color to us with regard to the Lockheed Martin agreement and where you stand with the infrared. I know it's a little difficult to discuss because it's a government-type contract, but if you can just give a -- give us a little more color as to where you stand with that agreement, I'd appreciate it.

No problem. That's a good question. The infrared area we've been working very hard at developing our capability to produce infrared molded glass optics for the government, and we've successfully given them what they look for for at least the first phase of the program. We've been working through that, and we've done our reporting to them on it. Right now, we're -- this is against the SBIR process that we had worked on, and we expect to be delivering or working on the second phase of the program coming up, at least that's our expectation. The government was very happy with what we've done.

Lockheed Martin was involved, also, looking at the products that we had molded and produced. We're very excited. The molded infrared optics for us is an important new area for the Company. Imaging in general, as I mentioned before, is a fairly sizable market for LightPath, and it's a new area for us. We traditionally have gone after and built lots of products for laser-based applications over the years, and only in the last few years have we been developing products in an imaging area.

The infrared molded glass gives us a huge opportunity to go after a market that's bigger even than what we're doing now, and the visible is another area that we've been looking at carefully, and how we may be able to mold some products to go into the visible imaging areas. So in general, I hope that answered your question. I can't specifically talk to Lockheed Martin at this moment, but I can just give you some -- I hope that gave you enough color as to what's going on.

Sure. Okay. That's good. Can you -- with that, can you give us an idea of what type of -- what kind of monetary figure that might mean to LightPath in the future?

Well, that's -- yes -- that -- that's a question I'm sure that other shareholders have as well. The market opportunity for infrared is fairly sizable. There is products that are being sold into fire fighting, Homeland Security. Defense applications, of course, are very large. The automotive sector is beginning to take some applications in infrared, so for us we're -- we are -- we're talking about taking a small portion of the business to start with, of course -- by the way, the infrared business's been around for quite a while. So it's not new. But what's happened, I think, in the last few years is the cost of producing the detectors associated with infrared has come down dramatically, and the infrared optics which is used to focus the image has not. And those products were typically produced in a very traditional manner of grinding and polishing lenses, which there is many, many companies in the United States that'll do that, but there is -- there -- we're new to the market of molding infrared.

In fact, we're one of the first players in the United States or in the world, at this point, to produce molded infrared optics, and that allows companies to take a program that they're working on and reduce the cost because in producing these infrared optics today, they're done one at a time. And for molding, we could replicate many lenses for our customers very quickly. And that's -- that's basically the technology that we've been using. I know I'm dancing around the end question, which is how big is the opportunity, but I would say that the opportunity for us to go after these markets is quite large. There is billions of dollars being spent in infrared imaging, and we basically want to take a share of that market.

Very good. Okay. And if I could, just one more follow-on question. With the manufacturing facility in -- just outside of Shanghai, have you engaged any companies in Asia to date that might be able to exploit that opportunity?

That's a good question. We have, of course, in opening the facility in Shanghai, one of the things that LightPath -- and we've announced that we're there, and we're really one of the first companies producing aspheric molded precision optics in China. So there's a number of companies that have asked us to work with them and produce molded optics. And we're -- we're working through right now volumes as well as cost and so forth to deliver products that they need for their applications. I can't go into who they are and what they do, but I would say that at this point we're just at the beginnings of selling into those markets. Asia is a -- it's a big, new opportunity for LightPath.

If you go back four and a half years ago when I first joined, we were only selling in North America, and just a little bit in Europe. We expanded to grow close to 15% of our sales into the European market, and we basically weren't selling anything into Asia Pacific. At this point, putting a manufacturing site there as well as setting up sales and marketing and some engineering to support the businesses in Asia Pacific, we have a lot of opportunities to go after in that region.

Great. Thank you very much, Ken and Dorothy. I appreciate it and look forward to next quarter.

Thank you very much, Bob.

[OPERATOR INSTRUCTIONS]. There are no further questions at this time.

Okay. We do have a set of questions that have come in from e-mail from Gene Inger from ingerletter.com, and let me take these one at a time. First question is can you outline your vision in turning around LightPath, where you see it now relative to that vision and postulate about the period ahead of us? So the primary objective of my vision for LightPath has been to create a sustainable growing business in a leadership position through the diversification of LightPath, and we've been more resilient now than ever before within the markets and applications that we play, and the new products that we've introduced in molded aspheric and collimators are going to enable the Company to go after larger market opportunities. I think the future is very exciting. We have many new opportunities that we're going -- that we're quoting on and going after, and we're -- weve been able to take on larger volumes and sustainable revenues.

The second question that Gene asked is to what extent is the increase in defense or Homeland Security business contributing to the increasing business of a nature that will be accretive to the revenues and also not be outsourced overseas? The defense applications for LightPath have gone from nearly zero four years ago to 15% of our sales last year. The team in Orlando is registered for ITAR compliance. We've set up a structure to support a level of compliance for defense applications. This work could not be outsourced overseas and will remain and grow on the Orlando site. We've dedicated our -- some engineers and manufacturing staff to this purpose. I hope that answers the question.

Third question, do you believe the changing political environment and bandwidth demands on the internet and defense communications will allow for infrastructure and other upgrades domestically, and will this contribute to LightPath growth? We -- we, of course, are seeing some new opportunities in communications market worldwide. And as you're aware, the communications market is fraught with some basic problems where end-users aren't willing to pay a lot for the bandwidth. So as demand continues to increase, the selling prices have decreased over time, and, of course, this is a normal trend. But what isn't normal is the number of competitors and level of price erosion in communications as compared to other industries for similar volumes. And LightPath has set up a new capability in manufacturing in Asia, and that's helped us cost reduce and keep us -- and remain competitive in this industry.

And his fourth question is asking are business relationships with key customers like Intel or Lockheed Martin sustainable, and do you envision new platform integration partners evolving? We have business relationship with many of the world's who's who of Corporations. These relationships are sustainable over time and require LightPath to continue to innovate new products and services to our customers. We've seen that over the last few years a migration by customers to third party assemblers providing contract manufacturing. Our model at LightPath continues to evolve. We're looking at continued diversification and higher levels of assembly wherever possible. Also, we support several large contract manufacturers even today on designs for their end customers.

Another question. Does -- does the Company contemplate moving back to the national market as revenue and share price stability allow? The answer is yes. We understand the requirements. We're working to achieve them like improving our profits and book value, but it's difficult to predict the move back to the national market.

And finally, do you believe that the past year denotes an inflection point or sort of reaching critical mass which allows a turn-around? And, in this regard, when do you foresee positive cash flow or even positive EBITDA? As I explained before, the Company's a lot stronger and better positioned to support new business opportunities. We've worked very hard at fixing the fundamentals of our business. While I foresee even better results in the future, and, yes, we are on the right path, we still have a lot more work to do.

Okay. I think that's it for e-mail questions. And on behalf of everybody at LightPath, it was good to speak with you, and -- to all of you today, and I look forward to the next time, and thank you again for all of your continued support.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.