LightPath Technologies Inc (LPTH) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the LightPath Technologies Second Quarter 2009 Financial Results Conference Call. (OPERATOR INSTRUCTIONS). I'd now like to turn the conference over to Mr. Mark McPartland from Alliance Advisors. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us for LightPath Technologies Fiscal 2009 Second Quarter Financial Results Conference Call. Joining us on the call this afternoon is Mr. Jim Gaynor, CEO, Ms. Dorothy Cipolla, CFO, and Mr. Bob Rip, Chairman of LightPath Technologies. If anyone participating on the call today does not have a copy of the earnings release, please contact our office directly at 914-669-0222 and we'll be glad to provide that for you.

Now, before we begin the call, I'm going to review the Company's Safe Harbor Statement. Statements in this conference call that are not descriptions of historical fact are forward-looking statements relating to the future events, and as such all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to LightPath Technologies are such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties which may cause actual results to differ from those anticipated by LightPath Technologies at this time. In addition, other risks are more fully described in LightPath Technologies public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov.

At this time, I'd like to turn the call over to Mr. Jim Gaynor, CEO of LightPath Technologies. Jim?

Thank you, Mark, and thank you all for joining us today for our Fiscal 2009 Second Quarter Results Conference Call. As I'm sure you are all aware, 2008 was a financially challenging year for us along with those in our industry and many in the industry that we do business with as the worldwide economic instability continued to create turbulence in the marketplace.

In spite of these challenges, we were able to continue to manage our costs and substantially increase our gross margins year over year. Our gross margin for the second quarter of fiscal 2009 improved to 25% from 0% compared to the second quarter of fiscal 2008. And for the first half of fiscal 2009, our gross margin improved to 26% compared to 6% for the first half of fiscal 2008. We were able to generate these improvements of our gross margin as a result of our continued focus on reducing our costs. During the second quarter of fiscal year 2009, over 96% of our precision molded optics were produced at our Shanghai facility. Direct labor productivity has improved 71% in our Shanghai factory. This efficiency improvement, combined with the higher percentage of products now produced in this facility has significantly reduced our labor costs.

Production yields for the first half of 2009 averaged 85% compared to an average of 67% in fiscal 2008. We are also continuing to convert to high temperature, lower cost glass materials. This conversion combined with the 18 percentage points improvement in yield has significantly lowered our material costs. Additionally, we have implemented new programs to reduce our service costs aimed at our tooling and our anti-reflective coating processes. As these programs come online, we will continue to see improvement in our already low direct costs in future quarters.

In addition to these direct cost reductions, we have implemented a series of overhead and spending cost reductions. With the transfer of our manufacturing operation to Shanghai, our workforce in Orlando has been reduced by 38% since December 2007. We have also reduced the workforce in Shanghai by 20% in December of 2008 as a result of these productivity improvements.

Lastly, we have also implemented a 10% salary reduction for the majority of our U.S. based personnel and we did that in January 2009. The result of all these changes has reduced our cash usage from operations by 49% from the first quarter of fiscal 2009 to the second fiscal quarter of 2009. If the impact of these implemented efficiencies had been in place for the full quarter, our cash usage would have been below $300,000 for the past quarter.

As the full impact of these improvements are realized, our forecasted--and our forecasted revenues are achieved, we believe we will see continued reductions of the cash usage by at least 50% over the next two quarters. This progress will continue to improve for the remainder of fiscal 2009 and that will provide significant opportunity to generate more organic growth.

I would like now to turn the call over to Ms. Dorothy Cipolla, CFO, to discuss our financial results for fiscal 2009 first quarter in more detail. Dorothy?

Thank you, Jim. Revenues for the second quarter of fiscal 2009, which ended December 31, 2008, totaled 1.91 million, compared to 2.02 million for the second quarter of fiscal 2008, a decrease of 6%. The decrease from the second quarter of last year was primarily attributable to lower sales volumes on molded optic products, collimators and GRADIUM products, offset by higher sales volumes of isolators. The reduction of the molded optics volume was primarily attributed to an order cancellation related to a bankruptcy of an end user of our major customer and we would not expect this level of impact to occur again given the nature of our backlog. Growth in sales going forward will come primarily from the precision molded optics driven by lower cost lenses in Asia.

Our gross margin percentage in the second quarter of fiscal 2009 compared to second quarter of fiscal 2008 increased to 25% from 0%. Total manufacturing costs of 1.4 million were .6 million lower in the second quarter of fiscal 2009 compared to the same period of the prior year. Direct costs, which include material, labor, and services, remained in control at 22% of revenue in the second quarter of fiscal 2009 compared to 24% in the second quarter of 2008.

