LightPath Technologies Inc (LPTH) 0 Q0 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to LightPath Technologies Second Quarter Fiscal 2025 Earnings Conference Call.

(Operator Instructions)

This conference is being recorded today, February 13, 2025.

And the earnings press release accompanying this conference call was issued before the market opened today.

I did like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectation, involve various risks and uncertainties as discussed in its periodic SEC filings.

Although the company believes that the assumptions underlying these statements are reasonable.

Any of them can be proven to be inaccurate, and there could be no assurance that the projected results would be realized.

In addition, references made by may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP.

We refer to these as non-GAAP financial measures.

Please refer to our SEC reports in certain of our press releases, which include reconciliation of non-GAAP financial measures and associated disclaimers.

CEO, Sam Rubin will begin today's call with an overview of today's acquisition of G5 Infrared.

A strategic overview of the business and recent developments for the company, while CFO, Albert Miranda will then review financial results for the quarter.

Following the prepared remarks, there will be a formal question and answer session.

I would now like to turn the conference over to CEO, Sam Rubin.

Sam, the floor is all yours.

Thank you, operator.

Good afternoon to everyone, and welcome to LightPath Technologies Second Quarter Fiscal 2025 Financial Results Conference Call.

Given the important news we announced this morning regarding the acquisition of G5 infrared, I will be dedicating most of my remarks today to this topic.

The acquisition of G5 infrared is a key and transformative event for LightPath and is a natural continuum of the strategic transition the company has been undertaking for the last few years.

As a reminder, up until about 4 years ago, LightPath was a pure play optical component manufacturer.

The core technology for LightPath up until that point, precision glass molding, was an innovative technology in the early 2000s, which gradually became commercialized and constantly commoditized over the last 20 years.

What was a leading differentiator for the company years ago has become, by 2020, a widely deployed technology with aggressive and ample competition, pushing LightPath out of the market.

In late 2020, shortly after I joined and consequently built a new leadership team, we outlined a new strategy that leverages our differentiated into a more value-added position with the goal to eventually become a solutions and subsystem provider.

All of which is still in the optic space, where we have strong domain expertise with the ultimate goal of becoming a systems supplier.

We started the journey by first offering optical assemblies based on our optical components.

Then began to offer compact thermal cameras, such as our mantis multispectral camera.

And later on, through the acquisition of Visimid technologies in the summer of 2023, we added advanced capabilities in video engine and camera calls for uncooled infrared cameras.

The acquisition of Visimid also came at a critical pivotal point for the Visimid team, but shortly after the acquisition, Visimid and LightPath were awarded a large development contract with Lockheed Martin for a new missile program.

A contract that has the potential to translate to between $50 million to $100 million a year in revenue from that one program alone.

Similarly, though not as large, Visimid and LightPath have several other large programs in various stages, many of which have the potential of bringing more than $10 million a year in new revenue from each one of those programs.

The addition of G5 infrared, as you will see, fits in naturally into what we have been building and is a logical next step in our journey.

Not only do G5's products complement LightPath's products perfectly, but G5 is also at a pivoting point, about to be awarded some large lucrative defense programs that will be moving into LRIP.

LRIP is low-rate initial production.

We'll be moving into LRIP very soon and from there shortly into full scale production.

So, with this background now framing where we have come from and where we are, let's dive into the acquisition itself.

G5 was established in 2011, by a seasoned team that this was the 2nd or even third time around.

The first time around, DILP, was a household name in our industry, establishing a big part of what was axis back in the mid 2000s and later sold to General Dynamics for $643 million in 2009.

This highly accomplished team led by Liu Fontosi, are well known in the industry as the one that always delivers the highest quality, effectively gold standard cameras in long range imaging.

These infrared cooled camera systems are used in places where extreme sensitivity of detection is needed, such as detecting people from miles away or vehicles or drones from tens of miles away, and I will talk more about that later.

And as is often the case in optics, just like LightPath leverages its BlackDiamond glass to make best in class optical systems and uncooled cameras, G5 also has its own optical coating services group, another element in the secret source of these high-end camera systems.

These coatings are part of what makes their cameras perform the way they do, and this coating service offered to external customers also accounts for a highly profitable service revenue.

That makes up to 20% of G5's revenue.

These coating capabilities also fit very well with LightPath's infrared components business, and we will be a critical capacity that will add a critical capacity to that of the LightPath business.

Clearly G5 is a successful and well aligned business to LightPath in and by itself.

