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spk00: Good afternoon, and welcome to the LightPath Technologies fiscal 2021 second quarter financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please also note today's event is being recorded. I will now pass the call off to Don Retridge, Chief Financial Officer of Lightpath Technologies. Please go ahead.
spk01: 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 will 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 Q&A session open to participants on the call. I would now like to turn the conference over to Sam Rubin, LightPath's President and Chief Operating Officer, Chief Executive Officer.
spk02: Sam? Thank you and good afternoon. Welcome to LightPath Technologies Fiscal 2021 Second Quarter Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted to our corporate website. Following my remarks, our CFO, Donald Retriege, will further review our financial results and provide more perspective on key areas. We will then conduct a Q&A session. Now on to my remarks. I'd like to start out by expressing my encouragement from the progress we are making on driving our top-line growth and growing the organization amid the limitations imposed on all of us by the COVID-19 pandemic. We have made significant strides with advancements on our long-term strategic growth initiatives in the first half of fiscal 2021. which was underscored by achieving record levels for consolidated quarterly revenues and total backlog at the end of the fiscal second quarter, although with lower margins than we targeted, which I will address shortly in my comments. While the growth drivers of our business remain intact and relatively insulated from the coronavirus pandemic, we have been hitting some roadblocks caused by it. This has primarily been in the aspects of the business that require travel, such as recruiting of senior level employees from out of town, as well as service of some of our manufacturing equipment, which has been impacted by limitations on travel of service staff. Those limitations primarily impact the operations side. and in particular, our ability to implement some of the efficiencies and changes we would like to make, and at the rate we would like to see those changes happen. We're still very proud of our team to be able to implement the improvements we have and grow the business at a double-digit rate in spite of those challenges and limitations. On an operational basis, we also took important steps in terms of scaling and diversifying our production facilities, enhancing our global distribution, expanding our international sales presence, and strengthening our product portfolio. However, as pleased as we are with improving our growth rate and initiating deliveries on some key contracts, We are not satisfied with our performance in terms of gross margins this quarter, and we're taking active steps to remedy this and return to our previous margins. The growth achieved this quarter and in the first half of fiscal year has resulted both from the capacity we have added in the last 12 months, as well as the commencement of high volume deliveries on two key BD6 accounts. BD6, as a reminder, being our internally developed infrared glass material. Both of those customer accounts relate to contracts on BD6 to replace previously used germanium material. However, as can be the case when beginning to deliver initial production quantities of a new product or a new technology, during this phase-in period of a new product, the margins of those products are impacted by stage production inefficiencies and the learning curve of some new processes and technologies. In this case, the main contributors to the lower growth margin have been inefficiencies in the stage of the glass production, as well as low yield in the final coating of the lens. Those issues are being addressed through a concentrated effort by our engineering groups worldwide, supplemented with hiring an industry veteran for the position of global coating manager, a position that has been vacant for over two years. Additionally, we have put in place a strong review process for any new quotes to ensure our pricing methodology meets our corporate standards and target margins. While we have been focusing on identifying and correcting those issues, It is important to mention that we do not accept those margins and inefficiencies as they are now, and we're placing significant effort and resources to repair the issues we identify, so that within a few months, we will see an impact on our margins in the infrared business. That said, we have been seeing positive momentum in many areas. including revenue for the first half of fiscal 2021 of 19.4 million, which is an increase of 13% compared to the same period last year. Second quarter revenue of 9.9 million, which marks the highest level of any quarter in the company's history. EBITDA for the first half of fiscal 2021 was approximately 2.4 million, which is up 33% from prior periods. Cash flow from operations in the first half was up 64% from prior year. And final record level benchmark was achieved with our total backlog increasing to $23.8 million at the end of the second quarter. Also, during the second quarter, we were awarded the renewal of an annual infrared supply agreement. valued at over $5.8 million, which is a 16% increase over prior year contracts. This renewal has since been supplemented with additional orders from this customer, bringing the annual growth from this customer to over 20%. Our success with this customer is representative of the strategy we're deploying globally, where we have