LightPath Technologies Inc (LPTH) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the LightPath Technologies Inc. second 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 following 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 Mr. Brizel, you may begin.

Thank you very much. Good afternoon. Thank you for joining our conference call to discuss LightPath Technologies financial and business results for the second quarter of fiscal '07, which ended on December 31 of 2006. In the conference call with me today is our Chief Financial Officer, Dorothy Cipolla. Dorothy, would you open with the safe harbor statement, please.

Good afternoon. First, I want to mention this call is being webcast through our home page in 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 prior 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 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 my 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, 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 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 accounts INB, underscore REL at LightPath.com. E-mails sent to any other address will not be seen or responded to. Now, I will turn the floor back over to Ken Brizel, our President and CEO.

Thank you, Dorothy. The second quarter of fiscal 2007 has a mixture of news. All of our efforts in moving higher volume mature products for labor and material cost reduction to Shanghai are finally beginning to show some good results, with margin improvement in our second quarter. The Company has achieved 32% gross margin, the highest quarter for LightPath since I joined in July of 2002.

Also in this quarter, we achieved 3.8 million in sales, which is 28% growth over one year earlier, while maintaining very low past due shipments. This is quite an achievement for the entire team with at lot of credit to both Jim Gainer and Joe Wu, and their teams for their outstanding performance. This quarter our customer mix was still nearly 50% communications, and this market is still not as reliable as other market opportunities. Severe price pressure, low volumes, and unfulfilled promises of large future potentials is still playing this market. From the ending back log of the second quarter, our third quarter is shaping up with lower communications sales than the second quarter.

From all of the efforts to diversify our business, we're making great headway in markets outside of communications. The growth of our non-communications applications is nearly 30% year-over-year. While this doesn't fully make up for the slowdown in communications, it lays the foundation for future growth. Our defense business continues to grow, aided by growing business in both high power applications, custom optics and infrared. The medical and industrial business has also been growing with larger orders from existing customers. Finally, the geographic opportunities presenting themselves in Asia has the entire team very excited with the ability to engage new customers in the region with our Shanghai team. We continue to invest in the future. We've added new equipment in both Orlando and Shanghai, to both lower our costs and continue our capacity and increase our capacity. We've hired more new, experienced engineers in both optical and mechanical areas in both Orlando and Shanghai. This is enabling more complex designs and allowing us to better serve our customers worldwide.

In Asia, we've recently added Customer Service in field application support, and we anticipate adding a few additional salesmen within the region very soon. In coming quarters, as we grow into new applications with our products, I anticipate that this will enable larger business opportunities than our prior quarters were. While revenue to make up a communication shortfall this coming quarter is challenging our business, we anticipate making continued cost improvements throughout the year, providing better fundamentals on profits and cash flow. Now, I would like the turn the call back over to Dorothy to cover the financials in more detail.

As noted in our press release, our second quarter revenue was reported as 3.8 million, a 28% increase compared to 3.0 million of revenue for the second quarter of last fiscal year. Comparing to our first fiscal quarter of 2007, our revenue decreased about 14%. Net loss for the second quarter was 0.34 million, or $0.08 per share, compared to a loss of 0.68 million, or $0.17 per share in the same period a year ago. Our gross margin percentage in the second quarter of fiscal 2007 compared to the same period last year was higher at 32% from 25%. This is partially due to manufacturing cost improvements for direct labor and overhead charges generated by our Shanghai facility, due to increased sales volumes with 0.8 million, the total manufacturing cost was 0.38 million higher in the second quarter of fiscal 2007 than it was in the same period of the prior fiscal year. 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're 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 position, for the six months ended December 31, 2006, cash decreased this period by 1.3 million, compared to a decrease of 0.8 million for the same period in the prior fiscal year. In the first half of fiscal 2007 we invested 0.6 million in fixed assets for our future growth. Operating cash use in the six months ended December 31, 2006, was high at 0.9 million, due primarily to operating losses in payments to vendors. Some additional working capital was required to account for the longer supply chain from U.S. to China. This should decrease as China-based suppliers are brought on. Our quarter end cash and cash equivalents was at 2.4 million. This compares to fiscal 2006 year end cash and cash equivalents of 3.8 million. We anticipate operating cash usage will fall in line with our objectives in the coming quarters, including achieving positive operating cash flow on a quarterly basis. Now, I will 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 second quarter. We continue to see many challenges in the markets we serve. The team is stronger now than ever before and able to handle these business opportunities. As usual, we've an aggressive goal, and the remainder of the fiscal 2007 to continue to extend our recent gains. We have a very supportive board, 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 in support of LightPath. We're now going to open up the phone lines for questions from the shareholders, as well as check whether we have any questions from our investor relations website. After the question and answer session, I will answer any e-mail questions we've received.