This is also evident from their growth rates, winning businesses and solid financial performance, delivering strong margins and [bis] of around or higher than 20% consistently.

And while the financial profile is important, growth is too, so I'd like to dive in a bit into the product and technology and how this translates to revenue.

LightPath's transition to move from a pure play component to a subsystem or solution provider, and from there to a system supplier can be characterized in many ways.

That's probably one of the best indicators to where a company fits in the food chain are ASP or average sales price of its product.

When I joined LightPath in 2020, the company was, as we mentioned, a component company, and its products, individual lenses, had ASPs ranging from $1 for the really commoditized telecom lenses to up to $100 for the more complex diamond termed lenses.

In 2021 to 2022, we gradually transitioned into offering assemblies, a more complex engineered optical product that resulted in assemblies in ASPs going from $100 to $500 already a more complex by itself.

But while ASPs in and by themselves are not the goal per se, they're good leading indicators to the complexity of the product and the offering, and hence the value created by that product.

And as many strategy books will tell you, creating value, followed by capturing value is how one creates a strategy that leads to sustainable profits and growth.

And so, we went from single digit ASPs to 3-digit ASPs.

Next came our uncooled cameras, such as our innovative multispectral uncooled camera, which was our ticket into the world of cameras.

Those products of cameras had ASPs of $10,000 to begin with, and through more complex cameras for oil and gas industries, we're now selling cameras with ASPs of $30,000.

Which is really a leap into five digits if you would.

Again, not the goal by itself, but an indicator.

Now comes G5 with cooled mid-infrared cameras.

ASPs of their product start from $50,000 for their entry level cameras, short range detection cameras, up to $500,000 for the high-end long range detection cameras.

And when we say long range, we're talking about cameras that can detect the presence of a vehicle from as far as 68 kilometers away, 42 miles, that is.

So very impressive products.

So, in the span of 4 years, we've gone from selling lenses at single dollar lenses and declining unfortunately to assemblies at hundreds of dollars to uncooled cameras at thousands of dollars and now to adding cooled cameras at tens or hundreds of thousands of dollars.

G5 is also a fast-growing business with a significant pipeline of new business opportunities with multiple programs of records expected to begin production in the next 2 years, driving strong growth far beyond their existing revenue.

The long-range cameras are used for detecting objects at well, long ranges, if you would.

The two main applications are around detection of drones, also known as counter UAS or CUAS.

And detection of people and vehicle.

The former counter UAS is a fast-growing application in which G5's cameras with their proprietary image stabilization software at com are considered the best performer in terms of detection range.

One of the programs of record G5 is designed into includes placing those cameras on hundreds of naval vessels with passive detection for passive detection of incoming threats such as drones, missiles, and more.

The word is actually pretty important in this.

As we've all seen in the Ukraine conflict battlefield, if one uses an active system such as a radar to detect incoming drones and missiles, the radar's mission immediately turns you into a target.

And so passive detection of incoming threats is one of the fastest growing technologies today.

And one that G5 systems are by far the leader in.

In this application, G5 sells cameras to integrators that place them into larger systems with pan tilt and motion control and build a complete system for detection and tracking of such threats.

A second leading application is perimeter and border security.

Here, the same camera technology is used on towers along the border and for perimeter security and critical infrastructure like stadiums, power plants, and more.

G5 has a long history with cameras for border security and has already hundreds of cameras installed along the border.

With the limited Lifetime of cryogenic coolers in such systems, G5 also provides an ongoing service for repair of those hundreds of cameras, which is a great revenue stream that we expect to grow significantly more in the coming years.

More specifically, G5 provides now cameras that are used in the Customs and Border Patrol CTSE towers.

And just last month received the first award and order for the new surveillance towers of Customs and Border Patrol, that's part of the Homeland Security Department.

We expect to be able to announce more detail about those programs, both the naval and the Border Patrol.

So, a highly accretive acquisition brings over $15 million in preliminary unaudited revenue in 2024.

And brings us to a point where we expect our combined revenue in the next 12 months to exceed $55 million facing us as a completely new place altogether.

And while we don't provide guidance for future quarters specifically, I would encourage everyone to study the future earnouts that are part of this acquisition, and it gives a very clear picture of what G5 management expects the business to look like in the next 24 months.

I will give you a hint that the earnout for the 1st year includes projections of revenue between $21million to $27 million from G5 alone, compared to $15 million last year, and that gives, I think, a pretty good taste into the kind of growth rates we're looking at.

I'd like to now with the time left to switch gears a minute and to talk about the last, the previous quarter.