been leveraging initial entry points in order to provide a more comprehensive solution approach to all our customers' optical and photonics needs. I'd like to now switch gears and provide an update on the efforts around our new strategic direction and the transformation of the organization. In our previous quarterly call, I provided an update on changes we have done to our sales process, new products and technologies we were working on, operational improvements, and large contracts in the pipeline. Along the same lines, our team has focused and continuing to position us to provide more value-added solutions while growing the organization and improving the operation as a whole. Some of those activities include On the sales side, we have recently announced the opening of our sales office in Germany for coverage of the entire continent of Europe, the Middle East, and other close-by regions. We're excited to welcome to our team Dr. Phanasis Kokrakis, who will manage the direct sales interactions and be responsible for driving revenue growth in this territory. Phanasis comes to Lightpath with over 20 years of sales experience. including time with companies like Ocean Optics, Newport Spectrophysics, and Lightwave Electronics. Secondly, on the technical capabilities and products front, our team has continued to focus on developing both unique technologies, such as, for example, free-form optics, a component that, as its name indicates, has a form or a shape that is free from constraints that are typical in optics, such as symmetrical constraints. This unique new technology requires very careful machining of each piece on a multi-axis optical CNC or diamond turning machine. This has been prohibiting the adaptation of this technology in any applications that require mass production, and therefore makes it a perfect fit for our own optical molding technology, which can replicate items in mass production. We expect to begin to take orders using this technology within the next few quarters. In the last call, I had mentioned some high-value, longer-term contracts we're working on. While many of those opportunities have a lengthy proposal and prototype process, we have had satisfactory results already with some of those. One such customer has recently decided to adopt the use of our new 75mm lens assembly, which we've announced through a press release a few days ago, in lieu of the optical systems they had previously used. That same customer further went and requested us to design the optical system for their next two future products. Additionally, one of our largest customers for discrete infrared components has recently accepted prototypes for a complete optical assembly designed and produced by Lightbath, which will replace their own designed optical assembly. Those type of wins, while still relatively small in terms of value of initial orders, paves the way for more multi-year orders for complete assembly and brings us a step closer to our new strategic path. Lastly, in terms of update of transformation of the organization, I will provide an update on our operational improvements. After the end of the fiscal second quarter, we announced the completion of the first phase of our facility expansion in Riga, Latvia, adding new infrared coating capabilities as part of our operational improvement plans, as well as our global production capacity expansion. This expansion will enable our facility in Riga to coat all infrared components produced at this location. For reference, in the world of optics, each optical component needs to be coated from both sides with different coatings depending on the customer's application. Being able to do this last step at the component production and the component production in the same site will lead to an increase in margins shorter lead time and improved customer service overall. This also will free up some of our coating capacity in Orlando and China to develop new products and capabilities. This is the beginning of an effort that will take about a year to complete, at which point the Riga facility will be fully integrated, such that we can improve the margins on our infrared products. I would also like to thank the Lightpath team that, in spite of the significant constraints due to the COVID travel restrictions, have been able to develop this new technical capability in Riga, as well as many other achievements that would typically require significant travel and on-site presence. In conclusion, we're seeing the impact of our sales efforts and improvements to customer service, driving the growth to double digits. something we had set as a goal for this fiscal year. We are seeing our investments and focus on differentiating technology and value-added solutions result in both new customers as well as converting component customers into solutions customers. And lastly, we are successfully implementing some of the operational elements required to execute on our strategy. With our expanding product platforms and global team in pursuit of a solutions-oriented approach for our customers, we believe we'll ultimately deliver greater sales and improved consolidated margins and profitability. However, as we've noted previously, and as certain of our second quarter results bear out, the additional investment in machinery, capacity, and improvements related to operating personnel typically takes several months until achieving full-scale output and productivity, where we see more meaningful margin contributions. Now, I'll pass the call over to our CFO, Don Retriege, to provide more details on our recent financial performance. Thank you, Sam.
