LightPath Technologies, Inc.

Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal Second Quarter 2024 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. At this time, I'd like to turn the conference over to Al Miranda, LightPath's Chief Financial Officer. Please go ahead, Al.

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 our current expectations, involve various risks and uncertainties, as discussed in its periodic SEC filings. Although the company believes that these assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurances that the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles. We refer to these as non-GAAP financial measures, Please refer to our SEC reports and certain of our press releases, which include reconciliation of non-GAAP financial measures and associated disclaimers. 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 quarter. Following our prepared remarks, there will 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.

Thank you, Al. Good afternoon to everyone and welcome to Lightpath Technologies' fiscal quarter 2024 financial results conference call. Our financial results press release was issued after the market closed today and posted on our corporate website. First, I'd like to apologize for any coughing or hoarse sound. My throat is still recovering from COVID I had recently. The second quarter was underscored by a key first order in our partnership with Lockheed Martin for an imaging engineered solution, the ongoing integration of Vis-a-Mid acquisition and progress with customers transitioning from the use of germanium to the use of our black diamond material. All these developments continue to highlight our strategic shift from a component manufacturer to a value-added solutions provider. To recap for our investors, LightPath has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to value-added partner for complete solutions based on optical technologies, whose differentiators are mostly technological. Along those lines, we have been focusing on three pillars of growth. Imaging solutions, such as cameras, growth in new markets, such as automotive, and growth specifically of our market share in the defense business, all of which are driven by our unique technologies and materials. All three pillars of growth tie and support our transition from a component manufacturer to a provider of engineered solutions based on our proprietary technologies. This transition began a couple of years ago, starting from customized lens assemblies which are what we call LightFast 2.0, through camera solutions, the first of which was our innovative Mantis broadband infrared camera, which enables both new applications and capabilities for our customers, and significant growth in that direction coming from the Visamid acquisition. Visamid Technologies, a small engineering firm based out of Dallas, Texas, does to the back end of thermal cameras what LightPath has been doing for the front end of those cameras. LightPath has been tailoring and customizing the optics for cameras based on our base optical technologies, and Visamid customizes and tailors the video processing engine and support electronics for the same cameras. Like LightPath's business model for customizing optical assemblies to be used in infrared cameras, Visamid established itself as a go-to for customizing the electronics and software part of uncooled infrared cameras. In fact, Visamid has customized full light paths, electronics, and software of our Mantis camera. Together with Visamid, we now extend our offering to customize imaging solutions to include wholly integrated camera modules. increasing the offering to existing customers and providing us a bigger share of those customers' spend. During the second quarter, we continued the integration of Bizomid with a focus on new products in fire safety and defense. This acquisition added the capability to produce end-to-end custom imaging cores and the new engineering capabilities that allow us to be involved earlier with our customers' design cycle and increased our likelihood of servicing those designs through to manufacturing. We are integrating Visamid's custom imaging cores into new camera products, several of which demonstrated at the recent SHOT Show in Las Vegas, and some we're working with customers to develop customized solutions. All these products are utilizing Visamid's unique video engine, in conjunction with our optics to develop low-weight, high-efficiency solutions for drones, UAVs, as well as industrial applications such as gas leak sensing, process control, and early fire detection. Shortly after the acquisition of Vizimid, Lockheed Martin awarded Vizimid and Lightbath a major project for the design, development, and later on, the manufacturing of a complete imaging system for a new project in their missile division. With the award came what will be up to $7.5 million for the development money. $4.7 million of that was already in a formal purchase order and is now part of our backlog. In this project, Lockheed Martin is competing against another prime defense contractor. to develop a new missile system. At first, the development portion of this project was expected to last until 2028, at which point the end customer would decide if the production is awarded to Lockheed Martin or its competitor. However, there is significant pressure now to shorten this timeline as much as possible, and as such, the decision point has recently been pulled in, and we now expect that the decision regarding the production award will be as early as 2026, two years ahead of the schedule we shared during the announcement of our initial award. If Lockheed Martin is selected for the production, we expect an initial production order for around 10,000 units. Our ASP per unit is between $5,000 to $10,000. That will put the initial expected production order to be north of $50 million, that is the production order to light path. Additionally, the volumes for follow-up production have also increased, with the potential now for tens of thousands of units. The demand and shortened timeline for the project are being impacted by recent geopolitical escalations. Results so far are very positive, and our customers, in fact, are very confident and so confident about their solution that they're looking to begin investing in production of the units even before an official decision is made. As such, we expect that Lightpath might start building up the production line this year already. The basic infrastructure for this production line has already been prepared and paid for as part of our recent expansion of our Orlando facility. And the specific equipment that will be needed is expected to be paid for by Department of Defense. Once in production, we will be delivering this assembly in volume, estimated tens of thousands of assemblies over the program lifetime. And again, with ASPs for light path, between $5,000 to $10,000 per system. With thousands of dollars per unit and tens of thousands of units expected in that program, the ultimate selection of Lockheed Martin by the military would likely result in a substantial revenue opportunity for us. This is exactly the direction we've been looking to transform the company to with the new strategy, and it is now happening. Lockheed's decision to outsource the development of such an important part of their system was due to Vizimid's technical capabilities. Yet the decision to then further engage with us at the scale they're now engaging and the potential manufacturing of this is due to the combination of LightPath and Vizimid with our manufacturing capabilities, capacities, and most important, the ability to integrate the entire system. And while our strategy for having three pillars of growth are designed such that we don't put all our eggs in one basket or one product, for that matter, this award by a major prime with the massive potential for revenue on the manufacturing side is seen by us as a big win to our strategy and the execution of that through the acquisition of VizMid and our own investment in expansion in the U.S. and development of camera technologies. I could probably spend this entire call only on this specific project and activity, given that we expect it to lead to tens of millions of dollars in annual revenue. But this is only one of multiple projects and multiple opportunities we have going on, all of which are in similar scale. So I will talk briefly about some of the rest. Turning to the automotive market, as previously mentioned, our lens assembly system has already been qualified by one of the largest car companies. Since then, we have shipped samples for qualification by another large Tier 1 and began the qualification process that is expected to take a few months. Last call, we shared that the first company was re-evaluating their timeline in light of recent changes to the EV market. While our technology is not specific to EV, we found that most of our automotive Tier 1 customers were looking to roll out this technology in their EVs, as that was their main focus at the time. With dynamics of the market now changing, we expect that some of our Tier 1 customers will begin rolling out this technology in more traditional vehicles. We're also seeing signs from the market that the automotive companies are waiting for further development in the Department of Transportation's announcement from May on their intention of mandating emergency braking system and mandating improvement for that technology in nighttime operation. We don't expect any major developments in the very short term, but we're still confident that this technology is going to be implemented in the automotive space and that we're one of the leaders in this technology and use cases. Therefore, we will still see this as something that would lead to the same volumes we spoke about before, which are over a million assemblies a year for each one of the car companies with ASPs up to $50 per vehicle for light paths. Last thing, I will update on infrared materials and replacing germanium. To recap, LightPath has developed over the years, and mainly over the last two years, some exclusive unique materials that can be used instead of germanium in infrared imaging systems. China announced on July 4th export restrictions on germanium, and with China being the largest exporter of this material, this has become a big deal. Since then, and even prior to that actually, we've been working diligently with customers to have their systems redesigned to use our materials instead of germanium. We even took the step a few months ago of proactively cancelling some customer orders for germanium optics to free up our capacity for making optics from these new materials. This has paid off well. with customers now fully engaged in the process and focused on redesign of their systems, testing our prototypes and starting to order systems with new optics. Two specific examples I'd like to share. One includes our largest customer, which makes imaging devices for sporting. This customer began by evaluating the use of our material in only one of their products. and has recently let us know that they would like to now work with us on all their products. Another customer, who is in the defense business, has announced in the recent SHOT Show a new gun sight product that is using only our black diamond glass in it, with no germanium. And they have even gone as far as saying publicly that going forward, all new products are going to be designed only with black diamond materials. a major win for our directions. All of these have so far been using mainly our existing BD6 material. In December, we finally took delivery of a piece of equipment called a refractometer, a measurement system for optical glass. This will now enable us to speed up the manufacturing readiness of some of the new materials we licensed from NRS. We expect the first material, BDNL4, to be formally released later this month. BDNL4 is an example of a material that not only replaces germanium, but actually offers advantages versus germanium. By having a negative thermo-optic coefficient, that is the change of the optical index as a function of temperature, BDNL4 enables optical designers to design optical systems that are optically and passively compensated for changes in temperature. This is a big deal for airborne systems, for example, where today, changes in ambient temperature at different altitudes require refocusing the cameras to compensate for this. BDNL4 is expected to become an important material for thermal cameras in drones and other airborne systems to experience a large range of temperatures. To conclude, our shift in strategic direction is beginning to show the results we were looking for, both in winning some major programs and in revenue growth in that area. At the same time, our three separate areas of growth, solutions, defense, and automotive, continue to generate multiple independent opportunities, that many of them have the potential for tens of millions of dollars of new revenue per opportunity. resulting in a healthy pipeline of large-scale opportunities that any of them alone can be transformative to our business. Last, I would like to welcome Kim Kreider, who joined our Board of Directors last week as an independent director, replacing Lou Lieberg, that had retired after 25 years with the company. I would like to thank Mr. Lieberg for his diligent work over the years. and welcome Ms. Kreider. Kim was formerly the Chief Technology Officer for the U.S. Space Force and has retired as a two-star general. Having a person as Ms. Kreider on our board of directors is important as we continue to move forward with our focus on becoming a systems company with a strong focus on defense. And as always, I would like to thank our employees and stakeholders who have continued to work diligently through the various transitions and hurdles we have endured. We see a bright future and a growing company because of their dedication, patience, and hard work. Now, I will return the call to our CFO, Alan Miranda, to review second quarter financial results. Alan?