The previous quarter was impacted in two ways by one major event.

That event was on December 5.

China announced further restrictions on germanium exports, now completely banning sale of any germanium to any US company and to the US and to any dual use applications.

And while we have prepared for this moment, both by significantly reducing our germanium business and by preparing BlackDiamond, our BlackDiamond substitutes, we did not escape completely unharmed out of that.

Once China announced those restrictions, practically all shipments out of China suffered one way or another.

This means materials that are not related even to this ban like zinc selenide and zinc sulfide were also completely stopped for a while.

To us this means that more than 3/4 of a million dollars of revenue from last quarter could not ship in the last few weeks of the quarter and had to move into this quarter we're in now.

I will emphasize that we haven't lost a single dollar of revenue.

There wasn't any cancellation, and we don't expect to lose any of that.

It is simply a matter of timing.

When all orders, when all shipments out of China came to a halt, that impacted also non-Germanium business of ours for a short period of time.

We expect this to be covered very soon, although what we're seeing is that Chinese companies like Vital are completely stopping shipping any optics altogether, not only Germania.

But we have many other suppliers and we're building into that and are recovering from that small hiccup.

It's unfortunate because we report our numbers, of course, on a quarterly basis and something that happens in the last 2 or 3 weeks in a quarter.

It's really just for us a matter of timing of revenue and not a business issue, but when reporting on quarterly numbers, it appears that way.

At the same time, we also thought that the new restrictions are finally leading our customers to make the move to our alternative materials.

We are seeing an influx of interest in those materials and are extremely encouraged by this.

As a reminder, systems need to be redesigned to replace germanium with our materials.

And so what we're seeing now is a very significant effort to start the redesign process by pretty much all customers related to this.

With some systems such as our customer for FPV drone optics that we announced last quarter, the redesign is fairly straightforward and allows us to get it done within weeks.

But in other more complex systems this takes months and we're seeing quite a bit of this happening now.

We're not only working with customers to help those redesigns, we're also taking a look at our manufacturing capacity to prepare the needed capacity to make the glass needed for these programs once the redesign and qualification is done.

As a reminder, we spent nearly $6 million in our Orlando facility over the last few years preparing the infrastructure needed for growth.

We do not expect to need to outlay any significant additional capital for this increase in capacity.

We expect to be increasing our glass capacity significantly in the coming months, but with fairly modest investment in that.

Okay, since we're running out of time and I can't really cover everything that happened last quarter, I will encourage everyone to review some of the recent press releases on new products such as gas detection camera, on new contracts, such as our FPV drone optics, and many other things that we reported over the last few months, and I will be also available as always to answer questions.

But now I'd like to turn the call over to our CFO, A Miranda to talk about our 2nd quarter fiscal 2025 financial results.

Please go ahead.

Thank you, Sam.

I'll keep my review to a succinct highlight of the financials this quarter.

As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the 10Q for the period.

I encourage you to visit our investor relations web page to access these documents.

Revenue for the second quarter fiscal 2025 increased 1.5% to $7.4 million, as compared to $7.3 million in the same year ago quarter.

Sales of infrared components were $3.1 million or 42%.

Revenue from visible components was $2.8 million or 37%.

Revenue from assemblies modules were $0.9 million or 12%.

Revenue from engineering services was $0.7 million or 9%.

G

ross profit decreased 11% to $1.9 million, or 26% of total revenues in the second quarter of 2025, as compared to $2.2 million, or 30% of total revenues in the same year ago quarter.

The decrease in gross margin as a percentage of revenue was primarily driven by differences in the product mix coupled with minor and typical manufacturing yield issues exasperated by a slowdown in supply chain which Sam discussed, mostly attributable to China exports and impacting visible and infrared components.

Operating expenses increased 12% to $4.4 million for the second quarter of fiscal 2025, as compared to $4 million in the same quarter of the prior fiscal year.

The increase was primarily due to higher legal and consulting fees related to business development initiatives, including $174,000 in expenses associated with G5 acquisition announced today, product development costs of about $200,000 higher than the comparative quarter, as well as increased sales and marketing spend to promote new products.

Net loss in the second quarter of fiscal 2025 totaled $2.6 million, or $0.07 per basic and diluted share, as compared to $1.7 million, or $0.05 per basic and diluted share in the same quarter of the prior fiscal year.

The increase in net loss was primarily attributed to our gross profit coupled with the increased SG&A and new product development costs, as well as higher interest expense.