spk01: 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 10Q file with the SEC. I encourage you to visit our website at lifepath.com and specifically the section titled Investor Relations. Now onto my remarks pertaining to the fiscal 2021 second quarter and half year ended December 31st, 2020. Sam's remark covered a lot of our financial performance, so I will be specifically discussing some of the key performance areas. Revenue for the second quarter of fiscal 2021 was approximately $9.9 million, up 4% sequentially from $9.5 million in the first quarter of 2021, and up 3% from $9.6 million in the second quarter of fiscal 2020, when we had about half a million in holdover revenue from the first quarter 2020. Revenue for the first half of fiscal 2021 was approximately 19.4 million, an increase of 2.3 million, or 13% as compared to 17.2 million in the same period of the prior fiscal year. Infrared product revenue was 4.8 million in the second quarter of fiscal 21, or 48% of the total revenue down from 5 million or 52% in the second quarter of fiscal 2020. Visible precision molded optics or PMO products revenue in the second quarter of fiscal 2021 was 4.7 million or 48% of the total up from 7.7 million or 39% of the total in the second quarter of fiscal 2020. The balance of our revenues for the second quarter was $372,000 from specialty products and non-recurring engineering projects, which vary greatly from quarter to quarter, but are substantially smaller contributors to the consolidated revenue. Revenue from this group in the prior year were $885,000. With respect to our marketing profile, generally speaking, PMO products are smaller and almost entirely molded, so we have faster turnaround time, higher volume applications, and more automated processing. These products also are generally low in price. We historically have a margin averaging in the 40s to 50 range. Of our two primary revenue reporting groups, PMO is the smaller group with a higher margin. With the higher volumes and margins, one can determine that our average unit selling prices will trend lower than with the infrared groups. The infrared product group represents a larger and faster growing market opportunity. Infrared margins have historically been in the 20% to 30% range. And depending on the revenue mix in any particular period under review, Our ASPs can vary, so we do not believe that this is a meaningful performance analytic. Instead, we encourage investors to focus on the revenue and gross margin as a percentage of the revenue over the long term, not necessarily on a quarterly basis, since we are relatively a small company where order completions can influence our results in any particular short-term or quarterly period. In the first quarter of 2021, our top-line growth was much higher than a traditional quarter due to the holdover revenue from the prior year period, where revenues were pushed from the first quarter of 2020 to the second quarter of 2020. Similarly, the second quarter year-over-year comparison masked our second quarter 2021 growth since the second quarter 2020 included the holdover revenues from the first quarter 2020. Our gross margins can similarly fluctuate depending on order completions, product groups that dominate the quarter, and other important operational issues. As Sam mentioned, we have a significant amount of new product launches coming online, which generally have much lower yields and efficiencies which reduce our gross margin on the unit shipped in that quarter. When the product line is bolstered with fine tuning, we will increase volumes and output, which will elevate gross margins to a more normalized basis. Many of our product lines coming into production volumes in the second quarter 2021 are from our molded infrared lens family of products, which use our proprietary internally developed BD6 materials These will come in on a higher end of the margin range. Increases to our margin will be realized within this category as volume grow and efficiencies improve. Gross margin as a percentage of revenue was 38% for the first half of fiscal 2021, compared to 37% for the same period of the prior fiscal year. So we are moving in a positive direction. Even though our second quarter 2021 margin were impacted by a fair amount of product launch dilution. As we have discussed, we have new production lines being introduced, which have lower initial outputs. These will increase, and with it, so will the margins. Some of these new lines are converting all the lower margins germanium lenses to our new BD6 material, which also will lend to higher gross margins. At the same time, we continue to produce more lenses overall. Total production for the product lines increased to 1.1 million lenses in the second quarter, up from 900,000 lenses in the second quarter of last year. In the first six months of fiscal 2021, we shipped 2.4 million lenses, up from 1.5 million lenses in the prior year period. Moving on to operating expenses, during the second quarter of the fiscal 2021, total