LightPath Technologies, Inc.

Good afternoon and welcome to the LightPath Technologies Fiscal 2022 Fourth 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 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 touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Albert Miranda, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon, everyone. Before we get started, I'd 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, involve various risks and uncertainties, including the impact of COVID-19 pandemic that is discussed in our 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 assurances 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 reconciliation in the company's SEC filings and press releases. Sam will begin today's call with an overview of the business and recent developments for the company. I will then review financial results for the fiscal year. Following our prepared remarks, there'll be a formal question and answer session. I would now like to turn the conference over to Sam Rubin, LightPath's president and chief executive officer.

SAM RUBIN Thank you, Al. Good afternoon to everyone and welcome to LightPath Technologies' fiscal 2022 fourth quarter and full year financial results conference call. Our financial results press release was issued after the market closed today and posted on our corporate website. Looking back on the fourth quarter of fiscal 2022, we see evidence of LightPath technologies in transition. Early in the year, we further laid out our long-term strategy to repurpose LightPath as a provider of optical solutions rather than a producer of optical components. Lightgraph will leverage the vast amount of engineering and design expertise built up over the years and key owned technologies to provide customers with a compelling value proposition. We believe that such a transition will result in a company that is an integral partner in our customer's design process and ultimately more profitable. The area of photonics and optics is poised for significant growth as the technology is being more rapidly adopted and implemented into commercial and consumer products. Optics can be customized for different product applications based on similar core enabling technologies for a diverse customer base. The same technology and know-how can be used for defense, telecom, medical fields, automotive, industrial, or commercial, to name a few. We believe product development will be instrumental in our transition to a solutions provider. One key product we're excited about is our game-changing chalcogenide glasses, paired with our U.S. military-approved diamond-like coating. These products are an alternative to germanium. of which the U.S. imports roughly $675 million worth a year for use in optics, primarily from Russia and China. The benefits of our materials are multilayered. We produce our black diamond glasses domestically, allowing for greater supply chain resilience for our partners at the lower price. while reducing reliance on foreign suppliers for germanium. Black diamond materials have the added benefit that sensors can use them across a vast spectrum, making those materials useful for many imaging modalities, from night vision all the way to thermal imaging. Traditional optics that serves those imaging modalities require at least one camera and lens system for each light spectra, increasing those solutions' weight and cost due to needing a specific camera system for each imaging modality. Our black diamond materials, on the other hand, will eliminate the extra lenses required today. In practical terms, A thermal and night vision product today requires two cameras, two sensors, and two lens systems. With our technology, coupled with multi-spectral detectors that are already available, such a system can become one camera performing both functions. This means half the weight, half the power consumption, and half the size. To visualize this, no pun intended, Picture a UAV that currently carries multiple cameras as payloads. Now imagine this UAV with just one camera. The weight is reduced, leading to increase in distance and airtime. Also, the total power consumption is reduced. Those are only two of the immediate benefits from such a technology. This technology is going to be a game changer. Applications include really any situation in which multiple cameras are used, whether airborne, handheld, soldier-carried, or elsewhere. In effect, every application that uses infrared imaging will transform in the coming years, and we own one of the key technologies needed to achieve that. This is a major point and a major element in our strategy. This technology is new and fast-growing, and we can position ourselves front and center in this market by controlling exclusively the critical materials needed. Among other technologies and capabilities, black diamond glass is one of our essential levers transitioning from a component company to an imaging solutions provider. Now, every company always wishes to do more. Every company wants to grow vertically, or most companies. That's a common goal. But one can't just one day wake up and say, I'm a system provider instead of being a component provider. You need to give customers a reason to purchase from you something different than what they had in the past. Change in the underlining technology creates an opportunity. especially where we own a crucial technology that provides us the reason for customers to come to us with a complete system. By owning the critical technology, or technologies in our case, we can offer better systems than otherwise available. With the exclusivity we have on those, we are supercharging our sales team with the ability to go out and now sell solutions instead of purely components. The success of this strategy is starting to show in the record backlog we announced a couple of weeks ago. Over 20% of this record backlog is now solutions, significantly more weighted towards the defense business, especially in the US, as one would expect from infrared imaging business. In short, we're going down a new path. We have multiple exclusive key technologies to achieve that. Chief among them are the black diamond materials. And our growing backlog is starting to show the results of this effort. Overall, on the strategic direction front, we're doing very well. And the world geopolitical events give us now a strong backwind in addition. offsetting some of the short-term economic softness we're seeing. Now I want to take a moment to highlight some other key recent events that we see as further evidence of our transition to a solutions provider. In July, we announced a partnership with QuantLR to develop a free-space quantum encryption system using infrared optical systems developed by LightCast. Quantum encryption is a key new technology with growing demand due to its ability to provide encryption that is resistant to any existing supercomputer and quantum computers. Quantilar has already an existing proven system for this that works on a fiber optic infrastructure. Like many other funded projects that we take on, This project is allowing us to use the funds to develop a key technology in infrared optics, a key technology that later will be part of our portfolio of technologies and utilized for all our infrared solutions, including our infrared imaging systems. In the same month, we announced SeqFirmals MicroCore product, winning the 2022 Best Sensors Award. Lightgraph has an ongoing long-term relationship with SeekFirma and we provide today the optical solutions for their products and in particular for the micro core product that won that award, allowing the market leading product that is small, light, accurate and lower priced than competitors. That is one example where we are already achieving some of our strategy of creating unique value to the customer. leveraging our technologies and capabilities. Last month, we also shared that Lightgraph has reached a record $24 million backlog. While backlogs fluctuate over time, we see them as a best indicator of future revenue. Looking deeper at the backlog, we see some beneficial trends. The first is the quality of the orders in the backlog, which is significantly different from what we had in the past, and generally of higher value due to increased demand for custom assemblies and defense-related work. We have been working diligently to ensure we have all the necessary qualifications to compete in the defense space, and those efforts appear to be paying off. The second trend we note is that there has been a significant backlog growth, despite the contribution from China orders having been cut by half. Revenue diversification beyond China is a strategic priority, and our efforts there have paid off, evident in the current backlog. And we plan to continue with that strategic plan. The third and final takeaway mentioned earlier also is that as I look at the backlog, 20% of it comes from solutions-oriented orders. As mentioned, LightPath aspires to provide optical solutions rather than simply components. Having a backlog with 20% solutions orders is an encouraging sign. While in many arenas we see opportunity ahead of Lightbar for Lightbar, we are not immune to market forces beyond our control. We are already beginning to see the impact of recessionary slowdown in China that we anticipate will continue in the near term. While we have been diversifying beyond China with increased defense and commercial business, China still comprises a significant portion of our revenue. In addition, energy prices in Europe have spiked due to the war in Ukraine and the EU tensions with Russia. The government in Latvia has previously subsidized energy costs, but it has ceased to do so. We expect to see a negative impact to our margins from that facility. However, I believe that despite some external headwinds and near-term cost pressures, The outlook for the company and its growth prospects are extremely bright. As I mentioned previously, the technology is now transferable to a host of different products on a much larger scale, and applications across industries are vast. More importantly, our black diamond glass has the potential to revolutionize our product portfolio and growth prospects. I want to also take a moment and thank our employees and all stakeholders who have continued to work diligently through the various transitions and hurdles we have endured. It is because of their dedication and hard work that we see a bright future in the growing company. I will now turn the call over to our CFO, Anne Miranda, to review the fourth quarter and fiscal year end financial results.