Laser Photonics Corporation

Greetings and welcome to the Laser Photonics Corp second quarter call and webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Siegel, Investor Relations. Thank you, sir. You may begin.

Thank you, Maria. With me today are Wayne Topola, Laser Photonics CEO, and Jade Barnwell, who just joined the company as CFO. 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 a 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. I will now turn the conference call over to Wayne. Take it away, Wayne.

Thank you, Brian, and good morning, everyone. Thank you for joining Laser Photonics Corp's quarterly earnings call. I'm Wayne Tupole, CEO of Laser Photonics Corp, and I'm thrilled to share some exciting updates with you today. We reported a soft quarter in Q2 reporting revenue of $1 million as compared to $1.35 million for the same period in 2022. The decrease was primarily related to delayed CapEx spending by customers, while this impacted our second quarter results. I'm encouraged by the progress in our sales and marketing efforts in expanding our pipeline which are expected to drive long-term positive sales trends. Given that in our target markets of materials processing, automotive, aerospace, and semiconductor, laser cleaning products fall under CapEx spending. Sales cycles can take six to 12 months and often fluctuate quarter to quarter. In recent quarters, economic conditions including interest rate increases have been putting pressure on sales with respect to interest rates. Higher rates have caused customers to delay capital equipment spending, as many customers, large and small, use leasing companies to purchase our equipment. In Q1, we began increasing R&D investments to maintain our technological superiority. We equipped our application center with state-of-the-art robotic laser blasters and develop new complementary technologies. Moving forward, we intend to make further investments in R&D to innovate and guarantee companies' long-term future, and I will touch on one of these platforms in a minute. Before I go into some of our exciting product innovations that are coming from our R&D investments, I'd like to welcome Jay Barnwell to the team as our newly appointed CFO. Jade has proven success in managing financial growth at all of her companies, and we look forward to leveraging the experience she brings. Now I'd like to introduce our latest product developments, the Titan FX platform for the aerospace industry. This new large platform was designed for laser cutting applications, but we also integrated it into our Cleantech product line to enhance that offering. The platform is designed to provide increased safety as it has fully enclosed frame that meets class one product enclosure standards for the laser industry. This significance of this is twofold. First, we developed this new platform in response to conversations with an existing large aerospace customer. The aerospace industry has held off using laser cutting capabilities for decades due to safety concerns related to creating stress cracks caused by the heat generated from laser applications. To this day, laser cutting is limited to rough cutting and later refers to downstream CNC machining capabilities. The Titan FX platform revolutionizes laser cutting applications with our unique laser cold cutting feature that enables the platform to work with heat sensitive materials without compromising quality or precision. This capability opens up new possibilities for various industries, including aerospace, automotive, and electronics, where materials such as composites and plastics require delicate treatment. Moreover, our turbo piercing technology enables rapid advanced perforations, enhancing production efficiencies, and reducing cycle times for our customers. By streamlining their operations, we are helping customers achieve greater productivity that meets strict deadlines. Second, the newly developed Titan FX large format design can also be used for clean tech class 1 product enclosures. therefore integrating cutting edge laser safety features with our renowned laser blasting capabilities. The Titan FX platform will combine two essential elements for our Cleantech products, unmatched laser blasting power and enhanced laser safety. With our advanced laser technology, we already offer precision and efficiency that sets us apart from the competition. Now, By incorporating laser safety into our product enclosure, we provide our customers with a comprehensive solution that addresses their needs for both performance and safety. In today's manufacturing work environment, most of our customers are safety-conscious. Therefore, Laser-O-Tonics is stepping up to the plate and providing solutions to modern-day problems for the modern-day workforce. Automation is also key to running a smooth and efficient manufacturing facility. The laser photonics focuses on helping its customers achieve this. Looking ahead, we are confident that the Titan FX platform will further strengthen our position as a leader in laser technologies. We anticipate strong demand from industries seeking advanced laser solutions that combine performance, precision, and safety. By expanding our product offering to cater to the needs of cleantech and other sectors, we are well positioned for growth and new market opportunities. In conclusion, Laser Botanics Corp's Titan FX platform for cleantech class 1 product enclosures represents a groundbreaking development as we continue to push the boundaries of innovation in the industry We are excited about the prospects and the positive impact this new development will have on our customers' operations and overall safety. Thank you for your continued support, and we remain committed to delivering cutting-edge solutions that will drive success and growth for Lasertronics Corp. I will now turn the call over to Jade for a detailed financial update.