operating expenses was approximately $3.6 million, an increase of about $700,000 or 24% as compared to the $2.9 million in the same period of the prior fiscal year. The increase is primarily due to $400,000 of non-recurring additional compensation to the company's former CEO and higher SG&A for a moderate increase in headcount and costs associated with operational improvement projects. New product development costs increased by approximately $61,000, or 13%, which was needed to address the demand for advanced optical designs. Partially offsetting these increases was limited travel and marketing expenses from the COVID-19 restrictions net of pandemic-related increases of cleaning and safety expenses. Operating expenses for the second quarter of the fiscal 2020 was also reduced by a net gain on disposal of property and equipment of $79,000, which did not repeat in the second quarter of fiscal 2021. Our consolidated corporate income tax in the U.S. is shielded by our net operating loss forward benefits of approximately $74 million on December 31st, but we must pay income tax in the countries of certain foreign subsidiaries. Second quarter 2021 income tax expense was approximately $241,000 compared to approximately $322,000 for the same period of the prior fiscal year. primarily related to income taxes from the company's operation in China. Income tax for the second quarter included Chinese withholding taxes of 200,000 associated with intercompany dividends declared by the company's Chinese subsidiary in December of 2019. Net foreign currency translation gains due to changes in the value of the Chinese Yuan and the Euro against the US dollar was $77,000 in the second quarter of fiscal 21 compared to $119,000 in 2020, with no impact on the earnings per share in either period. Net loss for the second quarter of 2021 was $147,000, or $0.01 per share compared to a net income of $769,000, or $0.03 earnings per share for the second quarter of fiscal 2020. For EBITDA, a non-GAAP measure, which we believe provides important insight into our performance and progress, we had a positive EBITDA of approximately $1 million in 2021 as compared to $2 million for the second quarter of fiscal 2020. This decrease was primarily due to the low operating income from lower gross margin and increased SG&A primarily again for the $400,000 of non-recurring additional compensation for the former CEO and to a lesser extent, the increase in new product development expenses. Again, looking at a longer-term progress, which is more meaningful, EBITDA for the first half of fiscal 2021 was approximately $2.4 million or $2.8 million, excluding the one-time non-recurring departed executive additional compensation. as compared to $1.8 million for the first half of fiscal 2020. Moving to the balance sheet on cash flow related items, capital expenditure was $1 million in the second quarter of 2021 and $2.2 million for the first half of the year, up from under $1 million in the second quarter of 2020 and $1.2 million for the first half of the fiscal 2020. Given that we have been running at near capacity and our backlog continues to grow, we have increased our expected capital expenditures for the year to come within a range of $2.5 million to $3 million for the year, up from the $2.1 million vicinity. It is important to note, however, that the recognition of capital expenditures is based on the dates of invoices and, in some cases, prepayments. And often, these are delayed between the timing of decision and order to when the capital expenditure is booked and when the equipment is received and brought online. Meanwhile, net cash provided by operation was $1.5 million for the first half of fiscal 21, up from $938,000 in the prior year period. Total debt, including financial leases, was $5.7 million, which was reduced approximately by $246,000 in the first half of fiscal 21, from 6 million at the beginning of the fiscal year. This represents a 4% reduction year to date. Our cash balance on December 31st, 2020 was 5.3 million, down modestly from a 5.4 million at the beginning of the fiscal year, even though we reduced debt amid significant investment to increase our production capacity to deliver future revenue growth and increase cash flow. Finally, onto our backlog, As of December 31, 2020, LightPath's total backlog was $23.8 million, an increase of 6% from $22.6 million as of December 31, 2019, and an increase of 9% from $21.9 million as of June 30, 2020. Our December 31, 2020 backlog is the highest level in the company's history. It should be noted that it is natural for our backlog to fluctuate during the year because of the timing of such bookings of large orders and annual renewals. With this review of our financial highlights and recent development concluded, I will now turn the call over to the operator so that we may begin with our question and answer solutions. Thank you.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question comes from Brian Kisslinger with Alliance Global Partners. Please go ahead. Hi.
