LightPath Technologies Inc (LPTH) 2013 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the LightPath fiscal second-quarter earnings conference call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity for you to ask questions. (Operator Instructions) Please also note that today's event is being recorded.

I would now like to turn the conference call over to Mr. Peter Seltzberg, Investor Relations for LightPath. Please go ahead.

Thank you and good afternoon. Welcome to the LightPath Technologies second fiscal quarter 2013 financial results conference call. Our call today will be hosted by Mr. Jim Gaynor, President and Chief Executive Officer, and Dorothy Cipolla, Chief Financial Officer. Following management's discussion, there will be a formal Q&A session open to participants on the call.

Before we get started, I'm going to review the Safe Harbor statement. Today's conference call may contain forward certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. All statements, other than statements of historical fact, included in today's presentation are forward-looking statements, including statements regarding the Company's business strategy, plans, objectives, and statements on non-historical information.

Although the Company believes the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties. And these expectations may prove to be incorrect. You should not place any due reliance on these forward-looking statements, which speak only as of today, January 30, 2013.

All forward-looking statements attributable to the Company or persons acting on its behalf are expressed qualified in their entirety by these factors. Other than that, as required by securities law, the Company does not assume any duty to update these forward-looking statements.

And with that out of the way, it's my pleasure to introduce Jim Gaynor, President and Chief Executive Officer of LightPath. Jim, the floor is now yours.

Thank you, Peter. And welcome to everyone who has joined us on the call today. We appreciate your ongoing interest in LightPath.

I will open with an overview of the second quarter operational results, and then turn the call over to Dorothy for a more in-depth review of our financials. After some closing remarks, we will open the call to your questions.

During the fiscal second quarter of 2013, LightPath operated a stable, profitable business, while we continued to position ourselves for accelerated growth at the forefront of the infrared, or IR, markets. For our core business, revenues, gross margins, and EBITDA all increased, as was the trend in the last half of fiscal 2012. Revenues were up 9% year-over-year. This growth was led by telecommunications sector.

In particular, three areas drove our growth. First, the need for expanded infrastructure to support mobile Internet demand. We have a number of standard and custom lenses that are designed for this type of application. We have brought on several new customers, such as Huawei and Source Photonics, and have renewed business with Coherent, JDS Uniphase, Finisar, and mCore, just to name a few.

Second, the industrial tools segment in China. We have begun to see an increase in the sales of our lenses designed for use in laser diode assemblies. In addition, we have just released lenses designed for use with green laser diodes, and we expect this will also be positively received in the market.

We have also just seen a new generation of 2D scanners in this market. And this is presenting a good potential for growth with this high-end device, which requires aspheric lenses such as those that we offer. And third, our entry into the digital projection market. We announced a sizable contract with a top player in the space. The initial contract was for $1.1 million, and I'll talk more on that in a moment.

While revenues continue to grow, albeit modestly, we are also benefiting from improved efficiency. Gross margins expanded significantly to 43% from 32% in the year-ago quarter. This 34% improvement from the year-ago period reflects our highest gross margins since the fourth quarter of 2010, and reflects the success we've had on the manufacturing side. We have become significantly more efficient as manufacturers. I will speak more about this in a few minutes.

EBITDA increased to $365,000 or 12.5% of revenues from $6000 in the year-ago period. Cost reductions drove gross margin and EBITDA higher. Operationally, backlog increased 21% year-over-year to $4.64 million, although it was down sequentially from the last two quarters. This year-over-year backlog growth has resulted from our ability to serve diverse markets and from developing larger OEM accounts, as well as penetrating the imaging-based applications market.

Unit volume grew 21% over the same quarter last year. LightPath's metrics continue on an upward trend, and this is a positive accomplishment in an economic environment that is still very challenging and uncertain. And it is impossible to ignore the effects of the weak global economic environment. There are some signs of recovery, but we are out there working hard every day to prove our value to our customers and our prospects.

A particular bright spot in our second quarter was the announcement of a supply agreement with a leading global manufacturer of high-end digital video recording and playback equipment. The initial stocking order is for approximately $1.1 million. And LightPath has begun deliveries of these lenses to this new customer during this current quarter. However, I should mention that although we are shipping production parts to them, the product is yet to be launched, and we may see some temporary gaps ahead.

There is potential for follow-on orders here with this customer. And there are at least a-half-a-dozen of other video production opportunities well within our sites in this exciting new customer category.

