LightPath Technologies Inc (LPTH) 2009 Q4 法說會逐字稿

Greetings and welcome to the LightPath Technologies Incorporated fiscal year end 2009 results conference call. (Operator Instructions) A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Dorothy Cipolla, CFO. Thank you. Ms. Cipolla, you may begin.

Thank you and good afternoon. I'd like to thank everyone for joining us today for LightPath Technologies fiscal 2009 fourth quarter financial results. Mr. Jim Gaynor, CEO of LightPath Technologies, will be your host on the call. If anyone participating on the call this morning -- or this afternoon does not have a copy of the earnings release, please contact our office at 407-382-4003.

Before I begin the call, I want 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 anticipates, 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 and can be viewed at www.sec.gov. At this time, I'd like to turn the floor over to Mr. Jim Gaynor, CEO of LightPath Technologies.

Thank you, Dorothy. And I'd like to welcome all who are on the call today as we review our fiscal 2009 fourth quarter and full year results. Well, what a year its been and I want to tell you, I could not be more excited and confident about LightPath's future and the opportunities we have in front of us.

During the fourth quarter of fiscal 2009, we continued to address the financial challenges presented by the current market economy. And even though our revenue remained flat compared to the previous quarter and is down compared to the fourth quarter of fiscal 2008, our cost performance has continued to improve. We believe the worst of the market declines are behind us and we expect to see stronger bookings over the next several quarters. We have been working diligently to penetrate new markets for LightPath and have made significant progress with our efforts in the laser tool market, particularly in Asia. These efforts have produced significant orders that have now completed customer qualification and are in production.

I am also pleased to report that we have again increased our gross margins during the fourth quarter of fiscal 2009 and we have continued to reduce our operating costs. Our gross margin for the fourth quarter of fiscal 2009 improved to 33%, from 24% compared to the fourth quarter of fiscal 2008 and to 27% for the fiscal year 2009, compared to 14% for the fiscal year 2008. EBITDA, earnings before interest, taxes and amortization for the fourth quarter of fiscal 2009, improved to a negative $21,000, from a negative $483,000 the previous quarter. These improvements have been accomplished in face of lower sales and competitive price pressure.

During the fourth quarter of fiscal 2009 over 95% of our precision molded optics were produced at our Shanghai facility. Direct labor in that facility has improved 71% in the fourth quarter of fiscal 2009, compared to the average for fiscal 2008 in our Shanghai factory. This efficiency improvement, combined with the high percentage of product now produced in that facility, has significantly reduced our labor costs. Production yields for the fourth quarter of fiscal 2009 averaged 92%. And for the entire fiscal year of 2009, averaged 87%, compared to an average of 67% for the fiscal year 2008.

We are also continuing to convert to high temperature, lower cost glass materials. And this conversion, combined with the 20% percentage point improvement in yield, has lowered our material costs. We are also continuing the implementation of new programs to reduce our service costs, aimed at tooling and our anti-reflective coating processes. As these programs come on line, we expect to see continued improvement in our already low direct costs in future quarters. In the fourth quarter of fiscal 2009, we saw the full impact of our direct cost reductions and of the previously implemented overhead reductions, resulting in a reduction of our cash used in operations by $737,000 compared to the third quarter of fiscal 2009. And for the entire fiscal year of 2009 compared to fiscal 2008, there was a $1.9 million reduction in cash used in operations.

These cost improvements, along with aggressive cash management, which have resulted from the above detailed actions, have positioned LightPath so that with just modest increases in volume, LightPath can become cash positive and reach its goal of profitability. I would like now to turn the call back over to Dorothy, our CFO, to discuss our financial results for the fiscal 2009 fourth quarter and the fiscal year in detail.

Thank you, Jim. I will first review our financial results for the three months ended June 30, 2009, followed by the fiscal results for the year. Revenue for the fourth quarter of fiscal 2009, which ended June 30, 2009, totaled $1.6 million, compared to $2.4 million for the fourth quarter of fiscal year 2008, a decrease of 33%. The decrease from the fourth quarter of last year was primarily attributable to lower sales volumes across all product lines. Growth in sales going forward is expected to be derived primarily from the precision molded optics product line, particularly our low cost lenses being sold in Asia.

