LightPath Technologies Inc (LPTH) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to LightPath Technologies, Inc. third quarter fiscal year 2007 results. (OPERATOR INSTRUCTIONS)

It is now my pleasure to introduce your host Mr. Ken Brizel, President and Chief Executive Officer of LightPath Technologies, Inc.

Thank you. Good afternoon, and thank you for joining our conference call to discuss LightPath Technologies financial and business results for the third quarter of fiscal 2007, which ended on March 31st, of 2007. In the conference call with me today is our Chief Financial Officer, Dorothy Cipolla. Dorothy, would you open with a Safe Harbor Statement.

Good afternoon. First I want to mention that this call is being webcast throughout the home page and investor relation 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 that the following discussion, including the Q&A will contain forward-looking statements made pursuant to theSafe Harbor provision 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 written to 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 webpage from the 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: inv_rel@LightPath.com. E-mails sent to any other address will not be seen or responded to. Now I'll turn the call back over to Ken Brizel our president and CEO.

Thank you, Dorothy. Let me begin today's discussion on the revenue side. Our shipments decreased by 7% this past quarter over the last fiscal year, primarily due to a shortfall in the communications market. We're aggressively pursuing opportunities outside of the communications market.

But while the communications order slowed, slowed during the quarter, which reduced the backlog from the prior quarter, we continue to grow our defense in industrial applications. We believe that revenues from communications market will continue to be a smaller part of our total business.

Communications products are the lowest gross margin products produced today. And going forward, our focus towards growth and non-communication markets will produce higher gross margins. The growth of our non-communications applications is nearly 23% year-to-date over the same period in the prior fiscal year.

While this doesn't fully make up for the slow down in communication, it lays the foundation for future growth. Our business in defense continues to grow aided by business in high power applications as well as custom optics and infrared. The manufacturing team shifted more, more than 70% of the molding production to our Shanghai location, which helped reduce the cost and increase production capacity during this period.

Primarily as a result of these efforts, we've increased our gross margin from 10% during the third quarter of fiscal 2006 to 25% during the third quarter of fiscal 2007.

We have improved our SG&A expense as a percentage of sales from 38% in the third quarter fiscal 2006 to 33% in the third quarter of 2007. But to accelerate the overall profitability of the business, we are reducing our SG&A expense, and we'll be reducing the number of personnel and other expenses in this area. As part of this cost reduction, our executives and board members have began taking a temporary reduction in compensation in April 2007 towards better bottom line results.

Asia provides LightPath with new fertile ground for market development. With applications in all market areas for both lasers and imaging, as a result of establishing a launching point for new products and production in Shanghai, the company is now engaging in new growth opportunities in Asia.

This includes hiring additional personnel and sales, marketing and engineering to support the business. We expect these efforts to deliver results within fiscal 2008. In the coming quarters, as we grow into new applications with our products, I anticipate that these applications will enable larger business opportunities.

While revenue to makeup a communication shortfall this quarter is challenging, our business we anticipate making continued cost improvements throughout the following year providing better fundamentals on profits and cash flow. I'm very proud of the work done by the entire team. Now I'd like to turn it back over to Dorothy as we can go through the financial information in more detail.

Thank you. In third quarter of fiscal 2007, order activity from customers in the communications market slowed noticeably compared to the first and second quarters of fiscal 2007.

This is due to communication customers delaying order ship date or placing fewer new orders, a trend which may continue into the quarter ending June 30th, 2007. As noted in our press release, our third quarter revenue was reported at $2.9 million, a 7% decrease compared to $3.11 million of revenue from the third quarter of last fiscal year.

Comparing to our second fiscal quarter of 2007, our revenue decreased about 23%. Net loss for the third quarter was $0.52 million or $0.12 per share compared to a loss of $1.12 million or $0.29 per share in the same period a year ago.

Our gross margin percentage in the third quarter of fiscal 2007 compared to the same period last year was higher, at 25% from 10%. The primary reason for these improved gross margins is the increased production in the company's Shanghai manufacturing facility. The Shanghai facility contributed more than 70% of the production of molded optics in the third quarter of fiscal 2007.

The company is continuing to invest in equipment and facilities for that site, which management believes will continue to achieve both cost reduction and new growth opportunities. 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 in Shanghai to support the growth we are projecting. The company is reducing its SG&A expense and will reduce the number of personnel and expenses in this area.

Also the company's executives and board members began taking a temporary reduction in compenstion in April 2007 as part of this move towards better bottom line results. The company is continuing to invest in equipment and facilities for its Shanghai location, which management believes will achieve both cost reductions and growth opportunities.

For the quarter ended March 31st, 2007, net cash declined by $0.55 million compared to an increase of $2.11 million in the comparable quarter for the prior year. The company raised $3.6 million in the private placement in March 2006, some of which is being used for working capital needs and investments in new capital equipment.

For the 9 months ended March 31st, 2007, net cash declined $1.88 million, of which $0.7 million was used for capital equipment purchases. Compared to the same period during fiscal 2006, cash declined by $2.3 million of which $0.5 million was used for capital equipment.

This shows a lower cash usage from operation. These capital equipment reinvestments were made to improve production efficiencies resulting in an increase in our gross margins to 27% for the 9 months ended March 31st, 2007 from 18% in the same period in the prior fiscal year.