Speaking further to the opportunity, we've identified in the inroads we're making into the digital imaging and projection market. These high-tech optics are a critical element in high-performance camera and digital projection systems. And our ability to win new business like this validates the price, performance and quality of our optics in a competitive and highly technical marketplace.

Expanding into new markets is a key element of our growth plan, and shows the continued progress we've made in our strategy. Our goal is to lead both the technology and price to performance curves, and we are successfully penetrating a market that is expected to grow to $770 million by 2018.

Another exciting growth area for LightPath is thermal imaging. We have increased our business here with OEM customers. And we see additional opportunities as we introduce additional quantum cascade laser lenses. These new lenses target customers and subsectors, such as infrared countermeasures, gas analysis and spectroscopy. (laughter) I'm sorry I have trouble with that word every time I run across it.

LightPath has started delivering production units to several new OEM customers after delivering prototypes of optical assemblies for thermal imaging systems. We continue to target OEMs who purchase infrared optics in this space.

The work is now shifting to developing the necessary production scale cost reductions to meet the program's cost and performance goals. As these cost reductions are developed from this work, they are being implemented into LightPath's proprietary process, which we would expect to leverage to the benefit of other customers and programs we bring online.

As I mentioned, we continue to implement multiple cost reduction programs, and have also expanded the manufacturing capacity at our Orlando facility to meet additional order ramp-up. During the past quarter, work has remained focused on molding yield improvement, expanded preform capability, and workstation layout. These programs have reduced manufacturing costs by 30%, which is reflected in our expanding gross margins.

We continue to believe that gross margins in the 40% range are sustainable in the upcoming quarters. Additionally, LightPath has deployed new polishing equipment that increases the capacity of the glass preparation facility by 80% in anticipation of acceleration of orders in the second half of fiscal 2013.

We have previously indicated that with the leverage we are building into our operating model, we could begin to deliver profitability with revenues above $3 million quarterly. And we were just slightly under that revenue mark in Q2. This operating leverage allowed us report EBITDA of $365,000 for the quarter, as I indicated earlier. EBITDA for the six months was up 817% to $706,000 compared to $77,000 in the same period last year. So while revenues have not shown as robust a growth pattern as we had anticipated, reductions in our cost structure have enabled us to continue to move our EBITDA higher.

As I mentioned earlier, bookings in Q2 took a slight pause, primarily as a result of three factors. One, a major customer changed his process which requires a new product from us. Two, a new product launch delay; and three, a much slower recovery from certain Thai-flood-impacted customers than forecast.

The good news is this is not lost business, but just delayed. And we remain quite confident that we are going to see a resumption of growth in this business, with our long-term growth objectives still intact.

Follow-on and new orders in video production, infrared, and continued improvement in the industrial tooling businesses in which we are increasingly being recognized as a market leader for optical components, have positioned the Company well in our market space for continued growth. Our goal remains to grow the business to where we're at a run rate of $20 million to $25 million, and achieving gross margins of 42% to 45% within a two to three-year timeframe.

We have many great products supported by outstanding R&D, and our cost structure is and should remain a huge advantage for us in our served markets. While we can't control the speed at which our customers execute order placement, we are confident that our value proposition and competitive advantages will deliver the business for us, and that we will achieve our sales and profitability objectives.

I will now turn the call over to our CFO, Dorothy Cipolla.

Thank you, Jim. I will now review our fiscal second-quarter 2013, which ended December 31, 2012, followed by a discussion on our six-month year-to-date financials.

Revenue for the second quarter increased approximately 9% to $2.92 million compared to approximately $2.67 million for the second quarter of last year. The increase over last year was attributable to increases in sales of custom optics, and an increase in our industrial tool products, offset by slightly lower sales volumes in our collimator, isolator and GRADIUM pipelines.

Growth in sales going forward is expected to be derived primarily from the precision molded lens product line, particularly our low-cost lenses being sold in Asia, and from new business with penetration into imaging applications. As Jim indicated, gross margin percentage in the second quarter was 43% -- the highest it's been since the fourth quarter of 2010.

This also compares sequentially with 41% in fiscal Q1 2013, and is up 32% in the year-ago period. Total manufacturing costs of $1.65 million decreased approximately $178,000 from the year-ago period, and were down sequentially by $64,000 from $1.7 million in the fiscal first quarter 2013, and down from $1.9 million in the fourth quarter. This reflects our continued success implementing cost reductions to our manufacturing overhead.

