LightPath Technologies Inc (LPTH) 2012 Q1 法說會逐字稿

Greetings, and welcome to LightPath Technologies, Inc.' s first quarter -- first fiscal quarter ending September 30, 2011. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dorothy Cipolla, Chief Financial Officer and Corporate Vice President for LightPath Technologies. Thank you. You may begin.

Thank you, and good afternoon. I would like to thank everyone for joining us today for LightPath Technologies' fiscal 2012 first quarter financial results conference call.

If anyone participating on the call does not have a copy of the earnings release, you can find a copy on our website at www.LightPath.com. Or, if you are unable to access these materials online, you may call LightPath at 407-382-4003.

I would like to start by reviewing the Company's Safe Harbor Statement. 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.

Forward-looking statements, when used in this call, can be defined by the words anticipate, could, enable, estimate, intend, expect, belief, potential, will, should, project, and similar expressions, as they relate to LightPath technology. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from those anticipated by LightPath Technologies at this time. Factors that could cause or contribute to such differences, include those risks fully described in LightPath Technologies' public filings with the US Securities and Exchange Commission, which can be viewed at www.sec.gov.

It is now my pleasure to turn the call over to your host, Jim Gaynor, our CEO.

Thank you, and good afternoon. I'd like to thank everyone for joining us today for LightPath Technologies' fiscal 2012 first quarter financial results conference call.

LightPath continued to improve its performance in the first quarter of fiscal 2012, as is indicated by the revenue growth of 21%, our back-log increased to 32%, and a 3 percentage point improvement in gross margin. We also reduced our net loss by 77% as compared to the first quarter last year. These improvements are due to our diverse products, which include newly developed products, allowing us to address new applications and serve multiple markets.

Because of our product diversity and new product flow, we were able to over-come some market headwinds, including the continued tight monetary policy in China, which has slowed construction in China and impacted that portion of our industrial tool business; and the continued inventory correction that is impacting the telecom component -- suppliers. While our traditional telecom revenue and industrial tool revenue were below our first quarter forecasts, we offset this revenue shortfall by increased sales of our products in the defense and high-speed telecom industries, particularly with our collimator and custom optics lines.

We currently have more than 25 new lenses in development, or customer qualification. Our backlog continues to increase, with first quarter bookings of $3.47 million. And the first quarter was the third consecutive quarter of bookings greater than $3 million. Gross margins for the first quarter of fiscal 2012 was 40%, which is comparable to recent quarters, and a 3-percentage point increase as compared to the first quarter fiscal 2011. During the quarter we also accelerated some capital expenditure, that were planned for later in the year into the first quarter, using $235,000 of cash to ensure that we maintain our growth. Cash provided by operations was approximately $117,000.

Our focus is on growth. The first quarter of 2012 had the highest revenue level for our first quarter since fiscal 2007. We have multiple new lenses in development process that address applications across multiple markets, including infrared applications. As we look forward, we believe we have positioned the Company for continued growth and success.

I would now like to turn the call back over to Ms. Dorothy Cipolla, CFO, to discuss our financial results for the fiscal 2012 first quarter, which ended September 30, in greater detail.

Thank you, Jim.

First, I will talk about the three months ended September 30, which is our fiscal first quarter. Revenue for the first quarter totaled $2.73 million, compared to $2.25 million for the first quarter of last year, an increase of 21%. The increase from the first quarter of last year was primarily attributable to higher sales volumes in precision-molded optics, which accounted for 77% of our revenues. Our precision-molded optics sales units were higher and our average selling price was higher due to the product mix change in the quarter's sales. 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 infrared lenses, and collimators.

Our gross margin percentage for the first quarter, compared to last year, increased to 40% from 37%. Total manufacturing cost of $1.65 million was approximately $220,000 higher in the first quarter compared to the same period last year. This is due to higher sales volume and higher labor costs related to higher sales volume. Unit shipment volume in precision-molded optics was up 80% in the first quarter compared to last year. Direct costs, which include material, labor, and services increased to 29% of revenue in the first quarter, as compared to 27% of revenue in the first quarter last year, primarily due to labor costs.

Labor costs at our Shanghai facility increased due to increases in the minimum wage and higher benefit costs. Overtime expense in Orlando and Shanghai was also higher during the quarter, due to unexpected tool shortages caused by machine repairs, combined with a planned machine conversion. The machine repairs and conversion are completed, which has reduced the need for the overtime going forward. Product mix changes included increased sales of infrared lenses and collimators, which have a higher material cost, also contributed to the increase in direct costs.