EBITDA loss for the second quarter of fiscal 2025 was $1.5 million, compared to a loss of $0.5 million for the same period of the prior fiscal year.

The decrease in EBITDA in the second quarter of fiscal 2025 was primarily attributable to a lower gross profit coupled with increased SG&A, including legal and consulting expenses related to business development initiatives, including acquisition costs and higher new product development costs.

Cash and cash equivalents as of December 31, 2024, total $3.2 million, as compared to $3.5 million as of June 30, 2024.

As of December 30, 2024, total debt stood at $3.9 million and backlog totaled $19.8 million.

As Sam noted, today we announced the acquisition of G5, which had preliminary unaudited revenue of $15 million in calendar year 2024.

The expectation is for the combined companies to generate $55 million in revenue in the 12 months following today's acquisition.

Subsequent to quarter end and to finance the G5 acquisition for $27 million of total consideration, we issued $25.5 million of 6.5% fixed convertible preferred equity, as well as private placements totaling $1.5 million, and two senior secured promissory notes totaling $5.4 million.

Following the close of the transaction, the August 2024, bridge promissory note of $3 million will be fully converted and no longer outstanding.

The $25.5 million preferred is mostly held by a fundamental investor that takes a concentrated position with a long term perspective and a few investments.

Terms and conditions are not toxic and are clean as possible.

The investor will also become a board member for a five-year term to assist in our growth plans.

We consider this new investor as a partner to our business.

In closing, I view the acquisition of G5 as a robust tool to supercharge the near-term potential of LightPath, particularly in the defense space with the introduction of high margin, high ASP, and incremental products.

We see this as providing an expedited path to achieving our long-term goal of 15% EBITDA margins.

Defining LightPath is a platform company focused on discipline and strategy and delivering value to our shareholders as we scale and grow.

With that, I'll turn the call back to Sam, for some closing remarks.

Thank you everyone for taking the time today to attend our call.

Looking ahead, we will continue to drive the future of imaging as seen through our proprietary BlackDiamond optics, leveraging our clear advantage in our capabilities and supply chain security as compared to legacy germanium based solutions.

We defined catalysts in industrial defense and camera solution market taken in tandem with our acquisition of G5, providing an entrance into the cool infrared camera space.

We believe Canada 2025 will build additional momentum towards our LightPath 3.0 vision of becoming a leading next generation optics and imaging solutions provider.

With that, I will now turn the call over to the operator to begin the questions and answer session. operator.

Thank you.

Ladies and gentlemen, we will now begin with the question and answer session.

(Operator Instructions)

Jaeson Schmidt, Lake Street Capital Markets.

Hey guys, thanks for taking my questions.

I just want to start on the gross margin in December.

You noted some kind of manufacturing yield issues just curious if those have been fully resolved.

Sorry, Jaeson, Sam and I aren't sitting together, so we usually need eye contact.

Yeah, I'll be one of.

So our yield issues in this quarter were not particularly bad.

I would say it was normal, you don't get 100% yield, particularly with coatings.

They were minor.

The problem was sort of exasperated by the fact that We usually have more material.

We can get extra materials.

We plan for it.

We have it.

So when we have yield issues and not a fast and quick source to some of the materials coming out of China, it sort of delays our ability to deliver.

So a normal yield issue becomes a not normal yield issue, if you will.

Okay, that makes sense.

And then obviously it sounds like you guys are pretty familiar with G5.

Just curious, sort of the customer overlap between the two companies and relatedly the cross-selling opportunities you guys are envisioning and if there are cross selling opportunities, are those sort of baked into the growth expectations reflected in the earnouts?

Yeah, I'll take that one.

There's definitely some great opportunities there, and we're seeing a lot of excitement from the customers.

So to begin with, on just on the optics part, which is the easiest to answer, since G5 has a, very good and robust optical coating services, they naturally service many of our customers already in that aspect.

So that part is sort of an easy, very natural part.

When it comes to the camera part, which is really where a lot of our growth we expect will come from.

Most times when you see today a system that has those called infrared cameras, it will very often have uncooled camera that goes with it.

If you look at some of the companies like Silent Sentinel, which is today part of Motorola.

And you look at the product offering, those same pen tilt systems of Gimbel will have a short range camera, uncooled camera like our like our uncooled cameras, and a long range camera from G5 next to it.

So the selling opportunities there is tremendous.

The same is also in optical gas imaging.

Oftentimes in a gas field there will be many small uncooled cameras like our gas camera.