Direct costs, which include material, labor and services, were 23% in the second quarter, up sequentially from 22% of revenue in Q1 of 2013, but down from 26% of revenue last year, reflecting increased leverage and higher productivity. During the second quarter, total costs and expenses were up $118,000 to $1.3 million when compared to $1.2 million in the year ago period.

Selling, general and administrative expenses were $1 million for the second quarter of fiscal 2013, compared to $884,000 for SG&A last year. Total operating loss for the second quarter was approximately $25,000 compared to a loss of $320,000 for last year.

Other income increased to $13,000 in the second quarter as compared to a loss of $1000 last year. This difference is due to the technology licenses sold for our GRADIUM product line in Asia in the second quarter of 2013, and the reevaluation of warrants associated with the June 2012 capital raise.

LightPath was again profitable for the quarter, posting net income of $141,000 or $0.01 per basic and diluted common share, compared with a net loss of $343,000 or $0.04 per basic and diluted common share for last year -- a $0.05 swing to the positive. The approximate $493,000 improvement resulted from higher gross margins due to an increase in sales, and lower costs, and the change in fair value of our warrant liability for our June 2012 warrants.

Weighted average basic shares outstanding increased to 11.8 million in the second quarter compared to 9.8 million last year. This increased share count is primarily due to the issuance of shares of common stock related to our private placement in June, and shares issued for the payment of interest on our convertible debentures, and shares issued to our employee stock purchase plan.

Turning to year-to-date results. For the six months ended December 31, 2012, revenues were $5.8 million compared to $5.4 million or an increase of approximately 7%. This increase was primarily attributable to increases in sales of custom optics, an increase in our industrial tool products, and our entry into the digital projection market offset by slightly lower sales volumes in collimator, isolator and GRADIUM product lines.

Gross margin for the first six months of fiscal 2013 was 42%, up from a 20% gross margin for the same period last year. Again, we are seeing increased leverage due to our cost reductions in our manufacturing operations. Total manufacturing costs decreased by approximately $115,000 to $3.36 million in the first half of fiscal 2013 compared to the same period last year, due to a decrease in wages, offset by direct costs associated with increased revenues.

Direct costs overall, which include material, labor and services, were 24% of revenues in the first half of fiscal 2013, as compared to 26% of revenue in the first half of fiscal 2012. Total operating loss for the first half of fiscal 2013 improved to approximately $43,000, compared to $1.37 million for the same period last year.

We recognized a gain of approximately $265,000 related to the change in the fair value of derivative warrants issued in our June 2012 private placement. This fair value will be remeasured each reporting period throughout the five-year life of the warrant, or until they are exercised. The approximately $793,000 improvement resulted from the royalty income from licensing the GRADIUM product line, the change in the fair value of our warrant liability for our June 2012 warrants, a decrease in new product development expenses, and higher gross margins due to an increase in sales.

Net income for the first half of fiscal 2013 was $251,000 or $0.02 per basic and diluted common share, compared with a net loss of $542,000 or $0.02 per basic and $0.06 per diluted common share for the same period in fiscal 2016 -- I'm sorry, 2012. Cash on-hand at December 31 was $1.8 million as compared to $2.4 million on June 30. Total current assets were approximately $6.5 million and total assets were $8.6 million at December 31, compared to approximately $6.2 million of current assets and $8.3 million of total assets, respectively, at June 30.

At December 31, 2012, total current liabilities were $3 million, and total liabilities were approximately $4.1 million, compared to approximately $1.7 million in total current liabilities and $4.3 million in total liabilities, respectively, at June 30. The current ratio at December 31 was 2.18-to-1 compared to 3.59-to-1 as of June 30. Total stockholders equity at December 31 totaled approximately $4.49 million, which compares to $4.0 million at June 30.

With this financial review concluded, I will now turn the call back to Jim.

Over the last several quarters, we have been growing the business and have added new markets. Our product offerings, which serve a diverse group of end markets, have found growth opportunities for our core business in precision molded optics, and we continue to build a presence in the infrared market.

We continue to adjust our sales and our marketing initiatives, including recent changes in our sales approach designed to better communicate our value proposition in this emerging market. As a result, we will be moving from using sales generalists, where the salesperson sells all LightPath products, to a more technical product-specific approach, where specific people have responsibility for specific products. We will continue to review our sales resources and restructure, reassign and expand as necessary.

