LightPath Technologies Inc (LPTH) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the LightPath Technologies third quarter 2009 financial results conference call. (Operator Instructions) This conference is being recorded today, May 14, 2009. I would now like to turn the conference over to Mark McPartland of Alliance Advisors. Please go ahead.

Thank you, operator, and good afternoon, everyone. We would like to thank you again for joining us today for LightPath Technologies' fiscal 2009 third quarter financial results conference call.

Joining us on the call this afternoon are Mr. Jim Gaynor, CEO, Dorothy Cipolla, CFO, and Mr. Bob Ripp, Chairman of LightPath Technologies. They will be the host on your call this afternoon. If anyone participating on the call today does not have a copy of the earnings release, please contact our offices at 914-669-0222. Now, before we begin the call, I'm going to review the Company's Safe Harbor statements. Statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to 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, belief, 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 US Securities and Exchange Commission, which can be reviewed at www.sec.gov. At this time, I would like to turn the call over to Mr. Jim Gaynor, CEO of LightPath Technologies. Go ahead, Jim.

Thank you, Mark. Thank you all for joining for us today for our fiscal 2009 third quarter results conference call. During the third quarter, we continued to face financial challenges due to the current economy.

With that being said, we believe we are near a bottom and expect demand to begin to strengthen over the next several quarters. We have continued to work diligently to penetrate new markets and establish ourselves in Asia. And these efforts have produced significant orders, which we anticipate to be in production over the next three to six months, subject to some customer qualifications. Over the past several quarters, we have been focusing on managing our costs and increasing our gross margins year-over-year and during the third quarter, we were successful in continuing that trend. Our gross margin for the third quarter of fiscal 2009 improved from 20% to 25% compared to the third quarter of fiscal 2008 and the 26% for the first nine months of 2009 compared to 10% for the same period one year earlier. We accomplished these results in spite of lower sales volume and competitive pricing pressures. Additionally, over 95% of our precision molded optics were produced at our Shanghai facility where our direct labor productivity has improved 66% during the quarter. Our improved efficiency combined with the high percentage of our product now produced in this facility, has significantly reduced our labor costs.

Production yields for the first nine months of fiscal 2009 averaged 87% compared to an average of 67% for the fiscal year 2008. We are continuing to convert to high temperature, lower cost glass materials, which when combined with the 20-percentage point improvement in yields, has lowered our material costs. We have also implemented new programs to reduce our service costs aimed at tooling, and our anti-reflective coating processes. As these programs come online, we expect to see continued improvement in our already low direct costs in future quarters. We have also implemented a series of overhead cost reductions. And with the transfer of our manufacturing operations to Shanghai, the work force in Orlando has been reduced by 42% since December 2007. Also, as a result of these productivity improvements I just mentioned in Shanghai, we have reduced the work force there by 20%, since December 2008.

Lastly, we implemented a 20% salary reduction for the majority of our US-based personnel in March of 2009. All of these changes have resulted in a reduction of our cash used in operations by 94% from the first quarter of fiscal 2009 to the third fiscal quarter of 2009. And 81% from the second quarter of fiscal 2009 to the third quarter of fiscal 2009. As the full impact of these improvements are realized and our forecasted revenues are achieved, we believe we will be seeing continued reductions of cash used in operations. I would like now to turn the call over to Ms. Dorothy Cipolla, CFO, to discuss our financial results for fiscal 2009 third quarter in detail. Dorothy?

Thank you, Jim. I will first review our financial results for the three months ended March 31, 2009 followed by the nine month results for the same period. Revenue for the third quarter of fiscal 2009 ended March 31, 2009, totaled $1.66 million compared to $2.11 million for the third quarter of fiscal 2008, a decrease of 22%. The decrease from the third quarter of last year was primarily attributable to lower sales volumes of molded optic products and isolators. Growth in sales going forward is expected to be derived primarily from the precision molded optics product line, driven by low cost lenses in Asia our infrared product line. Our gross margin percentage in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 increased to 25% from 20%.

Total manufacturing costs of $1.2 million was $0.5 million lower in the third quarter of fiscal 2009 compared to the same period of the prior fiscal year. Direct costs, which include material, labor, services, were reduced three percentage points to 21% of revenue in the third quarter of fiscal 2009, as compared to 24% of revenue in the third quarter of fiscal 2008. Gross margins improved as a result of the cost reduction programs the Company has implemented.