And then one large cool camera, which obviously naturally is much more expensive and over $100,000 but that one is able to actually quantify exactly how much gas is leaking, so it gets pointed at the places where the smaller cameras identify as a leak to begin with, and so on.

So there's some great opportunities that we feel.

And as of now, those are not baked into the numbers.

The revenue numbers for G5 and their earnout is based on their projections and their own expectations of revenue without any synergies in that.

Okay, that's helpful.

And then just last one for me and I'll jump back into you.

How should we think about the gross margin profile for the G5 business?

Alb, you want to take that?

So the camera business has higher margins than the LightPath visible or infrared component business.

So, in terms of expectations, the margin will blend upwards with the portfolio being added.

Perfect thanks a lot guys.

Thank you.

Glenn Mattson, Ladenburg Thalman

Hi Guys, Sam, congrats on the acquisition.

I couldn't help but notice that your comment on the when you we're talking about, G5 a little bit about.

You said you mentioned something about to be awarded several large programs and that you should be moving into LRIP.

That's, I'm just trying to understand that language because, normally I guess you wouldn't say about to be awarded unless you had the business pretty secure or or is it, can you see the color on that?

One of them is a matter of days actually.

I mean, it's in the final negotiations, and when I say elevate, I mean just to put it into perspective.

The naval program, for example, or the prototypes that we expect to order any day now, it could be several million dollars, let's say $2 million to $3 million for the prototypes.

When it goes into production, so LRIP is just the beginning of low weight initial productions and scaling, we're expecting this could be $10 million to $20 million a year.

Okay, and you said the time frame on that remind me you mentioned prototypes.

Prototypes now in the next 6 to 8 months and then we expect LRIP towards the end of this calendar year.

Okay, thanks.

That's helpful and Yeah, just on the synergies, I missed part of your answer on the last question, but I, one thing that struck me was the in the press release talked about multiple programs of records for G5.

Is there an opportunity to use those as a funding vehicle whereby you can cross sell better your uncooled cameras and things and.

Exactly that.

So when you look at many of those systems that are deployed, they would very often have a mix of both uncooled and coold cameras together.

So the uncooled cameras, of course cannot detect the range of those cameras, so you use them for a short range detection.

And but because they're so much cheaper than the long range ones and the coold ones, you would sometimes deploy a few of them and have them look in different angles, and then you will use the sort of the big coold long range camera on a tan tilt where you would point it to where one of the uncooled cameras saw something maybe.

So oftentimes a combination of both and I know our sales team is extremely excited and can't wait to start cost selling on both sides.

Right, I guess that really makes it sound like a strategic fit like you mentioned, and just lastly, the exposure to some of the, issues with the Chinese, can you remind us how much of your business is still, exposed to that, some of, as you move toward and just towards the thanks.

Alb, do you have a number on that and how much do we still have.

So we have $2 million of sales, in germanium in the US that I would say is at risk.

Because of the restrictions, right, to bring germanium in, so we're sourcing that locally, switching to local sourcing, which is a project that's been going on for several weeks.

We have also a couple million of germanium sales in Europe.

But at much less risk because Latvia and the end users for those products are not on the Chinese no sell list.

But nonetheless, we'd like to move all of that product out of germanium as well in Europe, but, and we have similar plans to migrate, but the urgency isn't there yet like it is now in the United States.

And just to add on that $2 million in the US, so first of all, we're going to supply those by sourcing locally, but the local sources of germanium, as everyone knows, are very limited, so it's not really a long term strategy.

So once we supply those $2 million of germanium orders in the US, we will no longer be doing any germanium business in the US.

Okay, great, that's it for me.

Thanks guys, and congrats again.

Thank you.

Orin Hirschman, AIGH Investment.

Hi, congratulations on the acquisition.

Just going back to some of the earlier comments, so you mentioned on the acquisition.

These are just random questions you mentioned Motorola as the example.

Is that a current customer?

Were you using that as an actual customer example?

Yes.

A very large customer of G5, yes.

It isn't.

To those that don't know, Motorola is one of the leading companies in perimeter security and safety equipment, so it's a a very major part of the business for us.

Okay, and I don't, I'm not an expert in this space.

My impression is that these very long range infrared cameras are a newer type of security way of doing things.

Is that true?

Is this early on in the use of infrared, particularly long range infrared for security where there's a big runway.

Yeah, definitely for counter UAS.

So counter UAS and perimeter security, they have not been really used too much until now.

In Border Patrol, G5 actually has quite an install base there.