The sales approach split will be, one, infrared products; two, visible light products; three, collimator products; and four, distribution. To implement this approach requires significant face-to-face time, and greater interaction of our technical and inside sales and marketing organization. However, we believe we will benefit from a more strategic selling approach, and that this will help us achieve a more diverse customer base and more consistent profitable growth going forward.

We have seen increased quote activity for imaging lenses during the six months ended December 31, 2012, compared to the same period last year. Bookings and quote activity have also increased for our industrial low-cost lenses in Asia. And I will reiterate that while quarter-to-quarter we may continue to see some choppiness for the near-term, we remain confident that it's a matter of when, not if, with respect to our sales pipeline incubating and achieving the kind of growth that the market will recognize as exciting.

Lastly, LightPath will be exhibiting at the Photonics West 2013 Exhibition February 5th through 7th at the Moscone Center in San Francisco. If you are attending the show, we invite you to visit us in Booth 2211 to see some of the 135 new products in three product categories that we will be showing.

And we'll now open the call to any questions.

(Operator Instructions). Bhakti Pavani, C. K. Cooper.

My first question was, could you provide some color on the opportunities that you're seeing in the mobile market? And what kind of segments are you focusing on?

Well, I think we generally participate in the infrastructure buildout that supports those networks. So as broadband demand increases -- and it's continuing to increase with the continued proliferation of the smartphones and demand for Internet mobility -- they're building out these networks to support that. As well as in the emerging markets and particularly China and India, I mean, these networks are expanding as the population base continues to expand, particularly in the middle class.

So where they're building those out is where we see those products. And so those are the Huawei's, the JDS Uniphase's, the Finisar's, the mCore's, those photonic type customers that are using those types of products from us.

All right. The second question was, the topline was a little shy of $3 million, so what do you think will be driving LightPath's topline in the second half?

Well, I think the same things. I mean, the telecommunications sector, I think that theme continues. You are seeing continued recovery in the Chinese particularly or in Asian industrial tool market, as that construction industry picks up and China begins to pick up. I think there is some exciting things there. We have been talking with some major customers there with these new products, these 2D scanners versus the 1D scanners that have been -- that they're replacing. That could be a fairly high volume type application.

So we see that coming along, as well as the customers that we've had for the last several years in the industrial tool segment are continuing to increase their buys as that market recovers. And the Chinese market has been bad for at least a year now. And the signs of recovery, I think, are becoming stronger and stronger. So we see that growth continuing.

And then we've got this exciting new opportunity in the digital projection market, in these commercial type projectors. And when those products get launched and get into the marketplace, I think that's going to be a really good business segment for us. And that seems to be -- you know, it's predicted to be a fairly healthy market over the next several years. So I think that's another growth opportunity.

Now all of those are on the visible side. And then we continue to -- we've put our cost structure in place for the most part. And we're going to be very aggressive in our pricing into the marketplace on the infrared side. And I expect that in the last quarter of 2013 and into 2014, we'll start to see some significant business grow in the infrared sector.

So with regards to this digital projection market, what kind of visibility do you have regarding the growth? Is it going to be, like, a near-term growth? Or do you see it more of a long-term growth?

Well, they're expecting it -- I think, if I remember the numbers correctly, just under an $800 million market by 2018. Now I think that market is probably -- that's probably a doubling of that market. And I'm not -- it's relatively new to us, Bhakti, so I'm not 100% sure of it.

But if I look at what's driving it, which is digital technology, and the fact now that they've developed these digital projectors and digital cameras that have higher quality images than film, which has been the standard, it makes a lot of sense to me that these movie theaters and all those kinds of people that use that type of equipment, and people that are making movies, are going to move to this technology.

Because it eliminates any need for storage. It eliminates the need to ship canisters of film all across the country to all your movie theaters. It doesn't wear out. And it can be protected. So it has all the advantages of digital technology. So it makes all kinds of sense.

And so as they equip these theaters with this type of equipment, we expect to see pretty good growth. I mean, the thing that has held it back to date was that digital projectors couldn't give you the quality. Now they're four times better than HD quality. So it's going to go. It's just going to happen.

With the change in your sales approach, how do you think that is going to impact your SG&A cost in the upcoming quarters?

Well, I think it's probably going to be a minimal impact to it. If anything, it might be a little less. But I think the real issue is, is we have the best success on our sales, will we take a more technical approach than we take a more generalist approach? And focusing product experts in that area I think will give us more success. At least that's the point.