During the third quarter of fiscal 2009, total costs and expenses decreased $591,000 to $1 million compared to $1.6 million for the same period in fiscal 2008. Included in total cost in expenses for fiscal year 2009 were $817,000 in selling, general and administrative expenses, which for the third quarter of fiscal 2009 decreased $455,000, or 36% from $1.3 million for the same period a year ago. As a result, total operating loss for the third quarter of fiscal 2009 improved $0.6 million compared to the loss of $1.2 million for the same period in fiscal 2008. Net loss for the third quarter of fiscal 2009 ended March 31, 2009 with $756,000, or $0.11 per basic and diluted share compared with a net loss of $1.2 million, or $0.22 basic and diluted per share for the same period in fiscal 2008. This compared to a net loss of $1.7 million, or $0.29 per basic and diluted share for the second quarter of fiscal 2009, which ended in December 2008. This represents a $959,000 decrease in net loss.

The net loss for the quarter ended December 31, 2008 included $641,000 in charges related to fees, debt costs and debt discount write-offs associated with the conversion of 25% of our outstanding debentures into common stock. Weighted average shares outstanding increased in the third quarter of fiscal 2009 compared to the third quarter in fiscal 2008. Primarily due to the issuance of the common shares related to the debenture conversion in interest prepayments shares that were paid in common shares. Revenue for the nine months ended March 31, 2009 totaled $5.9 million compared to $6.4 million for the first nine months of fiscal 2008, a decrease of 8%. The decrease from the prior fiscal year was primarily attributable to lower sales volumes of molded optics, collimators and Gradium products.

Growth in sales going forward is expected to be derived primarily from the precision molded optics driven by low cost lenses in Asia and from our infrared product line. Our gross margin percentage in the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008 increased to 26% from 10%. Total cost of sales was $4.4 million, which represents the $1.4 million decrease in the first nine months of fiscal 2009 compared to $5.8 million in the same period of the prior fiscal year. Direct costs, which include material, labor, and services, remain stable at 23% of revenue for both the first nine months of fiscal 2009 and 2008. Gross margins improved as a result of the cost reduction programs the Company has implemented.

In addition, we incurred a one-time inventory valuation adjustment of approximately $374,000 in the nine months ended March 31, 2008 that was not incurred during the nine months ended March 31, 2009. During the first nine months of fiscal 2009, total costs and expenses decreased approximately $1.2 million to $3.9 million compared to $5 million for the same period in fiscal 2008. Included in total costs and expenses for the first nine months of fiscal 2009 were $3.2 million in selling, general, and administrative expenses, which decreased $908,000 from the previous year's period. As a result, total operating loss for the first nine months of fiscal 2009 improved to $2.3 million compared to $4.4 million for the same period in fiscal 2008. Net loss for the nine months ended March 31, 2009 totaled $3.5 million, or $0.58 per basic and diluted share compared with a net loss of $4.3 million, or $0.81 per basic and diluted share for the same period in fiscal 2008. This represents an $831,000 decrease in net loss. The net loss for the first nine months includes $641,000 in charges related to fees, debt costs, and debt discount write-offs associated with the conversion of 25% of the outstanding debentures.

Weighted average shares outstanding increased in the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008 primarily due to the issuance of common shares related to the conversion of the debentures and shares issued for the prepayment of interest. On the balance sheets, cash and cash equivalents totaled $380,068 at March 31, 2009. Total current assets and total assets at March 31, 2009 were $3.2 million and $5.5 million compared to $3.3 million and $5.5 million at June 30, 2008 respectively. Total current liabilities and total liabilities at March 31, 2009 were $2 million and $3.5 million compared to $3 million and $3.3 million respectively for June 30, 2008.

As a result, the current ratio as of March 31, 2009 improved to 1.65 to 1 compared to 1.10 to 1 for the year ended June 30, 2008. Total stockholders equity at March 31, 2009 totaled $1.9 million compared to $2.2 million at June 30, 2008. As of March 31, 2009, the Company's backlog of orders to be filled in less than one year was $3.4 million compared to $3 million as of December 31, 2008. I would now like to turn the call back over to Jim for closing comments.

Thank you, Dorothy. Our results for the first nine months of this year are a positive reflection on the much hard work and effort by the team at LightPath to control our costs and mitigate expenses. Despite a decrease in our revenue, we've managed to dramatically enhance our gross margins and decrease our loss over the previous year. We expect the full effect of these efficiencies we have implemented to lower cash usage going forward compared to the third quarter of fiscal 2009.