Thank you, Wayne, and welcome, everyone. As Wayne mentioned, Our second quarter revenue decreased from the same period last year by 28% to $1 million. Our gross margin on those second quarter revenue increased by 600 basis points year-over-year to approximately 71% as our mix was more heavily weighted towards our higher margin cleantech systems. Operating income was breakeven this quarter. but benefited from a $700,000 mark-to-market from non-cash stock issuance cost related to our IPO, which is mentioned on last quarter's call. It was Saturday in April and therefore needed to be mark-to-market upon delivery. Beyond this non-cash cost, the most significant change in our operating cost structure was the increase in sales and marketing resources, R&D investments, NASDAQ, and SEC compliance costs, and went for our new facility. Gap net income and earnings per share were breakeven down from last year's $0.3 million and 7 cents, respectively. Excluding the previous marked market gains, net loss and loss per share would have been $0.7 million and 7, 8 cents, respectively. From balance sheet and cash flow perspectives, we finished the quarter with $9.9 million in cash and no debt. This balance represents $0.9 million decline during second quarter resulting from our operating activities. Now I'd like to provide some commentary about the full year 2023. Looking at our operating expenses and given our continued growth investments in R&D, sales and marketing, and expanding our distribution channel, we expect these costs to rise further throughout the rest of the calendar year. That concludes my prepared remarks for today. We can now move to questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. We ask that you limit yourself to one question and a follow-up so that others may have an opportunity to ask questions. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Chuck Lipson with CSL Associates. Please proceed with your question.

Yes, good morning. Wayne, we have a pretty demoralized shareholder base. You know, there's been a lot of management changes, projections having been made, and we keep hearing about all the opportunities that we have. Why have sales declined when we've been going to the trade shows? We keep hearing this remarkable amount of opportunities for our lasers, and yet the sales aren't there at all. When and how are we going to turn this ship around? When do we start seeing some sales? We just got some projections that marketing costs are going to increase, but why have sales failed to materialize? Fortunately, we still have some cash, but we used to hear about new customers almost weekly, and now we haven't heard of a new customer in months. Could you give us why we should have a lot of hope going forward? I'm sorry to be so pessimistic.

Thanks for your question, Chuck. I think if we reviewed from the starting of the company back in 2020, you know, where we showed the initial start and a lot of R&D went into the products and an aggressive move to try to gain confidence in adapting this particular technology, because that's the first phase of our gain-in-scale model, which is for the customers to adapt the technology and adopt. Many of these organizations have received the beta units, and they've formed protocols and procedures into the manufacturing process, which takes some time. Now, we've gained some traction in initial start with the first three years the company has been in business, and we've put a lot of investments from our parent founder ICT investments which put a lot of investments and Unfortunately, we could take the company as far as we could then decided to Take it to market and once that happened We spent quite some time doing so and it sort of delayed You know the momentum that we had going so with this being said most of the the growth that you've been seeing from the end of or mid-stage of 2022 into the first quarter of 2023, was the results of prior to investments into the company moving forward. So now that we're fully funded, we need to continue the progress, continue getting the good news out through a strategic marketing plan, which we've incorporated. We've grown the marketing department And we have a phenomenal group down there that's going to basically get the news out. And with that being said, you know, it takes about six months to get the message out. And then you have the sales cycle that will take another six months. So, you know, this is an investment year, obviously, after the fund raising. And we expect to see good results in the near future. You know, I hope that... This has answered your question as far as what we experienced, and we see a lot of positive traction. We have a very good sales group that's making monumental leaps and growth in acquiring the new interest in this disruptive technology. We took it to market, addressing a $46 billion opportunity, and I think it's greater than that. globally because most people are trying to transition out of the hazardous abrasive sandblasting and I think it takes time for them to exit that particular type of process and develop new protocols and procedures. Most of the characteristics of this technology has just been sanctioned by most coding companies that you know, were given directions on how abrasive blasting works, and now they need to develop laser blasting criteria for government agencies and the private sector as well.