During the first quarter, total operating costs and expenses increased by approximately $10,000, to $1.29 million; compared to $1.30 million for the same period last year. Selling, general, and administrative expenses decreased by approximately $76,000, to $996,000 in the first quarter, compared to the first quarter last year. This decrease is due to lower Investor Relations expenses. We intend to maintain SG&A costs generally at current levels, with some increases expected for sales and marketing. The net result for the higher cost of goods sold and lower total operating costs and expenses is a net operating loss of approximately $209,000 for the first quarter.

Interest expense was approximately $24,000 in the first quarter, as compared to $380,000 last year. This higher interest expense last year resulted from the accelerated conversion by certain investors of their debentures into common stock in the first quarter of 2011, which reduced the Company's debt obligation by $732,500. As the interest issuance costs were amortized over the full life of this venture, with the accelerated conversion approximately $200,000 of costs associated with this amount converted was expensed during the first quarter of last year. The debentures issued in August 1, 2008, account for approximately all of the interest, which accrued at 8% per annum.

Net loss for the first quarter was approximately $198,000, or $0.02 per basic and diluted common share; compared to approximately $853,000, or $0.09 per basic and diluted share for last year. Weighted average basic shares outstanding increased to 9.7 million in the first quarter compared to 9 million last year, basically attributable to the issuance of shares of common stock related to the conversion of the debentures.

And now, I would like to talk about a few areas on the balance sheet. Cash and cash equivalents totaled approximately $694,000 at September 30. Total current assets and total assets at September 30 were $4.89 million and $7.50 million, compared to $4.61 million and $7.12 million, respectively, at June 30. Total current liabilities and total liabilities at September 30 were $1.97 million and $3.49 million, compared to $1.53 million and $3.09 million, respectively, for June 30.

As a result the current ratio as of September 30 decreased to 2.49 to 1, compared to 3.01 to 1 as of June 30. Total stockholders' equity at September 30 totaled $4 million compared to $4.03 million at June 30. As of September 30, our backlog of orders scheduled to ship within the next 12 months was $4.20 million, compared to $3.87 million as of June 30.

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

Thank you, Dorothy.

Through the continued introduction of new lens products, and the expansion of our sales channels, we have positioned the Company to participate in markets that are growing, and offer large opportunities for LightPath. Our three-part strategy continues to be -- A, grow our low-cost aspheric lenses; B, use our traditional aspheric lenses, isolators, collimators, and gradient products to continue to generate cash flow to support the business; and C, continue to invest in the development and production scaling of our molded infrared lenses for our future strategic growth.

We believe the ability to mold infrared materials is an enabling technology to further commercialize infrared imaging and sensing devices. We plan on growing our low-cost aspheric lens Business by increasing share in the laser tool market and broadening our customer base through direct sales in China, and expansion of our distribution sales channels. Our continuing efforts to reduce our costs through productivity improvements, leveraging purchasing volume, and improving tool life, will enable to us reach a broader market with lower average selling prices.

Our strategy also includes making continued investments in the Business as necessary, and, in particular, to continue the development and production scaling of our infrared Business. To prepare for that, during this quarter we have filed with the SEC an S-1 to register 4.5 million shares of our stock. The proceeds that will be derived from such an offering are primarily for investment in our infrared product line, and for cost reduction programs for our base Business. As we continue to successfully implement this strategy, we anticipate significant growth for the Company the future, which we believe offers significant financial rewards for the Company and our shareholders.

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

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

One moment, please, while we poll for questions.

Thank you. Our first question is from Steven Donovan, an investor. Please proceed with your question.

Hi, Jim and Dorothy.

Hi, Steve. How are you?

Hi, Steve.

I'm good. Glad to see those great results for the first quarter.

Thank you.

And -- the offering that you announced in the last couple of months is a huge game changer for LightPath, I think. I'm sure you do, too. And, can you talk about that? Are you free to talk -- tell us more about that?

Well, I think -- at this point, Steve, the -- we still have it in front of the SEC. And it's been -- what's been released by the filing itself, we're free to talk about. Up until the point, which is basically what I outlined. Is, we put this up basically because we need to make some investments to -- in the -- for the IR business, the infrared business. The majority of the investment that we're planning, to -- the funds that we're planning to raise from this investment, will be used to do two things, really. One, is to continue our development work. So, we'll be hiring some people, and that kind of thing, that are focused on that business.