spk04: Good evening, guys. Thanks for taking my questions. Can you talk about the outlook for the 5G build out in China and based on your capacity, and with the recent investments you've made to capacity, do you expect supply will catch up to demand this year, or will it be more like next year in terms of the PMO side of the business?
spk02: Well, we're seeing a continued demand for 5G in China and a recent growing demand for 5G outside of China. Now, as a reminder, oftentimes we provide the component to suppliers that could be two or three tiers removed from the final deployment of 5G. And therefore, we do not always have the visibility onto where physically or geographically the 5G equipment ends up and to the demand for that end 5G equipment. As of now, we continue to see Similar demand from our customers for 5G inside China and growing demand for our customers for 5G-related lenses outside of China. Nothing is indicating any of that is going to change in the near future. And as we noted previously, we typically see such rollouts of a new technology in optical communication to last about four to five years. and we're now about the beginning of the second year of that rollout.
spk04: The second part of that question is, I mean, let's assume or hypothesize that there could be a 30% increase in demand for the number of units. Do you have the capacity to meet that? Do you not? I guess from a capacity standpoint, where are you in terms of your investments and need to build out?
spk02: So definitely. So we've been investing in capacity growth, and we're seeing that in the growth of our top line right now. Earlier, about a year ago, the constraint in capacity was on the molding equipment itself, the machines which we use to make the molded lenses. Later on, it was on some auxiliary equipment, such as saws and coating and dicing machines. We've been investing in both of those. As of now, while we were able to catch up with the demand at that point from the 5G customers, demand in other areas has been growing again, thankfully. And we're still running at capacity in our molded optics. We're not turning down any orders, but our lead times for some of the orders that we're delivering on are longer than what we and our customers would want. We've revisited that recently and started to invest another set of investments into molding machines, which will go into effect next quarter or maybe beginning of this quarter we're in now and into next quarter. And then we'll take a few months until it is actually fully in place and operational. Got it.
spk04: And then on the infrared side of the business, does the continuing resolution in the government impact quarter timing on the defense side, and while the December quarter was a difficult comparison, you highlighted, given the delays last year that moved in from the first quarter to the second, is this segment a double-digit grower in the near term, or is it going to grow a bit slower than that in the near term?
spk01: Well, the defense is not a fast growing because of the turnaround. If you recall, most of the defense lenses, which are large lenses, which are you know, CNC per se, those are six to nine months at least. So the growth double digit, I think, yeah, because we have some of the, we have some good things in a pipeline, but that term we will not see until probably a year from now. If we should.
spk04: I'm going to ask one more question. I'll get back in the queue because I have a few more, but I'm sure others have some questions. Regarding the lower yield, how long do you think it'll take for the changes you've made to repair the issues and then return to the stronger gross margins in that business? And will the March quarter gross margins look stronger given you highlighted the BD6 materials contributing a higher gross margin?
spk02: Yeah, so as I mentioned in my notes, there's at least two areas where we're seeing those yields, two areas that are significant enough to easily identify, probably a few more that we haven't reached yet. In those two areas, one of those areas, the team feels fairly confident we will resolve within the next two to three months. With the second area, we're not yet down the path enough to know when the solution will be. In either case, it would not be more than a few months. Keep in mind also that some of those products have a production cycle that can last as much as six weeks from beginning to end, and with FIFO kind of set up in production, even an impact on solving the problem on the root cause of glass production, for example, won't actually show up in the cost of materials until at least six weeks later. So the short answer is possibly we're aiming for some of that to impact in the quarter ending in March, but definitely by the quarter after that we should have it under control.