Our gross margin percentage in the fourth quarter of fiscal 2009, compared to fourth quarter of fiscal 2008, increased to 33%, from 24%. Total manufacturing costs of $1.1 million was $755,000 lower in the fourth quarter of fiscal 2009 compared to the same period of the prior fiscal year. Direct costs, which include material, labor and services, were reduced 3% to 23% of revenue in the fourth quarter of fiscal 2009, as compared to 26% of revenue in the fourth quarter of fiscal 2008. Gross margins improved as a result of the cost reduction programs we have implemented.

During the fourth quarter of fiscal 2009, total costs and expenses decreased $975,000 to $690,000, compared to $1.7 million for the same period in fiscal 2008. Included in total costs and expenses for the fourth quarter of fiscal 2009 were $481,000 in selling, general and administrative expenses, which decreased $896,000 or 65%, from $1.4 million for the same period in the prior fiscal year.

In the fourth quarter of fiscal 2009, LightPath benefited from two one-time events. We received $186,000 from our D&O insurance carrier as a refund for legal expenses and received $181,000 from a gain on funds received for our move of our Shanghai facility. Other items creating a reduction are for salaries and benefits, which were lower by $226,000 comparing the fourth quarter of fiscal 2009 to fiscal 2008 due to reduced headcount and salary reductions and stock compensation was $90,000 lower and written utilities were $52,000 lower. As a result, total operating loss for the fourth quarter of fiscal 2009 improved to $159,000, compared to a loss of $1.1 million for the same period in fiscal 2008.

Net loss for the fourth quarter of fiscal 2009 was $318,000 or $0.05 per basic and diluted share, compared with a net loss of $1.1 million or $0.21 basic and diluted per share for the same period in fiscal 2008. This compares to a net loss of $756,000 or $0.11 per basic and diluted share for the third quarter of fiscal 2009. This represents an $814,000 decrease in net loss from the fourth quarter of fiscal 2008, compared to the fourth quarter of fiscal 2009. Weighted average shares outstanding increased in the fourth quarter of fiscal 2009 compared to the prior year primarily due to the issuance of common shares related to the partial conversion of debentures.

And now I'll talk about the full year of fiscal 2009. Revenue for the fiscal year ended June 30, 2009 totaled $7.5 million, compared to $8.8 million for the prior fiscal year, a decrease of 15%. The decrease from the prior 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 precision molded optics, particularly our low cost lenses being sold in Asia.

Our gross margin percentage, in the fiscal year 2009 compared to fiscal year 2008, increased to 27% from 14%. Total cost of sales was $5.4 million, which represented a $2.1 million decrease in the fiscal year 2009, compared to $7.6 million in the prior fiscal year. Direct costs, which include materials, labor and services were 23% of revenue in fiscal year 2009, as compared to 24% in fiscal year 2008. Gross margins improved as a result of the cost reduction programs the Company has implemented.

During the fiscal year 2009, total costs and expenses decreased approximately $2.1 million or $4.6 million, compared to $6.7 million in fiscal year 2008. Included in total costs and expenses for fiscal year 2009 were $3.7 million in selling, general and administrative expenses, which decreased $1.8 million from the same period in the prior year. In the fourth quarter of fiscal 2009, LightPath benefited from two one-time events, the receipt of $186,000 from our D&O insurance carrier as a refund of legal expenses and the receipt of $181,000 from the Chinese government related to the move of our manufacturing facility in Shanghai. Overhead expenses were reduced $894,000 from fiscal 2008 due to headcount reductions and salary reductions and reduced rent and utilities due to reduced space in Orlando. Total -- (technical difficulty)

Ladies and gentlemen, please remain on the line. We're experiencing some technical difficulties with our speakers' lines. Ladies and gentlemen, please remain on the line. Due to technical difficulties, the conference will resume momentarily. Thank you. Ladies and gentlemen, thank you for holding. I'd like to introduce Mr. Jim Gaynor.

Ladies and gentlemen, I'm sorry, apparently we got disconnected at some point in that part. So what I would like to do is just go back and start my closing comments. I apologize if I'm repeating some of this and I also apologize for the disconnection. I don't really know what happened.