So, you know, my... It's all well and good. But last year we had, like, I think it was the Navy, we had the Emerson, we had GE... I take it they all had beta platforms for our product. Have we heard back from them? Are we making any progress in getting real orders?

Yeah, absolutely. Again, the one unit is being infectious to the entire organization, but internal protocols and procedures take time, and this turns into multiple units, and that's our goal is to try to get the first unit in the door, let them write the protocols and procedures, and from there it just takes off. And again, you know, as I mentioned earlier in the call, you know, some of these obstacles are derived from things that are out of our control. And every company has to face this in these turbulent times. And we need to respect that and try to create new opportunities, new verticals that we've already – familiar with and, you know, try to address those types of situations that they're facing.

Do your projections that you made on the last conference call, do they still hold any water or are they under review? Because we've always, we lowered them once and now it seems after this quarter we probably were a little too optimistic last quarter.

Well, I think from quarter to quarter, you know, again, you know, the feds have been, you know, raising the interest rates, making it unbearable. Inflation has gone up. A lot of people, the customers are having difficult times trying to make decisions on CapEx, as I mentioned early in the calls. And these are some of the things that we need to deal with. It's pretty straightforward. But, you know, I have hope in the economy turning around. And there's still a corrosion problem out there that needs to be resolved. So, you know. As there is a shortage of wheat worldwide, there's going to be turmoil in these types of situations.

All right. Well, hopefully we can turn it around a little quicker. Absolutely.

Thank you. Absolutely. Thank you for your question. Okay. Okay.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.

Okay, we've got some questions to the webcast. The first is, The company has made comments in its SEC filings regarding actions to improve control weaknesses. Can you provide updates on the control environment?

Yeah, Jade, I think you can take that one.

Can you repeat that question one more time, please?

Yes. The company in its SEC filings has identified weaknesses in controls. and it says it's taking actions. Can you talk about the actions that the company has taken to improve its controls?

Well, first of all, the obvious control we placed is having the CFO. So I joined just 15 days ago, so that is my to-do list on my to-do list. I can't provide you details at this moment, but I am reviewing the procedures and process that we have in place. And at the same time, we strengthened our board of directors to go over our procedures as well.

Okay. Next question is

Are your products truly 100% American made as you advertise?

Yeah, Brian, thanks for that question. So I think what needs to be understood in America is that things have changed throughout the last four decades on who manufactures what in our society today. America is not capable of producing 100% of all the components known to man. Even our latest fighter jets, some of the components are not 100% made here in the United States for defense of our country. And as you know, the semiconductor chip alone is not made 100% in our country, and this is why we have a semiconductor chip shortage. We rely on outside sources. So certain components are required to be made by other countries. Nonetheless, we manufacture major components here in the United States. And we are responsible for the design and the functionality of our product. And it's 100% manufactured and assembled here once components are available in the open market. Now, if our Third tier vendors are supplying it from other countries. We have no control over that, but it's what's available with American vendors selling to American customers. The availability of supply chain is a trying task for any company that's manufacturing today. Nonetheless, 100% assembled here. Components are received. We're not in the business to make it major manufacturing products that is not our expertise. So we'll have to pull from United States companies or global companies to the degree that whatever is available for us to use, that's what we use. But we've definitely pressed the components threshold to what's ever available, the latest technology that's in our products. And we have this capability. And I don't think anyone else competing with us does the same thing. So, hopefully that answers your question.

Okay, great. Next question. You've been issuing press releases at the rate of three per week, plus or minus, most of which are simply reviewing use cases for cleantech. What is the annual cost of this program? Does management actually conclude these releases are meaningful and worthwhile, and if so, why? And then how do you measure this? What are the metrics you use?

Yeah, so in creating a marketing strategy, it's important for us to penetrate certain verticals and reach a certain audience, and at the cost of doing so, I think we've got a phenomenal deal from our avenues of helping us with the press release. It's quite cost-effective and quite affordable for us to release press releases on a daily basis. And I think the bombardment of messaging is quite important so that they can see that a thriving company that has an awesome message to deliver that just allows people to understand that there's a lot of exciting things going on in our company, and we're just excited to share that. I think the matrix on this, we've been getting some phenomenal feedback on the open rates, and people are giving us great responses on this. On the other hand, some may view it as mundane and not effective, but again, we're the company that's running the marketing strategy. And I think it's working. It's doing its job. And hopefully, you know, it'll gain traction in the near term to come.