Our quarter end cash and cash equivalence was at $1.9 million. This compares to fiscal 2006 year-end cash and cash equivalence of $3.8 million. We anticipate operating cash usage will fall in line with objectives in the coming quarters. 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 third quarter. Gross margins have been improving and new communications, and new non-communications applications are moving into production.

We continue to work through many challenges in the markets we serve. The entire team is stronger now than ever before and able to handle these new business opportunities. As usual, we have aggressive goals for the remainder of the fiscal 2007 to continue to extend our recent gains.

We have a supportive board and a great management team. Many dedicated and hard working employees world-wide. 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 we're poised for still better performance.

I want to thank everybody for their continued interest and 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 on our investor website. After our question/answer session, I'll answer any e-mail questions that we might have received.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. ([OPERATOR INSTRUCTIONS) Our first question is from Robert Ainbinder with Montauk Financial. Please state your question.

Good afternoon, Ken, Dorothy.

Hi, Bob, how are you doing?

Good. Good. First question, Dorothy, did I hear correctly that gross margins have increased from 10 to 25%?

That's correct.

Okay. And also, did I also hear correctly that management is taking a reduction in compensation for the company?

Yes. That's correct. It's a 6-month temporary reduction for the board of directors and the executive management.

Fantastic. I like that type of commitment. And Ken, as far as the communications market is concerned, we all see the slowing in that market. But you state that you're looking forward to the defense and industrial applications picking up. When you talk about industrial applications, what are you referring to there?

Well, in the industrial area, we're working in high powercollimator applications where it's fiberlasers, as well as some lens applications for lasers. All of the -- sorry, all the industrial applications today that we work on are laser-based applications. The defense area is that and more. We are also working on imaging applications. The imaging area in defense is mostly infrared today.

Okay. And I've read a lot about infrared and understand that Fleer is very bullish on infrared going forward in the defense industry. Could you give us a little more color as to where things stand with Lockheed Martin and the SPI-All program that you're working on?

Yes, I can give you some information. We, of course won and then completed the Phase 1 of the program last year. Lockheed Martin was supportive with the government on developing the infrared molding technology that we've been working on. And then beyond that, we were told by the government that I guess the way, they put it was last man standing on the proposal. There were multiple people that went on the second phase proposal. And we, you know, we at this point have been told that that was where we were. Now, we're still waiting for their final contract, but we anticipate that coming. Also, just so you know, there was an interim in between Phase 1 and Phase 2 called the Phase 1 bridge, which we did win and we did receive from the government, as well. That was just about a month ago. So, we're working step by step on the program on infrared for defense applications. There's, there's a lot of work that needs to happen between now and production for infrared optics in defense. The types of products that the Lockheed Martin wants to produce and others in the defense area are little more complex than some of the commercial applications. For instance, Fleer is, they have a large percentage of the market for commercial like fire fighting applications. And we're very interested in of course, in those types of applications and supportive of products in those areas. We've given a few of our customers lens designs for them to analyze that we've molded the infrared glass with as well as assembled the assemblies. So, it's an exciting growth area for us and it's new. Commercial being at the beginning of it. And the defense business while we're taking the applications and building the SBIR and some initiatives with, with Lockheed and the government that'll be probably about a year before we see some production come out of that.

Okay. And one last question with regard to the commercial aspect of the imaging market, which you're trying to penetrate in the Asian area due to the fact that you've now established yourself as a class manufacturer in China. Can you give us an idea of what that market potential looks like and where you stand with potential customers as you enter that market?

Yes, good question. The, Asia, Asia as I was trying to say before, it's very fertile for us. We cannot only play in the lasers, but in the imaging area. The market has billions of lens opportunities in digital -- digital camera type applications for imaging. This is a new area for LightPath. Historically LightPath has gone after the laser business. But with opening up an aspheric capability, molded glass capability in Asia. And the digital camera market requiring aspheric glass going forward, it makes large -- much bigger opportunities in Asia than we would have had previously. So the location is timely. Having it open and then working with customers that are trying to move into the aspheric molded glass business with us.

And I'm sorry, if I may, one more question. With regard to molded lenses verses diamond-cutting lenses, how many players are in this market currently in Asia?

Oh, well, in the diamond turning area, Asia has only a few diamond turning machines. I should say China the biggest market opportunity, they basically have been a large grind and polish force. The Chinese produce a lot of spherical lenses, which you need multiple spherical lenses to make one aspheric lens. And so, This is an opportunity to replace existing designs with aspheres. And it gives us the capability because we produce our molds, our aspherics here in Orlando, ship them off to Shanghai. We can mold the aspherics for different types of customers throughout Asia, very quickly and in high volume for them there.

And I'm sorry, what type of market potential is that for you?

Well, the -- as I was saying before, the imaging market has billions of lenses. So it's a matter of the size of the lens as well as the aspheric performance that they're looking for. But I think the opportunity for us is fairly large.

Ken, Dorothy, thank you very much. I look forward to the next conference call. Thank you, Bob.

([OPERATOR INSTRUCTIONS) I'm showing no further questions in queue at this time.

Okay. And also we don't seem to have any e-mail questions that have come in. So since there are no further questions and on behalf of everyone at LightPath, it was good to speak with you today. And look forward to the next time in our discussion. And thank you again everybody for your continued support.

ladies and gentlemen, this concludes today's conference. Thank you for your participation.