Now in the past systems were not as long range because the technology advanced and especially the at com capabilities that G5 has now with the civilization significantly improved that.

But also in Border patrol, the cameras were not as widely spread as they are now.

Now they're talking about putting these towers every couple of miles.

So it's a much larger install that's going to be.

In perimeter security, I mean this is now really growing.

This is every data center, when you look at it now, the data centers are like Fort Knox.

They're secured with radars and with the most advanced systems.

And so we expect that market to really take off considerably.

The relationship G5 has with Motorola is very significant for that.

And our sales team of former [fle] people are also, going to be pivotal at getting us into that.

Then the whole world of counter UAS and detecting drones and as we all know from the news, that is only getting started.

I mean that's going to be huge.

Just finally, just in terms of those shipments that pushed out being in this quarter and just in general, are we seeing you know that coming through and how you any comments on the current quarter of shaping up.

Yeah.

Alb, do you want to talk about that?

So we shipped most of that already in the first six weeks of this quarter, the stuff that pushed out.

My concern is that, the supply chain is not speeding up out of China, so we did get some good indications product is being released, but the releases that come are still small, too really too small to be Honest.

So, on the one hand, we can close the gap, so there, there's no rollover from.

This quarter, or we could end up at the end of Q3, coming up a bit short again because of the same sort of roll forward problem.

I mean, it really comes down to sort of like every day, checking with customs, to see what comes through, and what's approved and licensed and it's a day by day thing really.

And how's the rest of the business?

Doing in terms of some of the newer programs ramping.

So the new business that we're ramping and particularly in the assemblies and chorus, I like this business.

It doesn't take up as much space.

It doesn't use as much capital equipment and with the ASPs the way they are and the margins high, historically high for anything else we do.

I like it.

So I keep encouraging Sam and the sales team to bring in more of the assemblies and core business for sure.

I think we haven't also given any update on the Lockheed Martin project, so, just shortly, it's going very well on track.

We're about to start shipping flight worthy units for actual flight tests of the missiles which are extremely exciting for us personally.

And we're moving along very well with Lockheed both on this program and the two other derivative programs in which Lockheed is already integrating our camera systems into two more programs.

Thanks so much.

That's what I wanted to hear.

Thank you.

Scott Buck, H.C. Wainwright & Co.

Hi, good afternoon, guys.

Thanks for taking my questions and congrats on the transaction.

I guess, the first thing guys, hopefully I didn't miss it, but could you get just a little bit of background on how the deal came together?

Were they actively out looking for a suitor or was this more, I guess, organic in the way it came about?

So like, many of the acquisitions we contemplate, G5 is a company we've had an ongoing relationship with, and in this case it goes back nearly 30 years, well, before I even joined LightPath.

But ISP optics has been a supplier and partner for G5 back when they were [diop] and later Axis and General Dynamics and so was light.

So we've known each other already, pretty well.

We got the feeling that they're about to go out and possibly start shopping around, and we did a bit of a preemptive strike, if you would.

And just essentially picked it up before they went and formally engaged a bank.

And to that extent we've always been very clear that we are on the lookout for acquisitions.

I think we've been very clear that, we could see acquisitions in two forms.

One could be like visimid, a small technical group that add specific technologies, and others would be larger like G5, which would be in the $15 million to $20 million of revenue profitable with strong margins.

And those are the type of acquisitions we have at any given point in time, multiple acquisition opportunities or ideas that we keep in touch with or keep an eye out for.

We always make sure that any acquisition we do are people that we know, and if we don't know them, then we proactively engage in some joint projects to get to know each other.

Because anyone that has done M&A would know, the number one reason for fail of acquisitions is culture.

So a culture fit and getting to know each other if we don't know yet is very important for us.

In this case, we've simply known each other for a very long time, so it was very easy.

Right.

So, if I could add on to that, so you know we mentioned that this is not the first time for this group to come together and create a company.

They didn't have a good experience with the last time.

So, the last time they sold, it was General Dynamics.

They basically picked it apart, used the technology, moved it around planet Earth, and the current owners sellers.

I didn't really like the outcome that came with that for the people that were working there and had been loyal to them.

So Sam's 100% right in terms of cultural fit, but also strategic fit and our plans for them is to grow that location in the way the original founders imagined it and continue along that path.

That went a long way towards them feeling warm and fuzzy about the situation with us and not going to investment bankers to try and sell it outside, and they believe they left money on the table by not doing that.

