LightPath Technologies Inc (LPTH) 2010 Q1 法說會逐字稿

Greetings and welcome to the LightPath Technologies first quarter earnings call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Dorothy Cipolla, CFO for LightPath Technologies. 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 2010 first quarter financial results conference call. Mr. Jim Gaynor, CEO of LightPath Technologies, will be your host on the call. If anyone participating on the call this afternoon needs a copy of the earnings press release, please contact our office at 407-382-4003.

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 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, which can be reviewed at sec.gov on the Internet. At this time, I would like to turn the floor over to Mr. Jim Gaynor, CEO of LightPath Technologies.

Thank you, Dorothy. And thank you all for joining us today for our fiscal 2010 first quarter results conference call.

During the first quarter of fiscal 2010, we continued to experience the weak market conditions, which are reflected in the continued low shipment number of $1.6 million for the quarter. However, we did see an increase in our new order volume, as evidenced by the 35% increase in our backlog, which is scheduled to ship within in the next 12 months.

We have also seen a pick up in our quote activity, which is up 22% over Q3 and another 10% up over the rate that we experienced the previous quarter. The increase in orders was led by activity in the Asia telecom applications and our laser tool applications, with particular strength in gun sights.

As we have previously announced, we have taken several steps to enhance our channels to market with additional -- with the addition of new distributors and adding direct sales personnel in key areas in the US and China. I'm excited about our distribution agreements with WPG Americas and WPG Southern Asia in Asia with our continuing and expanded relationship with AMS technologies in Europe. These relationships significantly expand our exposure to and presence in these markets with WPG's more than 30 offices in Asia and 22 regional offices in the Americas, and AMS's five key offices throughout Europe.

We continue to work diligently to penetrate new markets for LightPath products. And in particular, we have made significant progress with our efforts in the laser tool market and in particular in Asia.

Also during this period, we have continued to improve our cost performance. Our gross margin improved significantly during the first quarter of fiscal 2010 and as we have continued to reduce our operating costs by shifting more production to lower-cost glasses and sourcing more materials and services from China. In Q1, 85% of the product shipped was built using these lower-cost materials. The increased production volume in our Shanghai facility has allowed us to take better advantage of our fixed costs.

Unit volume is up 204% from one year ago rates. And as a result of these things, our gross margin for the first quarter of fiscal 2010 improved to 43% as compared to 27% in the first quarter of fiscal 2009. Our cost improvements along with aggressive cash management have position LightPath to become cash positive and reach its goal of profitability with only modest increases in sales volume.

I would now like to turn the call back over to Ms. Dorothy Cipolla to discuss our financial results for fiscal 2010 first quarter in detail. Dorothy?

Thank you, Jim. I will review the results for the three months ended September 30, 2009. Revenue for the first quarter of fiscal 2010, which ended September 30, 2009, totaled $1.6 million, compared to $2.3 million for the first quarter of fiscal year 2009, a decrease of 33%. The decrease from the first quarter of the prior year was primarily attributable to lower sales volumes across all product lines except molded optics.

Our molded optics sales units were significantly higher, but our average selling price was lower. This is the result of our pursuit of the high-volume, low-cost lenses. Our current cost structure has allowed us to sell product at lower prices while improving gross margins. 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 first quarter of fiscal 2010 compared to first quarter of fiscal 2009 increased to 43% from 27%. Total manufacturing cost of $888,000 was $818,000 lower in the first quarter compared to the same period in the prior fiscal year. This was due to lower production costs.

Unit shipment volume in precision molded optics is up 204% in the first quarter 2010 compared to the same period last year. This resulted in better absorption of overhead costs, which results in improved fixed cost utilization, which lowers our unit cost.

Direct costs, which include materials, labor, and services, were reduced to 17% of revenue in the first quarter of fiscal 2010, as compared to 25% of revenue in the first quarter of fiscal 2009. Gross margins improved as a result of the cost reduction programs we have implemented and better production yields and efficiencies.

During the first quarter of fiscal 2010, total costs and expenses decreased $310,000 to $1.2 million compared to $1.5 million for the same period in fiscal 2009. Included in total costs and expenses for the first quarter of fiscal 2010 were $962,000 in selling, general, and administrative expenses, which decreased $268,000 or 22% from $1.2 million for the same period in the prior fiscal year.

Our decrease from general -- selling, general, and administrative expenses included a reduction in salaries and benefits of $194,000 for the first quarter of fiscal 2010 compared to the prior year, which was due to the reduced headcounts and salary reductions. We also had a $58,000 decrease in rental costs, a $32,000 decrease in accounting fees, and a decrease of $26,000 in insurance expense.