Our cash balance as of March 31, 2009 was $380,000. We have taken certain actions to conserve our cash, including extending payment terms with certain of our suppliers, we have negotiated payment plans with some key vendors, and are working with other vendors to develop payment plans. We believe LightPath currently has sufficient cash to fund its operations through October 31, 2009, assuming our revenue stays at current levels and no additional sources of capital are used. However, this quarter we expect to receive approximately $276,000 for D&O insurance settlement from a claim filed in 2007. These funds should provide additional flexibility in sustaining operations. The extent to which we can sustain our operations beyond this timeframe will depend on our ability to increase revenues from the low cost lenses and from infrared lenses, or from the sale of some nonstrategic assets, or from future equity or debt financing.

Recent booking trends have been slower than planned, given the current economic condition. However, we believe that by taking our current booking rate, combined with our existing order backlog, that we will be able to generate increased revenues. We remain confident that the changes we have made over the past year will reap positive rewards and as we generate more sales and build our pipeline of business. We remain encouraged by our disclosure backlog at $3.4 million and a number of new product proposals we have undertaken in the past nine months. Our efforts to penetrate the high volume, lower cost commercial markets in Asia show tremendous promise for the remainder of our fiscal year. Going forward, we'll continue to focus on the lower cost, higher volume market opportunities and broaden our exposure in the Asian precision optic lens market and also the expansion of our infrared lenses. This concludes my formal comments. And at this time, I would like to open the call for questions. Nicole, please start the Q&A portion of the call.

Operators Instructions)

Our first question comes from the line of Robert Ainbinder with Garden State Securities. Please go ahead.

Good afternoon, Jim, Bob, Dorothy.

Hello.

First, I would like to say I very much applaud your efforts in reducing costs and expenses. Obviously in these challenging times, I think you've done a fantastic job in that regard. But my question, my first question goes to your projection of having enough cash to take you through to October 2009. It sounds to me, Jim, like you were essentially stating that if you receive the additional $267,000, that that cash would take you beyond that day, is that correct?

Yes, that's correct. We have not factored that into the original date. That would be over and above that.

Okay, great. So obviously that would,has a significant impact. Would you make an announcement regarding the receipt of that, of those funds?

Yes, I mean we'll let you know when that happens.

That's great.

I fully expect that to happen within the next two months.

Okay. And then obviously, what we all are looking forward to is an increase in revenue through additional contracts. Could you give us a little more color as to where some of your progress is being made in Asia?

Well, we have significant orders on our books for product that is primarily targeted towards the industrial tool segment and laser tools. We've been working with a number of customers in China, who use significant volumes of these types of lenses on qualifying those lenses and we're in the final stages of that. And I fully expect that those things will be going into production mode here during the month of June and then carrying into the next the following quarter. From a unit volume point of view, this is the kind of thing that will double or triple or volume running through the factory.

Okay. So, if these deals are procured, this obviously is also not factored in to your projections in terms of your cash, right?

Right. We have not, I mean they are projected into our revenue stream beginning in the first quarter of '10. We have not projected, as we ramp this up in production, we're basically using the fourth quarter to do that.

Okay, and could you give us an idea of where, with the additional cost reductions and expense reductions that you referred to in the call, where do you see a breakeven number for revenues? Where do you see a breakeven number?

I think as we move to the, around the $2.5 million a quarter, we should be in very good shape, I think from that standpoint. It's in that range of revenue.

Okay, and could you also give us a little more color as to what you're working on in the infrared market?

Well, we have, we are actually in production in shipping product at some of those lenses. These address fire safety type applications, as well as some thermal imaging type applications and those things are beginning to ramp. I mean, we've got orders on the books, which is a good start for us, And we were very, there's quite a heavy quote activity going on in the infrared area as we make a presence out there of actual product. I expect that to continue to grow as well.

Okay, and what was your capacity utilization rate for this quarter?

I think we were at 35%. The capacity, we have the capacity in place just to do the numbers that I've been talking about.

Okay. All right. Very good. Look forward to next quarter.

Thank you very much, Bob.

Thank you.

(Operators Instructions) Our next question comes from the line of Michael Dite with Dite and (inaudible). Please go ahead.

Thank you. Congratulations to all of you. It sounds like a lot of progress has been made. I was simply curious about the Department of Defense work you mentioned in prior conference calls. And whether that's still going on. Is it going on in Orlando, and are the prospects factored into the numbers that you listed for us?

You're referring to the FBR contract we're working on, Michael?

Yes, some work for the Navy, I thought.

That work is continuing. We're approaching the end of, those things are bucketed into phases. We went through phase one. We're currently working in Phase II now, which is the final development of the process that produces a prototype product and that's the stage that we're in and that's continuing.