I mean, we've had fairly decent success up to this point. We've grown our business to a level. We're not entirely happy with the rate and pace that we've been able to do it. So we decided to make a change that we think will benefit that. So that's really what's driving that.

And from what I understand correctly, you have all the resource -- the sales resources with you for this new approach?

Well, we have most of them. We are currently trying to hire an expert in the infrared area, as that's one of our areas that we want to beef up our capabilities. So we are actively looking for that position. In the meantime, we have somebody that can cover it internally, but he's doing double duty.

Oh, okay. But despite the positive EPS, the Company is still losing money operationally. So I have three questions. When do you think it will be operationally profitable? And what are the moving parts that can contribute to the profitability? Or what are the initiatives that you are taking to make it operationally profitable?

Well, I mean, Bhakti, the base business is profitable. And what we're doing is investing in a new product segment for us in the infrared. If you split those two apart, those two pieces apart, you see even higher margins in the base business, and a profitable cash flow-positive business with positive operating income.

You know, what we're doing is investing in the future. So, as that business comes on, and over the next 9 to 12 months, I think that's what you're going to see. Now, obviously, we continue to work the cost side of the equation. We've got our AR coding in-house as a major cost reduction coming online here over the next several months. It's going to be a cost reduction for us. We continue to make the overhead changes that we can, to get more efficient. So, I mean, all of those things are continuing.

And with your recent initiative on cost reduction and with the gross margins being 43%, is it safe to -- I mean, is it appropriate to assume going forward that would be your new level? Or it's still going to be up and down here and there?

Well, I mean, nothing moves in a straight line, Bhakti. (laughter) That's for sure. However, I do believe that there's no reason that we can't sustain our margins in the 40% and moving into the mid-40s.

My last question on the infrared market, what percentage of market do you expect to penetrate? Because you have been working on Raytheon contract and then you had three big orders with the three OEMs. So what is the update there? And what percentage of penetration do you expect in that market?

Yes, Bhakti, I don't have a good number for you that would -- you know, off the top of my head from that perspective. We look at this thing from the standpoint that our expertise is in molding, and we think that being able to molt infrared optics is a enabling technology to further the commercialization of this. And that's been the strategy that we've done.

So what it means is we have spent a lot of time trying to get the cost of that process in line. And we believe that we have achieved that, so that we can now aggressively go after the market. But we have to aggressively go after a marketplace that makes sense for molding. And that means it has to have some higher volume-type applications.

And so that's what we're targeting. And I think that's where we're going to have success -- for a couple of reasons. One is, we're going to go in with very competitive pricing. And we can do that and make money at it. And, two, we're bringing a material system to the marketplace that has significant technical advantage over the existing system. It's lighter; it has -- it's more thermally stable. And it's less expensive.

I think as that becomes recognized in the marketplace, that's a win-win for anybody that moves to this type of technology. So I think we're going to be very successful. I just -- I'm really excited about our capabilities. And as I see some of the things that we're doing internally from the cost side, it gets really exciting.

Okay, that's it from my side. Thank you very much.

Thank you, Bhakti.

Robert Ainbinder, Newport Coast Securities.

Congratulations on another successful quarter here. Looking forward to continued success as we move forward. But a couple of the questions that I really had, Bhakti already kind of laid them out there. So, just to further belabor the margin point, the gross margin, with the coating machine coming online, do you see that number continuing to climb as we move forward into the next couple of quarters?

It's certainly our intention, Bob. I mean, I think it's driven by volume, as we leverage -- continue to leverage overhead, and we still have some room there. So as we continue to increase the volume, that helps. And as we take coating -- these anti-reflective coatings are a significant cost factor of a majority of our lenses. So as we get better control over that and we bring that in-house, it has significant cost advantages. So that should also help improve the gross margin going forward. So I really think that we'll move the margins into the mid-40s.

Okay. And one thing that I would like to bring up because I think it's something that investors have been a little disappointed in, and that's the stock price. With the stock price literally at lows we haven't seen in years, and the Company showing more success than ever, I mean, do you think this is a fair valuation for your Company at this point?

Well, obviously, I don't. (laughter) I think we're undervalued. I mean, you know, I can control a lot of things with this Company, but that's one that's outside my control. All we can do is continue to grow the business, and continue to improve our fundamentals. And as we continue to do that, and we continue to have success, it's my belief that that will become recognized in the marketplace.

We should certainly hope so. At some point, maybe we'll get some respect. (laughter) Well, I look forward to the next quarter and thank you very much.

Thank you, Bob.