Also, in the first quarter of fiscal 2010, we benefited from the receipt of a one-time payment in the amount of $276,000 from our prior D&O insurance carrier as a reimbursement of legal expenses we incurred. This was partially offset by investor relation expenses of $150,000. As a result, total operating loss for the first quarter of fiscal 2010 compared -- improved to $527,000 compared to a loss of $875,000 for the same period in fiscal 2009.

Net loss for the first quarter of fiscal 2010 was $706,000 or $0.09 per basic and diluted common share, compared with a net loss of $1.0 million or $0.19 per basic and diluted per common share for the same period in fiscal 2009 and a net loss of $318,000 or $0.05 per basic and diluted common share for the fourth quarter of fiscal 2009. This represents a $317,000 decrease in net loss compared to the first quarter of fiscal 2009.

Weighted-average shares outstanding increased to 7.6 million in the first quarter of fiscal 2010 compared to 5.4 million in the first quarter in fiscal 2009 primarily due to the issuance of common shares related to the partial conversion of debentures and the private placement of common stock in the first quarter of fiscal 2010.

Cash and cash equivalents totaled $1.2 million at September 30, 2009. Total current assets and total assets at September 30, 2009 were $3.8 million and $6.2 million compared to $3.3 million and $5.8 million respectively at June 30, 2009.

Total current liabilities and total liabilities at September 30th were $1.5 million and $3.6 million compared to $2 million and $4.1 million respectively for June 30, 2009. As a result, the current ratio as of September improved to 2.6 to 1 compared to 1.61 to 1 as of June 30, 2009. Total stockholders' equity at September 30th totaled $2.6 million compared to $1.7 million at June 30, 2009.

As of September 30, 2009 our backlog of orders scheduled to ship in the next 12 months, was $3.1 million compared to $2.34 million as of June 30, 2009.

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

Thank you, Dorothy. Our results for the first quarter of fiscal 2010 are a result of the much hard work and effort by our -- the team at LightPath to control our costs, mitigate our expenses, and to develop new products.

Despite level revenues over the last three quarters, we have improved our gross margins. We expect the increased unit volumes in precision molded optics will better absorb our fixed costs and continue to reduce cash usage in operations going forward. With our current operating efficiencies and low-cost structure, our focus now turns to revenue growth. And as we have explained in part, we have taken several actions to aid in that growth of revenue. The first of those being the expanded sales channels and the distribution -- and the distributors that we have recently added.

And the second step that we've taken to increase those revenues has to do with identifying particular market segments that we want to address. And those market segments were new type products to LightPath, our laser tools, thermal imaging, micro projectors, and fiber to the home type applications.

We believe that there is a served available market opportunity for LightPath in those market areas that totals about $155 million. Our existing market, served available market, is about $25 million, which gives us a total market that we can address of $180 million. This defined market opportunity is at least seven times larger than what our historical market that we've been able to address has been. In addition, this is a much more diversified market for us to address.

LightPath has the technologies, the products, the manufacturing capability, and capacity to address these market areas. And now we've put in place the cost structure that allows to compete and to take that market share.

We are excited by the number of new lenses we have under development for outstanding orders and new product proposals. We currently have over 15 new lenses in development for new customer programs and to fill out our portfolio of lenses addressing our targeted markets. And our efforts to penetrate high-volume, lower-cost commercial markets in Asia shows tremendous promise for this fiscal year. Going forward we will continue to focus on these market opportunities and on utilizing our new distribution channels to expand our presence in the Asian precision optic lens market.

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

Thank you. (Operator instructions) Our first question comes from Robert Engbinder from Garden States Securities. Please proceed with your question.

Good afternoon, Jim and Dorothy.

Hi, Bob. How are you?

Well, first let me congratulate you on a lot of hard work here to get LightPath to the position you're in today. Look forward to profitability as we go into the second half of this year.

My first question goes to Jim. Jim, can you give us a better understanding of what these distribution agreements, or this distribution agreement with WPG of Americas really means to the Company? And what that could potentially mean in terms of revenue?

Well, this is a -- WPG Holdings is a -- is probably one of the largest electronics distributors in Asia. They're a multi-billion corporation and they have, as I mentioned, over 30-some offices throughout Asia. What it does for us -- and I think they have some 500 sales people associated with those offices throughout the Asia region. This gives LightPath obviously an expanded channel to the market. It gives us access to markets that we never had good coverage in before. And as we develop this relationship with them in Asia, it just allows us to cover so much more territory than we could ever do by ourselves.

This is a relatively new venture for them in terms of working in the optics area, but they are very well connected and they have a lot of very good product lines that they carry. And a lot of those would be pull-through. We anticipate we're -- they sell a lot of diodes and optical type devices, which would -- could pull volume through for us or our product could pull volume through for them. So we're real excited about that opportunity.

They are also expanding their presence in the Americas, both North and South America. And they have -- in North America they have some 22 regional offices all around the US and Canada. And again, I think that is going to give us tremendous exposure over which we have not had that much before.