spk04: Great. I'll get back in the queue to ask my other questions after others had a chance.
spk00: Once again, if you have a question, please press star then one. The next question is from Mark Wiesenberger with B. Reilly FBR. Please go ahead.
spk03: Yep. Thank you. Good afternoon. Thanks for taking the question. I believe the company might have had yield issues with IR molding in late fiscal 19 or maybe early fiscal 20. Are these the same issues that you previously had before? And maybe could you quantify the impact the yield had on COGS this quarter?
spk02: Yeah, so good to hear you, Mark. The issues are not the same one as the company had a year or so, a year and a half ago. Back then, it was a step called annealing, which is a step early on in the process of the glass production. Right now, the issues we're having are part of them are in the glass production in a slightly different step than the annealing, and the more significant ones have been in the coating. And significant ones, the reason why I say significant in coating, because that is really the very last step. It's the entire length of production. So anything that reaches that step and then gets disqualified because of a damage or a yield issue or so on, the entire value of the production effort, all the labor, all the material and everything that went into that gets scrapped with it. Other parts like annealing, and like the problem we're having right now in the preform production of glass, or much earlier on, and so the financial impact of them is lesser, while the impact of being able to deliver could be higher. And that's why last year the annealing issue impacted the Q1 deliveries much more significantly, but those deliveries then moved into Q2, but did not have as much of a financial impact. With the coating issues we've been experiencing, those have a bigger financial impact because you're essentially throwing away a nearly ready product.
spk03: Understood. That's really helpful. And just would you be able to quantify kind of was it a 200 or 300 basis point hit to gross margins, or where does that stand there?
spk01: I mean, it's around anywhere from 2.5% to 3% from the margin, I mean, roughly, at the infrared, roughly.
spk02: Understood. Thank you.
spk03: You noted in the press release and earlier in the call that the 5G demand remains steady and growing in some other places, so I'm wondering if you could kind of lay out the demand and growth expectations we should see in the fiscal third quarter and maybe for fiscal 21 in aggregate?
spk02: Yes, I think several times I mentioned in the past, I believe, or at least I wanted to mention if I haven't, that our goal is to get to double-digit growth. That's what we would consider a sustainable growth and is a sort of almost minimum growth that we expect from the company in a growing segment and growing market such as photonics. We're right now with a, as of now, for the first two quarters, we're at a 13% growth compared to the first two quarters in the last fiscal year. And that definitely is a place where I wouldn't say content with, but we're satisfied reaching this within a fairly short period of time. And I'd want it to stay at least in this level of above 10%.
spk03: Very helpful. Thank you. And I guess as you look at the business, what parts have gotten back to pre-pandemic levels? What parts are still lagging? And kind of what are some of the expectations for when it will catch up?
spk02: I'd say items related to some consumer product But it's very sporadic. It's not systematic in any way, where some customers are still lagging and those customers still hurting. For example, one customer in which our parts go into products used in elective surgeries, that has not gone back to the levels pre-pandemic. In many other places, it had gone back or remained fairly steady. In some places, like the contact temperature measurement, we could see sometimes some spikes or some demand, such as recently in China, when the number of cases went up, there was another wave of demand for contactless temperature measurement, but nothing anywhere near to what we had a year ago. So I'd say we're fairly steady for the most part.
spk03: Great. Thank you. And then last one for me. You talked about that this was the initial phase of the facility expansion in Riga and also got some other CapEx plans as well. I think you had mentioned at one point doubling the molding capacity. I guess are we still on track for that and what time period there? And if the initial phase has been done in Riga, what are some of the subsequent steps and where should we look to see some of the most proximate CapEx dollars going to? Thank you.