Anyway, as I was saying, our results for the fiscal year are a positive reflection of the much hard work and effort by the team at LightPath to control our costs and mitigate expenses. And despite a decrease in our revenues, we managed to dramatically enhance our gross margins and decrease our losses over the previous year. We expect the full affect of the efficiencies we have implemented will continue to reduce cash usage and operations going forward. With the operating efficiencies and the low cost structure we have now put in place, our focus going forward will be growth.

We are taking actions to increase our exposure to existing markets and expanding that exposure into new markets for LightPath, both geographically and by expanding our channels to market. We have targeted specific market segments, industrial laser tools, thermal imaging, and micro projectors. The market for these type of applications is forecasted to grow over the next three to five years, at a device and system level, to around a $6 billion opportunity. That translates to a market of approximately $1.5 billion for glass and plastic aspherics. And we estimate that this would make available, as a served available market for LightPath, an opportunity of between $100 million and $200 million.

With this market opportunity, the changes we have made over the past year, we are confident that we will build our pipeline of business. We currently have over 15 new lenses in development for new customer programs and to also fill out our portfolio of lenses addressing these particular targeted markets. Our efforts to penetrate high volume, lower cost commercial markets in Asia show tremendous promise for the next fiscal year. Going forward, we will continue our focus on the lower cost, higher volume market opportunities and implementing channels to broaden our exposure in the Asian precision optics lens market.

Now, once again, this concludes my formal comments. And at this time, I would like to open the call for questions. Operator? Would you please start the Q&A portion of the call?

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Robert Engbinder with Garden State Securities. Please proceed with your question.

Hi, Bob.

Robert, your line is live for a question.

Good afternoon, Jim. Good afternoon, Dorothy. He tore apart my name. It's Bob Engbinder. Same way I think he did the system there. But anyway, I would just like to congratulate the team on a fantastic job getting the Company to where you are today. A lot of hard work I know to get here. Things look good. And I would like to ask you, Jim, just a little bit about the 15 new proposals, 15 new lenses that you have under development, some new customers. If you can give us a little color on that and where you stand and what that looks like going forward?

Well what we've tried to do, Bob, is fill up our normal pipeline of products coming through, while we were reducing our costs. These are lenses that are in a couple of different categories. Some of them are for specific customer applications, maybe custom type lenses. Others are for, as I said, to attack a particular market segment where we will be making a short wavelength lens group or something that fits around the micro projector type opportunity. There's some IR thermal imaging type lenses in that group. So, it's a whole host of things and they are in various stages of development.

All right. So, some of those development type situations, timewise when do you think we might be able to hear something more substantial?

Well, they'll be coming out all along and I expect that we will continue to fill that pipeline of lenses. So, we'll hear within the next few weeks, months and all through the next year, we'll be releasing these things as we continue this development.

That sounds great. So with the cost structure currently in place, that sounds like profitability to me. That's all I really needed to hear. Thank you very much and good luck in the future.

All right, thanks, Bob.

Thank you. Our next question comes from the line of Michael [Dyat] with Dyat and [Bohada]. Please proceed with your question.

Jim and Dorothy, it's a great report. As Bob said, I think it sounds good. I just have two questions following up on earlier conference calls. I just wondered if anything came out of the Navy phase to work and that conference at Crystal City? And secondly, the European distribution announcement you made, is that consistent with the strategy that you just outlined?

Okay, all right. Let me take the first one first, Bob. We are entering the final phase of the SBIR program that we've been working on, which was sort of the development of the process to mold larger lenses. And that program is in the final stages and is wrapping up and we will have a successful conclusion to that. And in terms of the conference and things that have come out of that, I think we've gotten a better understanding of the market opportunity in front of us in that particular thermal imaging and infrared sector. And it looks very promising to us. Beyond that, I don't have anything specific coming out of that conference but I think it certainly has given us some exposure, which we will try to capitalize on.

Second part of your question, the distribution network that we're opening up in Europe, absolutely. That's part of our expansion through that area. Previously, we had a number of very small distributors. So, what we have done is gone to more of a master distribution type thing and we have offices and actually branches in more locations in Europe than we had before. And I think that's going to end up giving us much better coverage. The type of people that this particular distributer has are very well educated, technical people in the field of optics and we get very good leads and business through that channel. We're going to continue to expand that type of thing in other areas of the world as well. And in the future there will be some news coming out about that as well.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of [Steve Jacobs] who is a private investor. Please proceed with your question.

