Laser Photonics Corporation

Q3 2022 Earnings Conference Call

11/8/2022

spk02: Greetings and welcome to the Laser Photonics third quarter 2022 earnings webcast. At this time, all participants are in a listen-only mode. I would now like to turn the conference over to your host, Brian Siegel, Senior Managing Director of Hayden IR. Please go ahead.
spk03: Thank you, Operator. With me today are Wayne Topola, Laser Photonics CEO, and Tim Schick, CFO. Wayne will spend most of today's call introducing the company and its opportunity to disrupt the market for corrosion control and other applications, and then Tim will review the financial results for the three-month period ended September 30, 2022. Please note that the third quarter closed prior to the company's IPO, where it raised $12 million net of growth capital on October 4. After today's presentation, management will answer any questions that have been submitted ahead of time during the call. Any forward-looking statements made during this conference call, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These risks and uncertainties include but are not limited to the specific risks and uncertainties discussed in the reports that we file periodically with the SEC. Laser photonics assumes no obligation to either update any forward-looking statements that we have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. During their remarks, management may make reference to adjusted EBITDA, a non-GAAP measure. Management believes that its measure of adjusted EBITDA provides useful information to both management and investors that supplement our core operating results. Our earnings release, which is posted on the IR page, includes a reconciliation of EBITDA to its nearest comparable gap measure, net income, for all periods presented. I will now turn the conference call over to Wayne. Wayne, take it away.
spk00: Thank you, Brian. Welcome to our third quarter 2022 earnings call and our first as a public company. Today, I'm going to introduce you to Laser Tonics and the considerable opportunity ahead to disrupt the market for corrosion control, and other materials applications. Laser Tonics is a cleantech company that utilizes proprietary laser systems for cleaning and removing corrosion and other materials from metal and other substances. We estimate the total market size for corrosion control is greater than $1 trillion in North America. Of that, we believe our opportunity is around less than 1% of the market for roughly $46 billion. An example we like to use to illustrate the size of the problem relates to the US Navy. It is estimated that the United States Navy spends $22 billion annually on corrosion control. With our products, they could likely reduce that cost, but also reduce the health and safety risks that come with other corrosion control methods. Today we are in the first inning of this multi-billion dollar opportunity to replace existing methods for removing corrosion and other materials. Historically, this work has been done using dangerous, hazardous, and toxic abrasives such as sandblasting to attain these goals while putting workers at risk from both safety and health issues such as silicosis, a lung disease that is common in people that work with abrasives. Fortunately, The market is shifting as both government regulators and labor unions are influencing the move away from these older methods to safer, non-toxic methods like laser cleaning. Our laser cleaning systems are sold under the Cleantech brand and come in a number of different laser strengths from 50 watt to 4,000 watt. Laser power is important based on the base substance from which corrosion or materials are being removed. Our systems also come in different form factors, ranging from handheld systems to full-size cabinets to robotic systems. In terms of competition, we only see one major company out there, which is based in Germany. They do have a distributor in the United States, but we believe that being United States America-made positions us favorably with commercial and government customers. The industries where our technology is viable are vast. Today our technology is used in the maritime and shipbuilding, aerospace, automotive, space exploration, nuclear and energy, manufacturing and military and defense industries. We have sold our Cleantech products to organizations and companies including Coca-Cola, Detroit Diesel, a division of Daimler North America, the United States Army, Navy and Air Force, SOCOM, and the Veterans Administration, to name a few. Most of these initial sales were for these organizations to develop their standard operating procedures and processes for laser cleaning. We believe that there represents a significant flow of opportunity with these customers, as well as opportunity to penetrate other parts of these organizations. As most of you know, we came public after the close of our third quarter. We raised net proceeds of over $12 million, mostly for growth capital. Our priorities are as follows. First, we need to build our sales and marketing team and infrastructure. Today, we are seeing significant demand from inbound calls. However, we believe to take advantage of this demand as well as create additional demand We need to bring on a senior sales executive to oversee the building out our inbound sales force, as well as bring on key account managers. Next, we need to build out our operations and administrative staff to be able to handle our anticipated growth. This includes engineering, accounting, and finance, procurement, and other areas necessary to support our anticipated growth. And finally, we believe There are potential acquisitions that we can make to enhance our product portfolio, enter new markets, or vertically integrate it into our manufacturing. We believe that with these investments, we can double revenue annually over the next several years. In summary, we have a tremendous opportunity ahead of us, one in which we are still in the first inning, We believe we have the products and technology to capture this opportunity and create significant long-term value for shareholders. Now I'll turn the call over to Tim for his discussion of our Q3 financial results. Tim?
spk01: Thank you, Wayne, and welcome, everybody. Our third quarter revenue increased by 11% to $1.2 million. For the first three quarters, revenue increased by 27% to $3.8 million as compared to prior year. For the third quarter, gross profit increased by 10% to 0.7 million, and gross margin declined 60 basis points to 58.1% as compared to prior year. For the first three quarters, gross profit increased by 29% to 2.3 million, and gross margin increased 100 basis points to 60.3% as compared to prior year. For the third quarter, operating income was down 14% to 0.2 million, and operating margin declined to 18.7% as compared to prior year. The decline in operating margin was largely due to administrative expenses associated with the IPO process. For the first three quarters, operating income was up 37% to $0.9 million, and operating margin increased to 24.7% as compared to prior year. For the quarter and year to date, other expenses decreased by approximately $0.1 million, and we paid $14,000 in taxes versus none last year. These items enabled third quarter net income to increase by 29% to $0.2 million, and net profit margin to increase 230 basis points to 16.7% as compared to prior year. For the first three quarters, net income increased by 67% to 0.9 million, and net profit margin increased by 580 basis points to 23.9% as compared to prior year. Fully diluted earnings per share were up 29% to 4 cents a share in the third quarter, and were up 67% to 19 cents a share for the first three quarters as compared to prior year. For the third quarter, EBITDA increased by 17% to 0.3 million. And for the first three quarters, EBITDA increased by 36% to 1.2 million as compared to prior year. Now I'll turn to our full year guidance. We expect full year revenue to be between 5.6 and 5.8 million, representing a 34 to 38% increase over prior year revenue of 4.2 million. Given the dilutive impact of our share issuance in the fourth quarter, We believe our full year earnings per share will be modestly higher than that of the first nine months. So that concludes the prepared remarks for today's webcast. Brian, are there any questions?
spk03: Yeah, Tim, there are two related to gross margin. The first is, what is driving the gross margin variation from a quarter-to-quarter basis during 2022? I'll let you answer that one.
spk01: It's small volume. It's the law of large numbers in reverse. Year over year, we sold 29 units as compared to 20 units in the prior year, and these units have a wide range in applicability. When our volume starts to increase, we're going to start seeing more consistent movements in the gross margin.
spk03: Okay, great. And along those lines, can you share a long-term gross margin target?
spk01: We think our long-term gross margins will actually increase because of scale, scale in the plant and scale in purchasing. We expect our gross margins to be in the neighborhood of the mid-60s, 65% to 66%. Okay, great.
spk03: That's all the questions we have. Operator, you can close the call.
spk02: Thank you very much, sir. Ladies and gentlemen, that concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-