spk02: Yeah, so in terms of Riga facility, I'd say the initial phase is adding in about roughly half of the capabilities they need in order to satisfy all of their needs for coating. The second half of it is in progress and some of that equipment is on order. We can see that actually in our higher CapEx numbers this quarter. But unfortunately, that equipment has a very long lead time, with some pieces of it as long as a year lead time from the moment of order. And that's why we have large prepayments for that equipment. I'd say that probably from the moment that equipment survives until it's fully functional, we'd expect the Vega facility to be fully in place in terms of coating by the beginning of our next fiscal year, so meaning end of summer. In terms of CapEx altogether, Don, do you want to?
spk01: Yeah, in CapEx altogether, as we stated earlier, you know, we increase meeting the demands and increasing the capacity to meet the demands and also to meet the lagging because of some of the issues that we're having, you know, on the yield. So now that delays the product, so we definitely need more machines. As was mentioned also, we're putting online new molding machines coming up in the next quarter or two. This will not double the capacity in molding, but it will increase the capacity and trying to meet the demand And again, it's varied because of the varied size of the lenses. If you're looking at the $1 lenses, we could easily double those. But as you go up the line, we can't double them, but we're definitely increasing the machines. And we see, you know, probably an extra half a million to $600,000 compared to the prior years where we were at the 2.5 level.
spk00: Great. Thank you. The next question is a follow-up from Brian Kinslinger with Alliance Global Partners. Please go ahead.
spk04: Great. Can you talk about how customers are responding or receiving LightPath's message to become an engineering solution partner instead of a supplier? Is there pushback? Is there excitement? Is there some of both?
spk02: Yes. I think one good example for that is the 75-millimeter assembly I mentioned. in my remarks, and that is a U.S. customer that serves the defense industry that came over, has been buying individual components from us, came for a site visit and inspection. During that visit, saw and noticed some of the assemblies we're putting together. A dialogue started around that. We happened to have a few ready that they could take a look at and measure, And that wowed them enough to decide to replace the existing assembly they have with our assembly and to proactively reach out to us and ask if we would design the assemblies for the optical part of their next two systems. And I think that to me is a great example. It was very subtle in terms of the sales team and the message. No one was pushing it down their throats in a sense of, stop buying components from us and you have to start buying solutions, but rather the customer got to see the value created through that and chose to go down that path. We believe there's far more to do in that direction, although it can be slower in terms of adaptation. And so in parallel to that, we're also developing our sales capabilities to proactively go out to customers and offer our engineered solutions part, and they would be more selective towards customers that we think we can create value towards them. We're not going to go to a customer that I'd say knows Optics inside out and doesn't need our help in designing. There, there would be probably a pushback. We would go to the customers that we believe Optics is something that they could use better knowledge and experience with, and they're our offering would be accepted.
spk04: Lastly, before Don responded and gave about two and a half to three points in the margin is the impact of the issues on the yields. Can you quantify for the first half of the year on revenue? If you had unlimited capacity, if you will, and the yield S issues didn't exist, how much revenue was left on the table?
spk01: That's hard to give you a number, and the reason for that is, remember, in these components, you have a lens that's germanium and a lens that's the new BD6. So that's kind of hard to split up.
spk04: I see. Without going to specific numbers, would you have shipped materially more lenses? Yes, for sure. Yeah. So there is an impact on both revenue and margin, correct? That's correct.
spk02: Yeah, and we definitely believe that once the more efficiencies we put in the operation, just as we saw now by growing to 9.9 million in revenue this quarter, those efficiencies are not only on the costs and bottom line, they also enable us to ship more with the existing capacity and equipment and resources we have.
spk00: Okay.
spk02: All right, guys, thanks so much.
spk00: At this time, we show no additional questions. I'd like to turn the conference back over to Mr. Rubin for any closing remarks.
spk02: Thank you. Thank you for participating in today's conference call. We look forward to speaking with you next quarter. But until then, we're excited to be participating in tomorrow's Alliance Growth Partners Virtual Emerging Growth Technology Conference. We hope our institutional investors following us will join us at the conference and that all of you continue to follow our progress. Thank you again and goodbye.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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