Good afternoon. I have a couple questions regarding margins. Could you give us guidance in terms of what your target margin is at the gross, operating and net level please?

Well, at the gross margin, we believe we are still in a situation where we have some underutilization of our fixed costs. And I expect those margins -- we have an opportunity maybe to grow those margins another 9 to 10 points, which would put us in the range of the lower to mid 40's for our margin targets at the gross margin level. When we get to that level, I think we'll be at a profitability point and our targets there are anywhere from 5% to 17% from then.

5% to 17% net margin on a 45% type of gross margin?

Right.

Okay. And then, what level of sales do you have to generate in order to be profitable right now?

I would think we'd have to be in the $2.8 million to $3 million per quarter range.

A $3 million run rate?

Yes.

Okay, great. Thanks a lot.

You're welcome.

(Operator Instructions). Our next question comes from the line of Steven Hart with Heller Capital Partners. Please proceed with your question.

The first question is for Dorothy. The one-time receipts that totaled $367,000, was that credited into your operating expense or were they a non-income statement aspect?

No, they were credited into our operating expenses.

Okay. So, the operating expense kind of run rate for a quarter remains around $1 million to $1.1 million a quarter. Is that correct?

That's correct.

Okay. So, in general, it sounds like things are really ticking up, as a previous questioner talked about, in a positive way in terms, of orders and bookings. Can you tell us when will we start to -- we're almost done with the next quarter now. Is it this current quarter or maybe the December or March quarter that we will start to see a reflection of this in incremental revenue in a quarter?

Steve, I would think it's probably going to be in our second fiscal quarter when we start to see that pick up in revenue. What we have seen is we came through a very weak period of bookings in Q4 but we've seen a significant strengthening of that during the current quarter. So, that will take a little while to transfer through. I think we -- I don't think things are going to get any worse than we've currently been doing but we'll start to see a slight improvement. But what I really expect to see is that revenue growth start in the second quarter.

All right, super. And in terms of you making great strides in the laser tool segment, especially in Asia, what is it about your optics that's causing you to win this business?

Well, I think it's a simplification of the assembly process for a lot of the customers. What we're doing basically is going in and replacing an existing spherical solution, which maybe multiple components compared to a single asphere. So we could go in and replace a double and triplet type design with a single part, which gives them the ability to make their assembly operations simplified. So, what we're doing currently, our initial things have been parts where we've gone in and replaced existing solutions like that. In addition to that, we're starting to work with some of these customers on new projects where we're just going with that design.

Okay. And how does your single part solution, how does that compare in cost versus the existing spherical solutions?

It's typically around the same cost.

And is anyone else competing with you for that business with what you would call the next generation optic that you're using, the single part versus what has been prior used?

Well, there's a lot of competitors out there but I think we have a cost structure such that we can compete with them without any problem.

The other point is that, even though our costs are the same, it saves our customers some labor costs in assembly.

It's simplification, there's less alignment that they have to do and things of that nature. So, it's an easier assembly and there's fewer components for them to deal with.

Okay, great. Thanks very much. I look forward to you seeing more progress over the next couple quarters.

Thank you, Steve.

(Operator Instructions). We have another question coming from [Steve Donovan] who is a private investor. Please proceed with your question.

Jim and Dorothy, congratulations. I really am grateful that you're doing such a great job and I know you're working your tails off.

It's good to hear from you Steve.

Thank you. I just have one quick question and that is in China, are you selling or manufacturing assemblies or individual units?

Currently, we're still -- well actually, we're doing both now but the majority of what we're selling is single lenses. But we have started some assembly operations in that factory, especially with isolators and those types of products.

And your business plan, which I learned about years ago, it seems to be a real accelerator to revenues who jump from individual lenses to total assemblies.

Correct. It's -- moving up the food chains is one of the longer term strategies that we have.

Okay, many thanks.

All right, Steve. Thank you.

(Operator Instructions). There appear to be no further questions at this time. I would now like to turn the floor over to management for closing comments.

Thank you, operator. I'd like to thank our shareholders and everyone who has participated on today's call. And I would like to thank the team at LightPath Technologies for their hard work and dedication. I look forward to updating you all again on our fiscal 2010 first quarter conference call in November. If you have any further questions, please feel free to contact myself or Dorothy and have a great day. Thank you.

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