And two is to scale up the production capability. So, that we can continue to produce and produce at the correct volumes that we anticipate this business to grow to. It's this program -- I mean, the technology that we have, -- we're in the marketplace, making these types of lenses today. So, we have the capability, the technology is there to do it. What we really are spending most of the effort on now is continuing to move the cost structure, so that we can be very competitive in this business. And, we think that we can substantially reduce the cost of infrared lenses, compared to the traditional way that they're made, from a germanium-based material with single-point diamond turning, between 50% to 75%.

And if we're successful doing that, which we believe we will be -- we think we're going to be in a very good position to be very competitive in the market space going forward. And, I agree with you, it's a game changer for this Company.

And -- what's the time line for them? Can you tell us?

That's the one thing I can't, because I'm waiting to make sure that the SEC approves this before we do anything with that. Now, I do expect to get that relatively soon.

And so, most of these funds would be invested in production and marketing and research and development for infrared. And is infrared only manufactured in Orlando?

We intend to begin it -- and do the majority of it, at least initially, in Orlando. I mean, a very significant portion of this business tends to be related to the defense side. Therefore, -- we will always be manufacturing it here for that portion of the business. Whether we get it to a point where it makes commercial sense to move it to China -- we could do that, but in the start-up in the near future, that's not our plan. Our plan is to do it in Orlando.

Most of the money raised would go for infrastructure in Orlando?

Yes.

And, is this tied in any way to the SVIR?

Well, I mean, there was technology that we gained and knowledge that we gained from that program, that we will apply here.

So, this is, you would say, one of the outcomes of the SVIR.

Certainly.

That's incredible.

I mean this is -- the infrared business can be huge. It's a multi-billion-dollar business. And, to be able to participate in that market segment, and with the technology that we have -- we're already selling to a lot of the major players, the FLIRs, the Axsys, there's a number of -- Northrop Grumman, Raytheon, we deal with all these people in this business today. And some of those guys we've had long relationships with our base business. So it's -- we're very excited about this opportunity, and want to get it going.

Can you say something -- maybe Dorothy could address this, about the relationship between stock dilution and growth? Because you're raising this money at such a low price, it's such a sweet deal. A share of stock for $1.50, and two warrants. And it's going to cause huge dilution, but you're -- you must be imagining the growth will more than offset that.

Right, that's the plan. Now, the $1.50 that you mentioned, that's not set at the moment what the price would be when we price the deal. But the deal, as you said, is one share of stock and two warrants that equal 50% coverage. But, yes, it is a dilution to the current holders, but we expect it to help in our growth efforts. Which would be beneficial to all shareholders.

So, you have charts and everything that show that the anticipated growth with this would more than offset the dilution?

Yes.

Wonderful. Okay. Let me just -- I have a couple other questions here.

Can you say something about the $4.2 million backlog? Over what time period is that delivered on? Is it three months? Six months?

The $4.2 million is basically the backlog for the next 12 months.

It's for 12 months.

Now, the majority of that is towards the front end of that, but that's -- when we talk about our backlog, we're really talking about anything that is shippable within 12 months.

Okay.

Now, our backlog in total is actually larger than that, Steve.

How big is it?

We usually don't disclose that number, but it's significantly larger.

And, how would you characterize that backlog?

Well, what we've done, is we have a lot of business that we've been taking that is blanket orders, and larger orders that are done over time. So, that's a portion of that. So, that's how that backlog -- we've gotten into some of these businesses where people order large quantities and call off. We've also started working with our distributors and catalog houses, and they're doing the same thing. Particularly, on parts that they order repeatedly. So, that we get a little more efficiency in how we manufacture.

Okay. So on this larger backlog, is that something that you have deposits on, or is that just the letter of intent?

It's usually based on purchase orders, but, no, there are not deposits on that, no.

Okay. And just finally, Jim, can you say something about how the distribution network is doing in Europe and Asia? Is it--?

It's -- actually, it's doing very well. What we did with this master distributor business, through AMS Technologies has worked very well for us in Europe. As I said in previous calls, -- they have offices in all the main optical locations. I think there's five main offices that AMS has in Italy, France, Spain. Their headquarters is in Germany and in the UK. So, they cover all that area. And they have assigned people specifically to our account, to the LightPath products. And with that business, -- since we've been dealing with them they have more than doubled the output of what -- the throughput that we're doing with them.

