LightPath Technologies : Conference Call Transcript Fiscal 2021 Q3

LightPath Technologies Inc.

Fiscal 2021 Q3 Financial Results Conference

Call

Thursday, May 6, 2021, 4:30 PM Eastern

CORPORATE PARTICIPANTS

Sam Rubin - President, Chief Executive Officer

Don Retreage - Chief Financial Officer

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PRESENTATION

Operator

Good afternoon and welcome to the LightPath Technologies Fiscal 2021 Third Quarter Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the "*" key followed by "0." After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press "*", then "1" on your touchtone phone, and to withdraw your question, please press "*", then "2." Please also note, today's event is being recorded.

I would now pass the call off to Don Retreage, Chief Financial Officer of LightPath Technologies.

Don Retreage

Good afternoon. Before we get started, I would 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 expectations and involve various risks and uncertainties, including the impact of COVID-19 pandemic, that are 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 can be no assurance that the results would be realized.

In addition, references may be made to certain non generally accepted accounting principles or non-GAAP measures for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases. Following management's discussion, there will be a formal question and answer session open to participants on the call.

I would now like to turn the conference over to Sam Rubin, LightPath's President and Chief Executive Officer. Sam, please go ahead.

Sam Rubin

Thank you and good afternoon, welcome to LightPath Technologies fiscal 2021 third quarter financial results conference call. Our financial results press release was issued after the markets closed today and posted to our corporate website. Following my remarks, our CFO, Don Retreage will further review our financial results and provide more perspective on key areas. We will then conduct a Q&A session.

For those of you who have been following closely the company, you know that the past 9 months and more have been marked by changes designed to position LightPath for growth. I am very pleased to report that our long-term growth plans are beginning to yield their intended results, as seen in the strong results for the quarter, including the highest level of quarterly revenue in our history. This marks the second consecutive quarter in which we set a new record for quarterly revenues, and we continue to deliver double-digit growth rates on annual terms.

In the nine months since the beginning of our fiscal year, we won over 50 new business contracts including 16 from new design wins. This supports both our new strategic direction being a partner for solutions as well as our goals to diversify our customer base and reduce our customer concentration.

With reflection, I was appointed CEO of LightPath a little more than a year ago. At the onset, my initial focus was to assess the company's strengths, weaknesses, opportunities and

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leadership capabilities, as they relate to our strategy forward. Once we completed the initial assessment, we began implementing our new strategy with an orientation towards becoming a valued and trusted photonics partner in the form of providing engineered solutions, which goes well beyond serving as a component manufacturer.

As a reminder, our strategy is based on the fact that photonics as a technology is being adopted into more and more applications and integrated into more and more products, such that there is a growing number of companies that use photonics and therefore need a partner that can support them through…through extensive knowledge and experience with the technology, making the adoption of photonics technology easier for them. This is a powerful growth mechanism and is reflected in the strong revenue growth we reported today, as well as in our fast growing number of design wins and prototype development work for our customers.

During this time, our focus was not only growing the topline, from the beginning of the fiscal year through the end of the third quarter, our financial and operational focus resulted in our cash increasing by 10% even as we reduced our debt by 8% and funded capital expenditure at nearly 80% more than prior year. Those investments have been focused on ways to better serve larger multinational customers and satisfy higher volume production demand, which is part of our solutions orientation.

Along the same lines, our investment in R&D has grown this year by 24% as we invested in developing unique technologies and capabilities, which in turn translates to technological differentiators that allow us to provide our customers with solutions that enable them to better use photonics technologies in their application. This last part has been the essence of our strategy, and with it we are pursuing an increasing number of sizable opportunities in diversified vertical markets, where our engineering expertise, volume production capabilities and proprietary technology are competitive advantages.

The growth we're seeing in sales is fueling the company and further driving the need for additional changes and improvement. This has led to the next steps of our long term growth plan which requires strengthening and expanding our leadership team. With our recently announced changes in management, the focus is turning towards operations, efficiencies and overall performance, similar to the effort that led our initial growth in this fiscal year which took a couple of quarters to be realized. Our shareholders should expect a period of adjustment with the new leadership team until we begin to more fully experience the intended results of operational optimization.

Our objective has been to secure the right talent for the company, who have the skills and experience to drive forward our long-term goal and implement our strategy to be the preferred partner to our customers on all things for photonics.

This included several changes to our leadership ranks and filling out the depth and of our broader middle and senior areas of management. Doing and following the end of our fiscal third quarter, we announced a series of management appointments with corresponding one-time expenses for the associated changeover, as we put our new team in place. The normalized amount of operating expenses is expected to be reached through the course of the next few quarters, as we eliminate temporary redundancies and other one-time costs.

This conference call provides a good opportunity to summarize LightPath's recently expanded management and leadership team. Earlier this week, we announced two significant changes. First is the retirement of our longtime Chairman, Bob Ripp, who has held the position since

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1999. Bob has served the shareholders and the company very well for a long period of time, navigating the company through periods of economic and market changes. He was instrumental in bringing me to LightPath, and I'd like to personally thank him for this opportunity and assure him that we will very much continue to follow the strategic direction that has been shared on this call today. The board anticipates appointing a new chairman to replace Bob in coming weeks.

