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Operator
Greetings, and welcome to the LightPath Technologies, Incorporated third quarter fiscal year 2008 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. Jim Gaynor, CEO and President. Thank you, Mr. Gaynor, you may begin.
- President & CEO
Thank you.
Good afternoon and thank you for joining our conference call to discuss LightPath Technologies' financial and business results for our third quarter of fiscal 2008 which ended on March 28, 2008. On the conference call with me today is our Chief Financial Officer, Dorothy Cipolla; and Bob Ripp, our Chairman.
Dorothy will now open with the Safe Harbor statement.
- CFO
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 taping or 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 perspective 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 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-mail sent to any other address will not be seen or responded to.
Now I'd like to continue covering the financial information. As noted in our press release, our third quarter revenue was reported at $2.11 million a 27% decrease compared to $2.90 million of revenue for the third quarter of last fiscal year. Net loss for the third quarter was $1.19 million or $0.22 per share compared to a loss of $52 million or $0.12 per share in the same period a year ago.
Comparing nine months of fiscal year 2008 to fiscal year 2007, our revenue decreased by 42% from $11.08 million in fiscal 2007 to $6.44 million in fiscal 2008. The decrease from the third quarter of last year was primarily attributable to lower sales volumes of molded optical products, ingredients and isolators. Our sales to customers in the telecommunications industry decreased by $1 million in the quarter ended March '08 compared to the same period one year ago. This is due to a softness in this market and we expect to continue--expect lower communication sales to continue throughout fiscal 2008.
Our gross margin percentage in the third quarter of fiscal 2008 compared to the same period last year was lower at 20% versus 25%. Gross margin was negatively impact by unabsorbed overhead costs. As we grow revenue, we expect to see significant improvement in our margins. Our direct costs which include materials, labor, and services have improved from 28% of sales to 24% of sales.
Our gross margin percentages for fiscal 2008 compared to fiscal 2007 declined from 27% to 10%. The primary reason for these reduced gross margins was attributable to revenues that were not adequate to absorb fixed costs. Also the $524,000 standard cost revaluation and scrap charges lowered margins, offsetting improvements in direct labor made by increasing production in the Company's Shanghai manufacturing facility.
The Shanghai facility contributed more than 83% of the production of molded optics in the third quarter of fiscal 2008. The impact of the $524,000 charge was to reduce gross margin by 8 percentage points for the nine months of fiscal 2008, from 18% in the reported gross margins to the reported gross margin of 10%. Cost of goods sold, excluding the one time inventory charges, reflects the continued improvements we are making in managing and controlling our direct costs.
We continue to work diligently at expense control throughout the business. In the second quarter we renegotiated our operating lease in Orlando and reduced our space in half. As we continue to balance the needs of Shanghai in Orlando operations, our plans for this year include selectively adding personnel, particularly to expand our sales force in China. We are continuing to invest in equipment and facilities for our China operations which we feel will achieve both cost reductions and growth opportunities.
In the nine months ended March '08, net cash used for operating and investing activities was $3.75 million. Cash was used to support operations due to the low revenue level and to fund investment in future growth. In anticipation of a summer start up of the joint venture, we invested $240,000 for capital equipment with longer lead times for the joint venture. Some other one time cash impact were $148,000 for legal fees for litigations and representation related to the joint venture, and severance expenses of $150,000 for workforce reductions implemented in the first nine months of the fiscal '08.
Now I'll turn the conference back over to Jim Gaynor.
- President & CEO
Thank you Dorothy.
LightPath is continuing to execute its business strategy and position itself as a high volume low cost producer of aspheric molded lens. We believe that the quarter just completed represents the bottom of the trough for our business; and I believe this because this is supported by a slight increase in the revenue in Q3 compared to Q2 of '08, and more importantly a 47% increase in total disclosure backlog from over--from one year ago. In addition to that, the industrial base business in our backlog is up 72% from March of '07.
What this says is we've continued, as we have stated we are trying to, diversify our business and reduce the volatility and dependence on the telecom segment. In addition, another very positive signal is our quote activity has increased and is up 26% over the previous quarter. Now if we turn to our cost for last quarter, our direct cost, those things associated with material, labor and services, have continued to improve; and we are at a record low of 24% of revenue in Q3 of '08.
But just as important as that record low is, is the fact that we've maintained our direct cost near this level for the past two quarters, proving that the improvement is permanent and sustainable. Gross margin improved 20 percentage points from the previous quarter and will continue to improve as our revenues increase and the overhead costs are more fully absorbed. In addition to that, the SG&A reductions previously implemented are now producing the expected benefits.
To further explain the significance of these improved operating costs, let me again use a hypothetical example. If I apply our current Q3 '08 cost structure to the revenue we had in Q3 '07 and eliminate the one-time cost we incurred in Q3 '08 which were those costs used to implement these reductions in cost, we would reduce the reported loss for the quarter from $1.190 million to $329,000. That is an improvement of $861,000 and this improvement has three components.