(Operator Instructions). Steven Donovan, Private Investor.

Thanks for the solid report.

Well, thank you. We appreciate your support over all these years.

I'm curious about the backlog. There was a slight dip from June 30 of 2012 to December 31 of 2012 from $4.89 million to $4.64 million. And I thought that the impact of that digital camera order of $1.1 million would have had a positive effect on that backlog. Why didn't that happen?

Well, I mean, as I mentioned, our bookings in Q2 were less than we had forecasted. We did see some weakness, as I mentioned, for those three reasons where we had the one customer who was changing his process, which he was -- he's basically going from buying lenses to buying -- doing some -- buying some subassemblies. So we've had to redevelop a product for that, and that's taking some time. And there's going to be a gap in that business as a result of that.

We've had a product launch. Even though we're shipping production quantities, the product launch has been delayed. So there's been some delayed bookings for follow-on orders as a result of that. And we've been expecting -- the Thailand floods occurred a long time ago. And we've got several telecom guys who have been forecasting recovery that we haven't seen. And so we keep expecting it and it hasn't happened.

The good news is, is I believe it will happen, but the timing is a little off. So we saw a little dip in the backlog as a result of those things. There were some quarters that got pushed out and delayed. And that's the first step of it, is the backlog takes a little dip and then you see that down the line as time goes on. But I think the really good news is it's not that business has been lost, it's just delayed. And we will recover that.

Is that $1.1 million digital camera order in the backlog?

Yes, and we've been shipping it. So both things are happening.

The total amount?

The total $1.1 million is in the backlog, yes.

Oh, wow.

So we expect significant more in that marketplace as we go forward here.

Fantastic. You made a projection early in your discussion today that I've heard you make before, where you said you expected the Company to double or be at $20 million to $25 million in two to three years. Is that what you said?

Yes, it is.

Can you repeat that?

Yes, that's exactly what I said, Steve. I mean, that is our target, to double the size of this Company. And I think that we have the pieces in place to do it. I think there's -- we've got a piece of it coming from these new markets in the visible side. And this digital projection is going to be a major contributor to that.

As the markets recover, in general, we're picking up significant business in the industrial tools segment. And then the big contributor to that's going to be the infrared business. And that's where we really think the strategic growth is going to come from. And every indication we get is that market is there. We've got ourselves positioned in it.

People are understanding that for -- to be successful in volume manufacturing of infrared optics, which is what's going to be necessary for the commercial applications to take off, and that's where the volume will come from. Molding is really the only answer that gives you optics at the kind of price targets that those devices need to be commercially viable.

And so I think that it's -- in some respects, it's hard to see this, but we're almost ahead of the curve a little bit in what we're bringing to the marketplace. Because we're bringing a low-cost optic -- or a lower-cost optic, in the case of infrared -- to a marketplace that needs it to expand. And we're ready to go, but the marketplace is still coming to us. So I think (multiple speakers) -- I think it's going to happen. Just the timing is what it's going to be.

Well, you've got so many irons in the fire, it's really impressive. Every conversation, there's something new. (laughter) And this is the third profitable quarter, right?

Yes, it is.

And that suggests you might be profitable for the year?

Well, that's certainly our goal. You know, I think -- I mean, as I said, you know, I mean, Steve, we are investing in the future. And if we weren't spending the money that we are investing in the infrared space and some other new products -- but primarily, what we're trying to accomplish with infrared, the rest of the business is already generating a profit. When I split those two apart and look at them, that is there.

I mean, so we've accomplished the goal that we set out a couple of years ago to build a sustainable foundation in this business with a base business that we can continue to grow it from. So I think from that standpoint, I'm pleased and excited that we have this kind of opportunity in front of us.

Well, it's fantastic. I really appreciate the sophistication and the detail and the transparency of the financial reporting that you're doing with that Annual Report and the other numbers. You're providing so much detail, it's wonderful.

Okay, well, you've got to thank Dorothy for that. That's -- she's the brains and the power behind that.

Good work, Dorothy. Well, thanks so much, you guys.

Thank you.

Thank you, Steve.

(Operator Instructions). And at this time and showing no additional questions, I'd like to turn the conference call back over to management for any closing remarks.

Okay, thank you. I'd like to thank everybody for joining us today. And we'll continue to update you on our next call and through periodic press releases. And with that, we'll close the call.

Ladies and gentlemen, thank you for joining today's teleconference. You may now disconnect your telephone lines.