The second major appointment announced this week was for Peter Greif to the position of Vice President Operations. This position has been vacated about a year ago, and we finally found the right person for the job. Peter comes to us from New York Stock Exchange listed Jabil, one of the largest manufacturing solutions providers based in Florida, with a market cap of over $8 billion and more than 260,000 employees worldwide across 100 locations in 30 countries.

Al Miranda, who is also sitting in today's call, was appointed to the position of Vice President Finance, effective April 19th, as part of our CFO succession plan. We're grateful for the contributions of Donald Retreage, our outgoing CFO, who announced his retirement that will take place following the closing out of this quarter. I'd like to personally thank Don, who I have worked with closely for the past year. He has been an important contributor to the company's transitional period during the expansion into the infrared market and in building out our global manufacturing operations.

As Don's [ph] successor Al previously was President of the North American subsidiary of publicly traded $1.5 billion market cap, Jenoptik, the Germany based Jenoptik, Al led their North American subsidiary to top and bottom line double-digit growth. Jenoptik is known globally for specializing in photonics-based technology across several markets.

Now, operation in China, Joseph Huang was appointed General Manager, replacing Hui Yue. Joseph has more than 30 years experience in OEM manufacturing, working in various international markets with a focus on China, including 10 years with Samsung and IBM. This change in management now a China group, which included dismissing the previous General Manager, as well as, the Sales Manager and the Engineering Manager, was instigated as a result of certain code of conduct infractions by the previous leadership at our China operation.

This includes an attempt to set up a competing business to LightPath, as well as, an attempt to misappropriate part of our intellectual property. While we are confident that the swift corrective actions we have taken have resolved the issue and any related findings to-date, this also resulted in some related additional one-time expenses incurred in our fiscal third and fourth quarter. Additionally, we expect some limited impact to our domestic sales in China for the next two quarters, while we stabilize our domestic sales operation in China.

Finally, in another board level move, we were joined by Eric Creviston, who is President of the Mobile Group product in NASDAQ listed Qorvo, a $22 billion technology company, which develops and commercializes worldwide semiconductor products and software for advanced wireless and wired technology. For our solutions-oriented product and business development roadmap Eric is an exceptional addition to our Board.

The series of management and leadership changes reflect the opportunities presented to LightPath accelerate global growth and prominence. Furthermore, the appointments as well as the results this quarter are in line with what our focus has been, which essentially is departure from the way of old and in support of our new vision. These operational changes may take a

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few quarters to impact along with additional ebb and flow during the change management period, before becoming material and substantial.

One area of operational improvement lends to our gross margin performance. You'll note that our gross margin as a percentage of revenue is down by a meaningful amount in the third quarter and to a lesser extent for the first nine months of the fiscal year. This has to do with the lifespan of new design wins going into larger production…into larger production ones, and our yields in two specific parts of the process, which I discussed on last quarters' call. Our team has continued to focus on developing both unique technologies and processes and products, particularly as they scale from prototype to mass production.

Our R&D spending has been higher in part to develop new products that get us to the design win stage. Therefore, we have equally important work to do in scaling new products into volume production. Where a number of technical challenges of typically encountered, related to the fabrication of the components as well as some of the value-add activities such as coatings and assembly. While we have not yet completely resolved those issues, those yield issues, results are very encouraging, and I am confident that we are on track to have them resolved in coming weeks.

On the sales side, we see demand growing based on a number of new opportunities in our sales funnel, both from existing customers and the new customers alike. Yet, we are only just beginning, as we report another record performance for quarterly revenues, which turned to double-digit growth that marks another goal we set for the company this year and further improvements in our balance sheet. I am confident that our strengthened management team will lead us through our next phase of growth. This anticipated growth is on organic basis, while in addition, we intend to pursue selective acquisition to bolster our product lines and manufacturing capabilities.

Our superior products, innovation capabilities, and deep customer relationships, enable us to extend our leadership position. We are leveraging our competitive advantages to deliver a stable return on investment and ultimately returns for our shareholders. I'm energized by the outlook for our business and believe we're making considerable progress in our global [ph] strategies.

Now, I'll pass over to our CFO, Don Retreage to provide more details on our recent financial performance.

Don Retreage

Thank you, Sam. First, I'd like to mention that much of the information we're discussing during this call is also included in our press release issued earlier today and in our 10-Q filed with the SEC. I encourage you to visit our website at lightpath.com, specifically the section titled Investor Relations.

Now on to my remarks pertaining to the fiscal 2021 third quarter and nine months ended March 31, 2021. Sam's remark covered the highlights of the changes that came in form of the strategies designed to position LightPath for growth. I will be specifically discussing some of the key financial performance areas.

Revenue for the third quarter of fiscal 2021 was $10.7 million, up 8% sequentially from $9.9 million in the second quarter of 2021 and an increase of 23% as compared to $8.7 million in the second quarter of 2020. Revenue for the first nine months of fiscal 2021 was $30.1 million, an

LightPath Technologies Inc. Thursday, May 6, 2021, 4:30 PM Eastern