During the second quarter of fiscal 2009, total cost and expenses decreased 326,000 to 1.3 million, compared to 1.7 million for the same period in fiscal 2008. Included in total costs and expenses were selling, general, and administrative expenses, which for the second quarter of fiscal 2009 decreased 245,000 or 18% to 1.1 million, compared to 1.4 million for the same period one year earlier. As a result, total operating loss for the second quarter of fiscal 2009 improved to .9 million compared to 1.7 million for the same period in 2008.

Net loss for the second quarter of fiscal 2009, which ended December 31, 2008, totaled 1.73 million or $0.29 per basic and diluted share, compared with a net loss of 1.64 million, or $0.31 basic and diluted per share for the same period in 2008. This result compared to a net loss of 1 million, or $0.19 per basic and diluted share for the first quarter of fiscal 2008, which ended September 30, 2007. This represents an $82,000 increased in net loss, however, the net loss for the quarter includes 641,000 of non-cash charges for the conversion of 25% of our debentures into common stock. Weighted average shares outstanding increased in the second quarter of fiscal 2009 compared to the second quarter in fiscal 2008, primarily due to the issuance of shares related to the debenture conversion.

Revenue for the six months ended December 31, 2008 totaled 4.24 million, compared to 4.33 million for the first half of fiscal 2008, a decrease of 2%. The decrease from the last year was primarily attributable to lower sales volumes of collimators and GRADIUM, offset by higher sales volumes of isolators. Growth in sales going forward will come primarily from the precision molded optics driven by low cost lenses in Asia.

Our gross margin percentage in the first half of fiscal 2009 compared to the first half of fiscal 2008 decreased--increased to 26% from 6%. The total cost of sales was 3.14 million, which represents a $941,000 decrease in the first half of fiscal 2009 compared to the same period of the prior fiscal year. Direct costs, which include material, labor and services, remained in control at 23% of revenue in the first half of fiscal 2009, as compared to 22% in the first half of fiscal 2008. Growth margin improvement is a result of the cost reduction programs of the Company which have been implemented.

During the first half of fiscal 2009, total cost and expenses decreased approximately 573,000 to 2.8 million, compared to 3.4 million for the same period in fiscal 2008. Included in total costs and expenses were selling, general and administrative expenses, which for the first half of fiscal 2009 decreased 452,000 to 2.34 million compared to 2.8 million for the same period one year earlier. As a result, total operating loss for the first half of fiscal 2009 improved to 1.75 million compared to 3.18 million in the same period in 2008.

Net loss for the first half of fiscal 2009, which ended December 31, 2008, totaled 2.75 million, or $0.49 per basic and diluted share, compared with a net loss of 3.1 million or $0.59 basic and diluted per share for the same period in 2008. This represents a $397,000 decrease in net loss. The net loss for the first half includes 641,000 of charges--non-cash charges for the conversion of our debentures. Weighted average shares outstanding increased in the first half of fiscal 2009 compared to the first half of fiscal 2008, primarily due to the issuance of shares related to the debenture conversion.

Moving to the balance sheet, cash and cash equivalents totaled 523,509 at December 31, 2008. Total current assets and total assets at December 31, 2008 were 3.6 million and 5.9 million, compared to 3.3 million and 5.5 million at June 30, 2008, respectively. Total current liabilities and total liabilities at December 31, 2008 were 1.8 million and 3.3 million, compared to 3.0 million and 3.3 million, respectively, for June 30, 2008. As a result, the current ratio as of December 31, 2008 improved to 2.0-to-1, compared to 1.1-to-1 for the year ended June 30, 2008.

Total stockholders equity as of December 31, 2008 totaled 2.61 million. As of December 31, 2008, the Company's backlog of orders to be filled in less than one year was 3 million, compared to 3.2 million as of September 30, 2008.

I would now like to turn the call back over to Jim for closing comments.

Thank you, Dorothy. Our results for the first half of this year are a positive reflection of the much hard work and effort by the team at LightPath to control costs and mitigate expenses. Despite a marginal decrease in our revenues, we managed to dramatically enhance our gross margins and decrease our losses over the previous year. We remain confident that the changes we have made over the past year will reap positive rewards as we generate more sales and build our pipeline of business. We remain encouraged by our disclosure backlog of $3 million and the number of new product proposals we have undertaken in the past six months. Our efforts to penetrate high volume, lower cost commercial markets in Asia show tremendous promise for the second half of our fiscal year.

I would also like to take this opportunity to inform you that on January 30, 2009, the District Court of New York dismissed all claims of the lawsuit by Harborview. We are pleased with the Court's decision and to have this lawsuit completed.

Heading into the second half of our fiscal year, we will continue our focus on lower cost, higher volume market opportunities and broaden our exposure in the Asian precision optics lens market. We believe that in the second half we will continue to improve our cost structure and reduce our cash burn. We expect the full effect of the efficiencies we have implemented will bring the cash uses going forward lower than the current quarter.