In Europe, we expanded with -- we've been -- have a relationship with AMS Technologies for several years now, which has been a very good relationship. We expanded that relationship and set them up kind of as a master distributor in European -- on the European continent. They have five regional offices in the major countries in Europe. And since they have been working with us previously, we have already seen a significant increase in the volume of orders and quotes coming from that region as a result of that relationship.

It's -- so I'm very excited about what it -- the potential that these things have for us, and the relationships, and what it can mean for our business going forward.

Very good. Well, obviously being a long-time investor in LightPath, I'm very, very excited about the prospects for the lens business and obviously seeing the first profits come out of LightPath would be a very exciting event using the molded optics end of your business as a springboard.

But I would like to also ask a question regarding another piece of your business because LightPath -- in dating the Company back to when you had offices in Albuquerque, New Mexico, and California, you had a significant manufacturing operation in Albuquerque, New Mexico to manufacture collimators. And it was in a very -- it was a very exciting time for LightPath when the stock went to $80 to $85 a share.

And Jim, I know you're a conservative by nature, but my understanding in my visit to LightPath back pre-dating your taking over as the CEO, those machines were shrink-wrapped and shipped over to China. And those collimator-manufacturing machines are over there.

And you had touched upon the fact that fiber to home is an area that LightPath is looking at, potentially generating some revenue. Could you talk about the potential market there in China as -- and Asia as a whole as they really lay fiber optic cable and expand the 3G network? And what the collimator business could potentially mean for LightPath?

Yes, let me just correct a couple of things, there, Bob, then I'll address your question. We have not sent any collimator equipment to China. What we sent over to China was isolator equipment.

Okay, the isolator equipment. Okay.

But, regardless of that, we do have a number of collimator machines operating in Orlando. And we do believe that the collimator can be a very good product in the fiber to the home market. And that is something that we are exploring. And so we have taken -- we are doing a lot of investigation right now as to what we can do with that type of product in that market, which we believe will be a huge market.

Fiber to the home type applications is -- as they rollout the third and fourth generation networks, which is what they're doing in Asia today, and is one of the reasons that we're seeing an up tick in our telecom applications in that market, is forecasted to grow at something like 300% over the next two years. I'm trying to get a handle on what we think that might mean, but we believe that that is a multi-million-market opportunity for us. Could be in excess of, from a served available market for LightPath, $60 million. So we can think some share of that. It can be significant growth.

With the collimator, and particularly the fusion technology in the small-beam collimator, we believe that's an ideal fit into that as they roll out the infrastructure for that fiber to the home, or fiber to the business. So I think there is huge potential for us where we can go into a market at a good price point, and offer a high-performance product that we would eventually build in China. And we would have significant differentiations for our product in that market over the current solution.

So --

We're excited about that. I think it's a little early for us yet to kind of say how much we could do, but it could be very significant.

Excellent. So would be -- would it be your plan to then take that manufacturing equipment and move it over to China?

For that product line, absolutely, yes.

Okay, very good. So we'll look forward to hearing more about that. And I look forward to the next conference call. And I wish you luck and look forward to continued success at LightPath. Thank you.

Well, thank you, Bob.

(Operator instructions) Our next question comes from Michael Dyat, a private investor. Please proceed with a question.

Hi Jim and Dorothy. Good to hear this report. I had two quick questions. First, on the micro projectors, I read that some of the people are actually reviewing them in the Financial Times. I wondered if LightPath has a lens in the projectors that are on the market now? And second, could you expand a little on the gun sight market? And is that filled in to the 180? And what parts of the world are they going?

Well, on the micro projector side we have been working with most of the manufacturers that are involved with a laser-based solution. As you know, there are a number of technologies competing in these devices for these miniature light engines. For the ones that have chosen the technology to use a laser-based type application such as Microvision, we provided all the prototype lenses for their lens development, so we have lenses that are designed specifically for that market application. And we expect to participate in that market at some level.

We've also been working with some of the developers of the green laser, which is a device that will also be used in that technology. And we have provided prototypes to those people for their first generation. And we're currently working on some lenses for the second generation. So we have a family of lenses that are designed for that type of application. And I expect to do some business associated with that.

Having said that, at one time we felt like this was going to be a huge, huge market. I still think it's going to be a very large market. I think it has some time to wait until the consumer comes back and the market gets a little stronger so that this type of device has some consumer appeal and it's something that the consumer feels he can afford to buy. So I think there's a little bit of gap here until the economy gets a little stronger.

But I think there are so many competing technologies between LEDs, and LCOS, and the laser-type solutions; I don't think the market's going to be as big as we once thought it was. That's not to say that it still won't be a significant business opportunity. I think it will be. And I think we've positioned ourselves to participate in it.