Thank you, Mr. Brizel. [OPERATOR INSTRUCTIONS] Our first question is from the line of Robert [inaudible], [Montag] Financial Group. Please proceed with your question.

Good afternoon, Ken, Dorothy. How are you?

Hi, Bob. How are you?

Good. This is Bob [inaudible], Senior VP, Investments, Corporate Finance at [Montag] Financial. My first question, Ken, is if you can tell us a little bit of what your current manufacturing capacity is, now that seems you've pretty much brought online the Chinese facility, and to further that question, how much do you think you can handle, given the current manufacturing capability?

Okay. Well, it's a good question. Our capacity, historically, just in Orlando, we've had a capacity build about 400,000 units per year. That was the typical capacity that we had in this building. With the addition of a Shanghai facility, and the additional equipment, and some of the new technology that we put in place there, it gives us capacity, in total, between the two buildings of nearly 2 million pieces per year that we can produce. So, we've ramped up our capacity, and of course, we're anticipating filling that as quickly as we can, and we're working through new customer applications to work and fill both locations.

Okay. Fantastic. Well, that brings me right to my second question, which is, in understanding the continuing sales models, one being the turns, and one being the annuity model, if you can further describe how similar the annuity business is to the semiconductor business. I am trying to just ascertain, as annuity business comes on, how would that relate to, with regard to design wins and backlog, and when we could potentially see some type of announcement with regard to new customers?

Okay, good question. We have -- our business model, if you look at our annuity business, that's a business where we're building custom parts for customers, that, on a quarterly basis or yearly basis, continue to buy those products, and it's very forecastable. You can see it happening every quarter. The turns business, traditionally, is orders that are placed within the quarter, where the customer doesn't really understand or know what they need, but will suddenly place a block of orders on us that we have to fulfill very quickly, within the quarter. And those are, that's what we call the definition of a turn. So, it's happening within the quarter. It's ordered, and then shipped. The difference between the two is, it's very similar to what you find, I think, in the semiconductor business from a custom standpoint on the annuity business, where you're building a custom design. The customer comes to you on a periodic basis placing orders against that design and building products, and for us, now as we grow, the customers are building more and more custom parts. The previous -- if you go back in time, most of our product was more standard parts, where the turns business tends to make more sense. And as we roll forward and have more custom designs that we do, and that includes both molded optics, collimator designs, any of the isolator technology, GRADIUM. We have custom parts that we're building in those areas. We'll find that, those customers will continuously place orders on us, and you can pretty much see how their business flow goes. That's the difference between those two.

Okay. And getting those design wins, at what point would you feel it appropriate to make the type of announcement where it would be a major financial impact to LightPath as we go forward?

Well, any company that becomes more than 10% of our financials for the year on our -- on an annual basis, will require us to file and bring their name out into our filings. That's typically the way that we've announced any particular customers. Although, when it appears to be a substantial opportunity for the Company going forward, not just in sales that they did do, but in potential going forward, on either orders that they placed, or contract that they may have established, this were public, we do put out in our filings that, you know, we've got a substantial contract with a major company, and we'll do that, as we're required to do it.

And if I may, one more. How many companies could you disclose, how many companies you're currently in design work with that may become potential large volume customers?

In just numbers?

Just numbers.

Yes, I understand. We, gee, good question. We don't typically disclose that but, I would say that we have in our custom designs that we do right now, we typically have on the order of 50 customers in that size that we're dealing with on a regular basis for quoting activity, as well as some of their designs, new designs, as well as ongoing modifications to existing designs.

That's great. Well, Ken, Dorothy, thank you very much. I look forward to the next quarter.

All right. Thank you, Bob.

Thank you.

Mr. Brizel, there are no further questions at this time.

Okay. I do have some e-mail questions that have come in. Let's see. I have a question that came in from Jim Stacey. The question goes like this. If LightPath achieved profitability, will you begin giving guidance? And is there any chance of analyst coverage coming soon? So, it's been our policy not to give guidance. We have had a few independent analysts begin discussing LightPath, but unfortunately analysts from major institutions will not cover LightPath until we reach about $100 million market cap, in that size. Historically, we've had these analysts talking to us and asking lots of questions, but they won't report. They refuse to report on us until we reach a significant market size. Second question was as a percentage of business, how much of your business is devoted to the laser sector at this time? Well, today, a majority of our business is in laser sector. In fact, LightPath has been concentrating on the laser business since 1985. We're only recently building products in the imaging area. That's only in the last couple of years, and we're very excited about all the opportunities in imaging, and this area opens up brand new applications in both the visible and infrared markets, and finally with our higher volume manufacturing facility in Asia, we are enabling new customers to have access to our glass and aspherics used in both lasers and imaging in the Asia Pacific region. Jim, thank you for your questions. If there are no further questions, then on behalf of everyone at LightPath, it was good to speak with you, and, today, and I look forward to talking to you next time. Thank you again for your continued support.

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