This concludes my formal comments at this time and I would like to open the call for questions. Operator, please start the Q&A portion of the call.

Thank you. (OPERATOR INSTRUCTIONS.) Our first question comes from the line of Steven Donovan from Donovan Associates. Please go ahead.

Greetings, everybody.

Hi, Steven. How are you?

Good. Thanks for all your hard work.

Thank you. You're welcome.

Can you give us any guidance of what we can expect in the second half in terms of revenue?

Well, Steven, that's a really, really tough question in this marketplace. I think probably the best way that I can--it's very difficult to do, but I would say if we look at the way orders have booked historically, we have specifically had maybe 35% of our backlog that books in a given quarter come in as turnable within that same quarter. And in today's marketplace and in this quarter in particular what we're seeing is about 75 to 80% of the orders we're booking are for short-term deliveries. This makes it very difficult to forecast what's going forward in addition to putting a lot of pressure on building and shipping product with such short notice and trying to figure out what's going on. But right now, that's the character of the marketplace and that makes it pretty difficult to anticipate. I believe though that the actions that we have taken set us up as best we can to weather this downturn and even with some of our forecasts and taking even a look at a pessimistic forecast for sales going forward, we still believe we're going to be okay. We're going to get through this and still see positive progress from a cash burn point of view.

Thank you. Can you give me an idea of what the revenue--or the revenue per year, the average selling price per lens, what that is now versus what it was a year ago?

Yes, I think our average selling price was probably--a year ago was in the mid-20s. Today, it's more--I mean, we still sell a portion of our business that way. And as we go forward and enter this--I mean, we've got a double whammy going on. There is some price pressure in the marketplace, as well as we're going in--we're consciously entering a lower cost market in the imaging side, so we're intentionally I guess you would say driving our average price down. But we're probably in the $16, $18 range as an average. But I expect that to continue to fall as we increase the percentage of our business that's in this more consumer based marketplace.

Thank you. And one final question, can you give us any update on the Lockheed contract and what that might lead to in terms of future business?

Oh, okay. That's the infrared, the SPIR. We're nearing the completion of that. I think we've successfully--it was a successful completion. And I guess the other thing is, so that--what that is doing is allowing us to commercialize making slightly larger lenses than we historically have been able to do. That was the purpose of that contract. So we've developed that technology. We're almost completed with it. That contract will continue through the next quarter and it opens up--widens the marketplace that we can do in the infrared spectrum. We do have currently jobs we're doing. We're shipping production product into the IR--as IR product now. And a lot of that is a result of that work. Some of those are commercial applications as opposed to more government defense applications that Lockheed was interested in.

Well, it continues to sound very promising. Thanks again, and keep up the good work.

Thank you, Steve.

Thank you. (OPERATOR INSTRUCTIONS.) Our next question comes from the line of Bob Ainbinder from Garden State Securities. Please go ahead.

Good afternoon.

Hi, Bob.

First, I'd like to congratulate you, Jim. Since you've taken over as CEO of LightPath I think anybody that's been following the Company since you've taken the helm can see the great work that you've done to really get the operational costs under control and put the Company in a position to finally turn this Company into a profitable company. And I want to congratulate you on that hard work.

Well, I appreciate that, Bob, but it's been the hard work of a very dedicated team of people that we have in LightPath in general. So I'm very, very happy that we've had some success and I'm quite pleased with the quality of people we have on the team that are really dedicated to making this work for us.

Well, I've certainly noticed the turn since you've been there. So hat's off to you. With that, let me just understand what you refer to when you say you look forward to a 50% reduction in cash burn going forward. Are we talking 50% off of the current quarter or are you referring to the roughly I believe it would be somewhere around $300,000 in cash burn if we didn't have the one-time items in there for this quarter--for this past quarter. Am I correct in that assumption?

I'm talking about a decrease--a significant decrease in our cash burn this just completed quarter.

Okay.

It's really a result of the things--many of the actions that we took--I mean, we've been taking them all along. But a lot of those actions were taken during the course of the second quarter, and so we have not yet seen the full impact of them. The salary reduction we took was done--actually implemented, as I said, in January, so in Q2 you didn't see any impact from that. So there are a number of things that will show improvements as we go forward. And then, as we build this mix of products going forward, we will also continue to lower our material costs as we get a higher and higher percentage of our product shipping on these lower cost glass materials.

And there--Bob Ainbinder, this is Bob Rip. There was no one-time charge in the second quarter that affected cash. When Dorothy mentioned a one-time charge on cost, that was a non-cash charge.

A non-cash charge, okay.