The first component, which is $150,000 was a one-time charge we incurred, and which is non-recurring associated with down sizing the Orlando facility and setting up its new lease. The second component, which is $138,000 of that $861,000, is the direct cost improvement from lower costs of glass using ceramic tools, better yields, personnel reductions, and good utilization of our Shanghai operation. The third component, which is worth $573,000 of margin improvement, would be that that came from if we had the $785,000 increased revenue that we had in Q3 '07.
What this demonstrates is what will happen as we increase the revenue and cover the overhead. It also demonstrates that the break-even revenue has been substantially reduced. This analysis would estimate that our break-even revenue is now reduced to about $3.4 million a quarter which we believe is a very obtainable number. With this lower cost structure that we've implemented, combined with a revenue potential that the cost structure allows, LightPath is on its way to becoming a self sustaining and profit generating business.
Now I'd also like to make a few comments concerning our JV with CTGM, our Chinese partner. First, I want to say that we are very fortunate and we are happy to report that all the people in the JV and the building that we intend to lease suffered no direct effects from the recent earthquake in China. Our partner, CTGM, is also okay and operating. In addition to that, from a business point of view, we have been granted our business license and all the necessary certifications to open and operate the business.
Also we have qualified for a number of incentives from the government in China to help start the business; and we have put in place a startup team and begun the process of quoting business and obtaining quotes for the necessary equipment. We will be ready to hit the ground running upon the completion of the financing which we expect to be very soon.
So in summary, LightPath is continuing to implement its business strategy, to diversify its served markets and position the Company to participate in lower cost, higher volume opportunities. Our direct operating costs are decreasing to support low cost products. We've opened the business with our Chinese partner, CTGM Optical Glass Company. We're focused on high volume--which is focused on high volume, low cost products.
We have expanded the Shanghai manufacturing capacity, producing over 83% of our third quarter lens volume in that factory. We are qualifying lower cost glass materials, and as a result of the management actions taken, we are seeing positive results and yield improvement, production rates, and cost reductions. We are continuing to position the Company to participate in higher volume market opportunities.
Okay, with that, I'd like to open the phone lines for questions from our shareholders and I'd ask the operator to check if we have any questions.
Operator
Thank you. (OPERATOR INSTRUCTIONS)
Our first question today is coming from the line of Steven Donovan, a private investor. Please proceed with your question, sir.
- President & CEO
Hello, Steven?
Operator
Mr. Donovan, your line is live for question.
(OPERATOR INSTRUCTIONS).
There are no questions via the phone at this time.
- President & CEO
Let me go ahead and address a couple of questions that have come in through our website.
First question we have is "When do you anticipate the JV will ramp up and have a material contribution to the Company's revenue and operating income?"
Obviously the JV will start upon its funding, and we would anticipate roughly about a nine month start up period while we put the equipment in place, train personnel, etc., and then we would begin production in about that time frame; and then it would start to have a material impact in the following year.
The other question that has come in is "What new customers do you anticipate additional sales will be created by the joint venture?"
The joint venture is targeted for low cost high volume aspheric molded lens applications for applications associated with things like cell phone, cameras, digital still cameras, we cameras, and those kinds of things. So the customers would be those customers that build lens assemblies and camera modules for those types of applications. It's a relatively fragmented market that has a lot of customers in it. The typical customer, though, buys tens to hundreds of thousands of lenses for these types of applications.
Operator
Gentlemen, we do have a question via the telephone from Mr. Steven Donovan. Please proceed with your question, sir.
- Private Investor
Greetings, everyone.
- President & CEO
Hi Steven, how are you?
- Private Investor
Good.
In the 10Q that you folks filed a couple of weeks ago, there was a statement in there that said cash flow from operations would be negative through the third quarter of fiscal '09. So from that statement can I assume that you hit--expected to hit $3.5 million in revenue in that quarter?
- CFO
We are saying that our sales--we are projecting ahead of our forecast, and we are seeing that revenue is still not adequate enough to cover all of our costs; but as we get towards the end of '09, we start to see that just change.
- Private Investor
So that becomes the first profitable quarter?
- CFO
Or less of a cash drain, correct.
- Private Investor
That's something to look forward to. Thank you.
Operator
(OPERATOR INSTRUCTIONS)
There are no questions via phone at this time, gentlemen.
- President & CEO
Okay.
I guess I have one other announcement that I would like to make. So basically what I would like to do is announce--make an announcement concerning our GRADIUM product line. LightPath and ThorLabs, where we have previously announced a letter of intent for ThorLabs to purchase that product line, we have now decided not to pursue the completion of the sale of GRADIUM to ThorLabs; and basically through the course of the due diligence it was determined that the business interest of both companies would be better served by leaving the business within LightPath; and beyond that, I would say that GRADIUM is a custom business for LightPath with positive cash flow and profit contribution and as such, LightPath will continue to pursue GRADIUM opportunities.
If there are no further questions, then on behalf of everyone at LightPath, it was good to speak with you all today, and I look forward to our next call. Thank you for your continued support.
Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.