We can argue that all day long, but that's their belief, and yet another reason why the culture fit and everything else about, why Path was attractive to them.

Great, I appreciate that, now that was helpful.

And then second one, just a quick modeling question, is there any seasonality in their business that we should be thinking about as we model, the out quarters here?

Yeah, there is seasonality.

I'm not 100% confident yet in how it looks, but typically, if you using our fiscal year.

The Q3 and Q4 is white on revenue and then Q1 and Q2 is heavy on revenue.

I don't have the exact mix.

It's really something I want to confirm with the management team next week when we start going through, the more detailed forecast versus the ones we used currently and get a better handle on it.

And I'll help you guys try to understand what that looks like.

Great I appreciate it guys.

That's all I have.

Thank you.

Thank you.

Brian Kinstlinger, Alliance Global Partners.

Great, thanks so much.

With the $55 million dollar revenue target, it implies significant growth from G5 from the $15 million.

I joined late, so hopefully I'm not repeating.

I just joined when Glen was asking questions.

Have the few programs that you expect to drive this growth with G5, are those awarded?

Have you started shipping against these contracts or subcontracts, and at what point do you expect these shipments to meaning play ramp in order in order to achieve this growth?

Yeah.

So, one of the programs, the Border Patrol, they received the first order last month and already began shipping towards that.

So that one is already, I'd say, in the pocket and confirmed.

The second one, the naval shipments, we expect any day now the purchase order for that, and those would be for the initial 7 units.

I'm not sure, something like that or something around that.

Where towards the end of the year that will scale into low rate initial production.

Other than that, the rest, many of the programs in all in different security and defense, some of them confirmed and some of them fairly confident, but I'd say that in this case the founders and the owners of G5 literally put their money where their mouth is by putting a significant bet onto their earnout that is for the next 12 months designed around them hitting revenues of between $21 million to $27 billion.

Yes, and then given the commentary on seasonality, at least the modest knowing that the March and the June quarter are their weakest, will LightPath as a combined company be profitable assuming you close.

As expected, and you have a full June quarter, will that be a profitable quarter?

From an EBITDA perspective.

From EBITDA perspective, we should be positive.

Right and then Again, sorry, I missed the prepared remarks.

Can you comment on whether you're beginning to see a ramp in the Mantis orders?

I know last quarter you commented you expected several customers would begin ordering in the second half, and here we are.

So I'm curious, has that ramped as you've expected?

Yeah, we, we've already been taking orders and shipping more and more of the thermoce camera orders.

The gas detection ones are not ramping as fast as we thought they would.

I think for the gas detection we still need to go through some quantification test of measuring or giving the actual performance number of how much gas it can detect in parts per million, and that's something that we didn't realize that we really can't begin significant sales before we have that.

That's ongoing right now at the customer site in Salt Lake City.

So I'm hoping that the gas, the optical gas imaging cameras are going to start scaling up very soon.

Great, the last question I have, I don't know if you addressed this, is there anything that keeps you up at night about tariffs, whether it's for your customers, whether it's for your suppliers, anything that you're carefully watching.

So we're, yeah, we started almost immediately line iteming tariffs to our customers and we're passing it through.

It's transparent.

The customers see it, they know it.

This includes purchase orders already in-house.

For the US market, our customer base seems to have accepted the fact that this is happening.

Yeah, I would add that I don't stay up at night because of the tariffs.

I don't think that would be that impactful to us.

I do worry about the supply chain of materials.

I mean, the side effect of when China announced the ban on germanium and suddenly companies like Vital Materials stopped exporting any materials, period.

That took us completely by surprise and it isn't over yet.

So companies like Vital still aren't selling materials altogether, not only germanium.

So I worry a bit more about that part, but there are many people LightPath is one of them, but many players working day and night to recreate the industrial base in the US, thankfully.

I'm very, confident about that longer term, but I think we are, we do still have a few months of transitory effects related to material supply.

Then I have one follow up.

I mean, you clearly have been preparing for this for many years.

There's no doubt about it, but my question would be what percentage of your business relies on imports from China?

Well, Alb, what's the, I mean when we say imports from China, it could be also like our regular glass lenses made in our.

From an overall perspective.

Maybe I'm just thinking about the material.

I mean you're talking about that's having trouble.

I'm guessing you're talking about germanium on the on the exports that were having trouble on the supply chain.

Not at all, but that's the funny thing.

So material called zinc selenide and zinc sulfide that's available from other countries as well, but we were just buying it from a Chinese vendor, even supply of that material out of China.