As we converted a quarter of that debenture. So what Jim is talking about is actions that he's taken that have not yet fully realized--if they were to be fully realized in this current quarter, we're going to see the kind of savings that he--or the impact that he just mentioned.

Bob, could you comment on the relationship with CVGM now that obviously we have not gone into a joint venture with that company, but I know you were looking forward to some type of continuing relationship with them in some form. Could you comment on that at all?

Yes, Jim, has been very successful in completing a strategic supply agreement with them. And Jim, why don't you go through some of those details?

Yes. I mean, we have implemented a supply agreement with them. We did that at the--almost a year ago now, so we're enjoying the benefits of that. It gives us preferred pricing to the market price for glass. I think we're able to purchase it from them at about 90% of what the market price is for that glass. And their market prices for glass are significantly lower in these material systems than historical glass that we've used. So it is a tremendous benefit to us from that standpoint. So we have maintained a very good relationship with CVGM and we continue to discuss with them things that we may potentially do in the future. So we have a good relationship with them.

Great. Okay. Could you also comment on the company that went bankrupt which resulted in cancellation of an order? Is it a company that you received any significant steady order flow from? Is this something that will impact quarters going forward?

Well, this was in the telecom sector and the company that went bankrupt was not our customer directly, but it was the end user of our customer. So they have had to scramble around a little bit. We have really downplayed that sector of our business, so it was some residual business that we were doing that we lost, but it was significant in that quarter. Given as I said the nature of our backlog looking forward, that type of impact will not happen again and we were not counting on revenue growth in that area. So that's the good news.

Okay. And just to get--if you could add a little more color to Steven's question about the SBIR program with Lockheed Martin. As you approach the end of that SBIR, could you give us a little more color as to what type of products you're looking forward to selling into? What markets you look forward to selling into with the infrared and what the potential size of those markets may be?

Well, I mean, it's infrared business. It's imaging type applications primarily. They go into obviously closed circuit type cameras or fire safety type equipment. The contract itself was one where we've been developing the capability to make larger lenses. Our typical sweet spot of lenses has been--for laser based applications is around 10, 11 millimeters up to 25 maybe millimeters. We believe the sweet spot of the IR business is in that 30 to 40 millimeter range. And this program allowed us to develop the capability to make lenses of that size with our existing processes. And so, that will be of great benefit going into that marketplace. The marketplace for infrared has, like all markets, has been a very dynamic thing. The pricing has come under some pressure there, although we do believe that this is a good market for us to be in and it's a nice growth area that we can expand our business into. And it could be a significant revenue generator for us.

Great, okay. And also, touching upon the laser market, are there any other opportunities other than the cell phone markets that I know you were looking forward to working on as you expanded the China operation. Is there any other laser type applications that you are currently working on that could lead to any type of significant revenue?

Yes. I mean, we've done--we've had--while we haven't had the kind of success in the cell phone market that we would have liked, we have had very great success in the laser tool market. We have developed some significant relationships and this is some of the future business that I see getting into production in the second half of this year with--into applications such as laser levels, range finders, things of that nature. We also believe that there is a market in micro projectors that--and some of the technology that's being developed there is laser based and we have some relationships with companies there that we're working with to develop that type of business and we believe that could be a very good opportunity for us as well.

Micro projectors - companies like Microvision?

Microvision is one of the players in that business, yes.

Okay. I'm actually pretty familiar with that space. I know Texas Instruments has a micro projector out on the marketplace, but I believe they use LEDs.

There are a number of technologies that are being used there and we believe the laser based technology has some advantages from a brightness point of view, focusing capability, size capability, things of that nature that give it some unique advantages. I think--.

--Have you worked with any particular company--?

--There will be a segmentation in that marketplace, Bob, between lower end and higher end applications. And my belief is the laser based stuff will focus on the higher end applications.

Have you worked with any particular companies in that space?

We're working with several and we have sampled into a couple of those companies. And beyond that, I think it's--as I said, I think it's a very good marketplace for us to get into. I believe there's a good opportunity for that and our product fits well in there and we have a good reputation for those types of applications. So I think we're going to do very well in that marketplace as it grows. It hasn't quite taken off yet, but I do believe it's very near that.

Very good. Well, once again, congratulations on getting the company to this point. And I look forward to speaking again on the next call. Thank you very much.

Okay, Bob. Thank you.

Thank you. (OPERATOR INSTRUCTIONS.) I'm showing that we have no further questions at this time. Please continue with any closing remarks.

Thank you, Operator. I'd like to thank our shareholders and everyone who has participated on today's call. I would also like to again thank the team at LightPath Technologies for their hard work and dedication. And I look forward to updating you again on our Fiscal 2009 Third Quarter Conference Call in May. If you have further questions, please feel free to contact myself or Mark McPartland or Alan Sheinwald from Alliance Advisors. I wish everybody to have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.