Okay, great. Second is related to SEC filings. There's been no disclosure of executive comp since you've gone public. What are key insiders and directors being compensated right now?

Yeah, I think that, you know, emerging growth companies, you know, exercise that right as mentioned to be transparent in that area. And, you know, we have mentioned as executives are hired through the 8K what the compensation is. So I think we're already doing that, Brian.

Great. Yeah, thank you. A couple of business questions here. Are you seeing an increase in competition and in general, who are the competitors and what is the competitive environment like currently?

Yeah, I think, you know, it's quite the opposite. We're not seeing a competition of relevance to the technology that we have. pressing the components threshold exceeding customers' expectations. So I think we've done enough to set ourselves apart from the competition that it exceeds the marketing expectations of getting the message out there, making sure that there's really hands down effort on our part to make sure that we're offering something that anyone that wants to occupy this space will not be able to achieve. And that's our goal is to try to provide a solution to our customers that no one else in the world can. I think we've pressed this technology to the height of expectation that our companies are starting to see they're writing procedures around our product and that says a lot about what we do okay and then this question is more technical in nature you know what are the main items that make up the manufacturing process yeah when you look at the you know some of our product lines they're quite strategic and customized to fit our customers' needs from the class four open beam system that is strategic and also helps them to transition from the open process of sandblasting. It could mimic that, but eventually we want to transition the customers from the open beam system the Class 1 encloses, which is why we took the Titan FX large format design to market so that it can offer up those safety features. Nonetheless, the Class 4 open beam system does have its space in some environments, such as nuclear decommissioning of the nuclear facilities, because it does require open beam systems to decontaminate some of the materials that they're trying to clean out there. But the major manufacturing processes involve the assembly, the calibration of the optics on the delivery systems, placing the optics in assemblies, and also software implementation. We also have communications between hardware and software that needs to be dialed in as well. And a host of other processes that kind of help bring the cleantech product line to fruition.

Okay. Great.

Jay, can you help explain again exactly what the non-recurring items were in Q1 and Q2 related to the stock issuance and explain what exactly happened there?

Sure. So during IPO process, we provided stock awards to one of the external parties, the marketing firm, The name is Trade Digital Marketing Group. We provide the stock awards to the exercise. So at the end of 22, so December 31st, we revaluated them based on the market price. And then March 31st, we did it again because it was not issued. And actually, it was issued on April 17th. So when we evaluated in March, The stock price was higher than what we had on December 31st as our accrued expense in balance sheet, and when we actually issued on April, the price went down, so we had to re-evaluate, and that gave us gain of $700,000. Does that answer the question?

Yes, I think so. And then what I believe is the last question. What are sales looking like for third quarter? What should we be expecting the company to report when it does third quarter earnings?

Yeah, we have... a $4.7 million pipeline for third quarter, but again, trying to lasso those purchase orders off the desk of the procurement department becomes challenging because they're prioritizing according to how they see global trends and economic conditions. So that's the frustration right there, Brian, is you know, we've taken it all the way as far as we can as a company. But again, it's stuck in the hands of the decision makers releasing the purchase orders. But we do have positive feedback from our customers saying that, you know, there's a possibility that these purchase orders will be released soon. Procedures are being written and completed, other departments within these organizations are starting to inquire about new systems, and all of these take time. So I think third quarter looks bright for us, and hopefully we'll be able to surpass first and second quarter results.

Okay, and then one more question just came in. How many people have you added to the company so far this year?

We've added 21 employees. So, you know, last year we ended 2022 with 19 employees, so now we've added 21. And still looking to fill positions as well. It's quite challenging, you know, for us at... the executive level to find people that are strategic and understand how to move the company forward. So this becomes a challenge for us in finding the executives that can help us grow the company as well.

Okay. I think that's it. Okay. Thank you, Brian.

We've reached the end of our question and answer session, and this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.