I expect that will go on for the next few months and then from there then you go try to find some commercial applications for that, that stuff with the defense contractor or whatever. The good news is, not only does it allow us to do that, but most of that work that we're doing is very applicable to our other products as well. The main focus of this particular development program we're working was the ability to mold this IR material and to mold it in larger sizes than we have typically molded before. Now, obviously that also gives us some experience and knowledge that we can apply to the visible lenses as well.

Great. And then last May you had been, you had had that potential agreement on the Gradium product line and then renegotiated, or dropped that. And I just wondered what your current thinking is on Gradium. You mentioned, I think Dorothy mentioned those sales are off a tad.

The volume is down in the Gradium, but we have done some things in terms of stocking programs and pricing programs. So actually the margin in the product line has quite substantially increased. It's really just a niche product and the strategy that we're employing with that is to harvest that business and continue to provide it to our customers in a niche business. And what we're really doing is focusing on the customers who are have that product designed into their applications and have a continuing need for it.

Thank you very much.

Thank you.

Our next question comes from the line of Bart Marcy with -- private investor. Please go ahead.

Good afternoon, everyone.

Hi, Bart. How are you? Very well. Corning and Micro Vision announced last week their agreement for Corning to supply its G1000 green lasers to Micro Vision. And then today Corning said it would introduce its green laser G1000 at the society for information displays this week. I know in past conference calls, we talked a little bit about LightPath's involvement with Micro Vision.

Can you bring us up to date as to whether that's looking good, bad, or indifferent? I think that continues. We're continue to wait for Micro Vision to move into their production phase. We are designed into their product and we are also designed into the Corning green laser, which I believe Corning is going to market with as a package as opposed to just providing the diode.

Yes. That's what the implication was about the announcement today, that they are going to introduce it during the society for information displays.

Right.

So we are designed into that package. We are also on their prints for red and green, I mean for red and blue. But we are designed in for the green laser package.

Thank you very much for the update.

You're welcome. Thank you.

Our next question comes from the line of Steve Donovan with Donovan Associates. Please go ahead.

Hi, there. Thank you for the great report.

Thanks, Steve. Good to hear from you.

My only question is in light of this global economic meltdown, have you re-thought any aspect of your marketing strategy? Is anything being deemphasized or?

Well, I think, we are really heavily focused on our molded lenses. And in particular, Steve, we are focusing on a couple of markets that we think are, have short-term, as well as some longer-term potential in terms of the industrial tools and the laser tools. And we're actively working very closely with the customers in Asia for that, which there is tremendous demand for it. And then on a little longer-term basis, as was just brought up, we are focusing on the micro projector-type applications that this micro vision product is one, but we are developing a whole family of lenses associated to those types of technologies, which are more than just these micro projectors. I mean that goes across bar codes, micro spectrometers, heads-up display type devices, rear projection TV. So there's quite a bit of application for lenses of that type and particularly if those are laser-based light sources, is the technology of choice in some of those devices. So that's where we are focusing our main efforts to do that. Now, we are also working to expand our distribution network both in Europe and Asia and I think we will have some success with that. We recently just signed a contract with a major distributor to cover most of Europe. And going forward, I think that's going to work well for us in that area of the country, or the world, I mean.

So in summary, you would say you're pretty much on the same course that you were six months ago?

Yes Our basic strategy has not changed from the fact of we have put a lot of effort into changing our cost structure so that we can address markets that we weren't previously able to do. And take that, that low cost, high volume type opportunity and go after those types of applications and to also use our presence in China to leverage our way into that market. I mean that's been our strategy for the last year, year and a half, and it continues to be.

Wonderful. Great work. Thanks so much.

All righty. Thank you, Steve.

Thank you.

And there are no further questions. Please continue.

Okay. Well, thank you, operator. I would like to thank our shareholders and everyone who has participate on today's call. I would like to thank the team at LightPath Technologies for their hard work and dedication. And I look forward to updating you again on our fiscal 2009 fourth quarter and full year conference call in September. If you have further questions, please feel free to contact myself or Mark McPartland or Alan Shywell from Alliance Advisors. We wish everybody to have a great day.

Thank you. Ladies and gentlemen, that does conclude the LightPath Technologies third quarter 2009 financial results conference call. This conference will be available for replay. You may access the replay system by dialing 303-590-3030, or you may also dial 1-800-406-7325. To access the replay, you must enter in the access code of 4068699. Ladies and gentlemen, thank you for your participation today. You may now disconnect.