Yeah, so yeah.

From a revenue perspective, Brian, it's $8 million, let's call it $8 million into Europe and the US coming out of China.

The germanium risks are the ones that I mentioned earlier, $2 million in the US and $2 million in Europe.

Obviously the US is high risk.

Europe is, I would say moderate risk at this point.

So that's kind of rough numbers, rough high level numbers.

And Sam's right, so we knew what the germanium was and we knew what the risk was and have known for a while and we've been trying to get out of it for a while, right?

Switch customers.

The surprise that came in In the quarter back in December is companies like Vital who just shut everything down, nobody could have predicted that.

We know nobody could have predicted it because our competitors and our customers are all in the same place as we are.

Great, okay, thanks for taking all my questions.

Congrats.

Thank you, Brian.

Richard Shannon, Craig-Hallum Capital Group.

Well.

Hi, Sam.

I know, thanks for taking my questions and congratulations on it looks like a really nice deal.

Let me ask you a quick high level question following Sam, your comments and your prepared remarks about G5.

You said they had a really big pipeline.

Can you quantify or characterize that in any way by itself or relative to the pipeline that LightPath has itself?

Yes, I think the programs of record that we're seeing, the Border Patrols, the naval, those vary in our what we expect them to be in full production from typically those programs are anywhere from $5 million to $20 million a year in what the potential during production will be.

And since those are all military or defense related programs of record and program of record means it's a line item in the defense budget and congress budget so you can actually go and look it up in the formal congressional budget.

Those programs are typically 8 years of rollout, followed by many years afterwards of spare parts and repairs, which are very lucrative.

So we're looking at a business that could easily easily be alone in the $50 million to $60 million in a matter of two, three years.

Okay perfect that's a helpful way to think about it.

You mentioned a number of applications for the products from G5 here and all of them sound interesting.

Border control obviously a key thing for the current US administration.

Data centers obviously resonate with everybody tracking AI, but the one that's really stood out to me I'm really interested in is in drones or I think CUAS or some acronym I don't really understand.

Maybe you talk about what's what's going on there.

It sounds like a particularly useful and extremely important near term application for the defense community.

Maybe you can talk about what's going on there and how big of the pipeline are you expecting from that?

Yeah, definitely.

So that's the largest program to begin with, the naval program, and that's also the largest customer Motorola, I think a lot of their systems go into that and essentially, this is how do you.

Detect drones or other small objects like that in movement in the best way without active measures.

So of course a lot of those could be detected with radar or active systems, but those are oftentimes give out too much information about your location and where those systems are as we've all seen in Ukraine, so you end up needing to have a passive system to be able to detect drones and objects like that.

And so a few technologies is being looked at.

There's acoustic technologies trying to detect the noise of the drone.

There is different microwaves trying to detect the transmission of the drone if it is transmitting, and so on, but by far the best technology known there right now is those Infrared cameras and it has to be an infrared camera and not a visible camera because of course you need to be able to see it at night without the lights flashing and all of that you need to be able to see it in many different conditions.

And so right now there's are mainly mid wave cameras and that's what G5 is offering.

But they will also be expanding into short wave cameras, or even multispectral both short wave and midwave together because short wave cameras can see through clouds, for example, or could see through different adverse environmental conditions.

So, and this is where our BlackDiamond materials really designed for multispectral imaging will play a major role together with the G5 technology.

So what we're seeing is these cameras getting installed now, multiple of them in important locations that are very sensitive on pan tilt systems that are rotating and looking around.

You're talking about cameras that can zoom 20 times as much so they can start from a very wide field of view and zoom into small objects.

Again, they can do, I mean, the performance is just insane to be able to detect a tiny drone from 10 miles away as optically is just very impressive technology.

Okay.

There's some great detail there, Sam.

I think in the interest of time I will, I'll get back in the queue, but thank you very much.

Thank you, Richard.

Thank you.

As there are no further questions, I would now have the conference over to Sam Rubin, for his closing comments.

Okay, thank you all for attending.

Very exciting times for us.

If it wasn't apparent from our remarks, we're extremely excited and happy to be able to be here at this point with this deal.

I look forward to meeting some of you in person in our investor day at February 25, and I would also like to end the call by welcoming the G5 team to the LightPath family.

We very much look forward to working together and seeing what great things we can be doing together soon.

Thank you, everyone, and good night.

Thank you.

Ladies and gentlemen, the conference of LightPath Technologies has now concluded.

Thank you for your participation.

You may now disconnect your lines.