On the gun sights, that's basically a laser diode application, which is into our strength. We have been selling those to a couple of customers, but we have one major customer who has been continually ramping up his production levels over the last several months. We are sole-source to him and it's being sold into -- these are basically pistol grips that the device slips over the handle on a pistol and when you grab the pistol, it activates the laser. And it's kind of a point and shoot type application. So it's an imaging type application.

So it's a very good business right now. And it's just one of the types of applications that we associate with a laser tool. This goes along with laser levels, and range finders, and those types of things. So we kind of lump all of that together. And that's part of our laser tool market segment.

Thank you very much.

You're welcome. Thank you, Michael.

There are no further questions in the queue at this time. I would like to turn the call back over to Mr. Gaynor for closing comments. We do have one question just coming to queue, Mr. Gaynor. Would you like to take it?

Sure, absolutely.

We have a question from Steven Donovan, a private investor. Please proceed with your question.

Hi Jim and Dorothy.

Hi, Steven. How are you?

Hey Jim, some months about -- I think it was back in August, you said that the plant in China was going to (technical difficulty) production from 40,000 units a month to 120,000 units a month.

Correct.

I just wondered where you stood in that process? And can you say something about the average cost per unit? And where you imagine the plant going in the next 12 months?

Well, I think in terms of the capacity ramp, we're still doing it. We're probably more than halfway to that solution -- that target of 120,000 lenses per month. And we're continuing to ramp it up. The only thing that has slowed us down from doing -- from being there all the way was it took us a little bit longer than we anticipated to get the proper amount of tooling in place for the new lenses as we were bringing them into production. But we're pretty much through that and now we're just continuing to ramp it up.

And I think the team in Shanghai has done an excellent job because we've ramped up to levels that we have never produced before. And at the same time, maintained the very high quality standards that we imposed and the productivity levels that -- with the numbers of new people that we're bringing into the process to fill out that factory. So I'm very pleased with that and we're making good progress. And I think we certainly are keeping up with the demand as it comes in. So I'm pleased with that as well.

So are you at 80,000 units a month? Or 90,000?

Yes, I think we are in excess of 80,000 units a month at this point. And our goal is to get to 28,000 units per week.

And then what are we talking about in terms of revenue per unit?

Well, in this case, I think the average ASP is probably -- we lump everything together, I kind of lose track of it, Steve, but I think we're in excess of -- let me break it down by segment.

Historical lenses we're probably running $16 to $17 average price. We get to the lower-cost, higher-volume stuff; we're in the range of about $1.25 and that obviously there's some range within that average. So those are two things. And then we have a number of lenses that kind of fall into the middle. So we have some significant volume that runs in that $5 to $8 range.

So the average -- what is the average?

I don't know. Dorothy, do you --?

No.

I haven't sat down and looked at it.

Yes, it's around $8 blended.

Yes, I think that's probably about right.

And then just -- I'm just curious. Where was it when you first opened the plant? Around $16?

The plant in Shanghai?

It was like $24.

Yes.

And then where will it go? Where do you see it averaging out over time?

Well, I think it -- I mean I think it will go probably -- it depends on how -- as we get more and more volume of the higher-volume stuff, we're probably going to be in that range of $4 to $6 I would think, is my guess. But I think the important fact here is that we're selling those lenses at higher gross margins than we ever did when we were selling the lenses for an average of $25 or $30.

And do you see -- the gross margin was 43% you said?

In this past quarter, correct.

Where do you see that going?

I think that still has some room for improvement. As we continue to absorb -- fill up the capacity and absorb our overhead fixed costs, I would -- my forecast for that is into the upper 40s to the low 50% range.

I'm just curious. Is there any lag between generating revenue in China and getting the money back to America?

No. I mean that's one of the advantages we have where we are -- it's a wholly owned Company over there. LightPath owns it entirely. And so it's -- we don't have any issues with that whatsoever.

And then just one more question. Is there any -- do you have any thoughts on the protection of your intellectual property in China?

We have continued to pay close attention to that. And we do a couple of things to try and protect it to the extent possible. One of those being that all our machines are computer controlled from the cycles and how they are run. And that software is hardwired into the machine and is only controlled from the US.

And the second thing is the real issue, and the thing that is where our technology resides is in the tooling and the coding, and the interaction between that tooling and the glass systems that we use. And that is also a protected technology that we do all in the US.

So that's how we try to maintain the technology now. I think, Steve, you can't protect yourself forever and you have to make a kind of an informed decision or best decision about I want to participate in the business and grow the business versus protecting my technology to an extreme. And I think -- so we try to make smart business decisions about that.

Okay, my friend, many thanks.

Thank you.

Now I would like to turn the call back over to Mr. Gaynor for closing comments.

Thank you, Operator. I'd like to thank our shareholders and everyone who has participated 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 all of you on our fiscal 2010 second quarter conference call in February.

If you have any further questions, please feel free to contact myself or Dorothy. And I wish you all a great day. Thank you.

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