And, they continue to be -- they are one of our larger customers, at this point in time. So that's worked very well. We've recently added a company called Militram in Israel. Militram is probably over a $100 million distribution distributor rep-type business. And we're just bringing them on line. Brian Soller was just recently in Israel going around with them, and making sure that they understood our products completely. And -- that -- we expect good things from that. We're already seeing a lot more activity from a quote basis, et cetera, from that standpoint.

In Asia, we've added, I think it's four distributors. All of them are reputable and well-known optical component distributors. That some of them, we've wanted to have our product with them for a number of years, and they have now agreed to do that. And so, they are still coming on-line. But, I think that's going to work very well for us as well. So, I expect that we're going to see a lot more opportunities and get a lot better coverage in Asia, as a result of that.

So, I'm very pleased with how distribution has come. We do -- we have some objectives and targets as to the percent of business that we want to flow through that kind of sales channels, and we're working on that. And making good progress.

And what percentage of the sales, or of the manufacturing in Shanghai ends up in China, of your product?

The -- well, Orlando is still China's biggest customer. Let me put it that way. But we did about, I think it was 20%, Dorothy, of our business is now going directly into China, through Shanghai.

Okay. And then finally, I always like to ask this, can you give me the headcount of Orlando and Shanghai?

Let's see. I think Orlando is about 56 people. And, I think 143 in China.

So, it's about the same?

Yes.

Wonderful. Thanks very much you guys.

All right. Thank you, Steve.

(Operator Instructions)

Ms. Cipolla, it appears we have no further questions at this time.

I would now like to turn the floor back over to you for closing comments.

Okay. Thank you, Operator. I'll take it from here.

There is one point that I would like to add to the comments that I made earlier. And when I said we have 25 products. And we've been able to overcome some of the head winds in some of our existing product lines with new products going into different markets. I wanted to expand on that a little bit and just talk about where that business came from. And the kinds of things that we've done with LightPath, and continue to do with LightPath. We have a number of specific examples where we're designing lenses and staying on the cutting edge of these applications. And for example, we had some issues with the lower than forecast numbers in our traditional telecom business, but we overcame that in the high-speed section of telecom, where we have some leading-edge products going into applications.

A couple of examples of that, is we have several customers who are in the tuneable transceiver business. And we have designed optics for them that fit on these all-optical DWDM networks. That give them the ability -- these products give them the ability to do dynamic control and provisioning. And, that is the kind of technology you need to support mobile devices, that use a lot of bandwidth. So, we're on the leading edge of that technology with them. And as they upgrade their backhaul fiber networks, that enable them to do higher bit rates, so that they can support video on demand. And things of that nature, and the mobile standards. So, when you hear things like 4G and LTE smartphones demand, these are the kind of products that support that. And LightPath is involved with that.

We have at least six new lenses, either in design or early stages of production, that are focused strictly on those kinds of products. We're successful doing that, for three reasons. One, we're very flexible in supporting these new designs. And we have the optical design expertise to consult with these customers on their optical needs. The volumes fit our model. And, our cost structure allows us to be very price competitive in those products. So, it's -- these markets that we're able to address, and stay in front of, are leading edge technologies.

On the custom optic side, we have a program that we expect that's going do very well for a custom collimator. That is going to the world's largest manufacturer of those kinds of laser products. And, he intends to integrate that into the majority of the lasers that he makes. We also have another second custom optic that we designed for one of the world's largest manufacturers of laser-based optical encoders. And these products go into the latest and most cutting edge products, but they're just beginning to go into production. So, we have -- and then we have a number of medical and bio-instrument-type products that we're doing.

So, the point being that LightPath is staying up with the technology, is in front of the technology, and able to work with these things. And, stay in markets that are growing, even in these very tough economic and market conditions. So with that, I'd like to thank our shareholders, and everyone who has participated on today's call. And, I would like to especially thank the team at LightPath for their hard work and dedication. And, I look forward to updating you again on our fiscal 2012 second quarter conference call.

If you have any further questions please feel free to contact myself or Dorothy. And you can visit us on-line at www.lightPath.com. Operator, I think that's -- that closes out our conference.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.