Thank you, Sam. You can rest your voice for a little bit. Thank you. I'd like to remind everyone that much of the information we're discussing during this call is also included in our press release issued earlier today. and will be included in the 10Q for the period. I encourage everyone to visit our website at lightpath.com to access these documents and to see some of our new products. I will discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company. On a consolidated basis, revenue for the fiscal second quarter were $7.3 million. compared to 8.5 million in the year-ago period. Sales of infrared components were 3.6 million, or 49 percent of the company's consolidated revenue in the fiscal second quarter. Revenue from visible components was 2.7 million, or 37 percent of consolidated revenue. Revenue from assemblies and solutions were 1 million, or 13 percent of total company revenue. Revenue from engineering services was 0.1 million or 1% of total company revenue. Infrared component sales increased approximately 283,000 or 9%, primarily due to an increase in shipments against an annual contract for an international military program. This contract was also renewed during the first quarter of fiscal 2024 for a higher dollar value than in the previous year. Visible component sales decreased approximately 1.2 million, or 31 percent. While this is primarily due to the ongoing trend in China, excuse me, and the telecom industry in general, this quarter we also experienced declines in Europe due to recessionary conditions, particularly in Germany and in the U.S., due to the timing of defense contract deliveries. Assembly solutions revenue decreased approximately 241,000, or 20%, and that's primarily due to timing of shipments against the multi-year contract with a defense customer. That was partially offset by the addition of VisaMed revenue. Gross margin in the second quarter of fiscal 2024 was approximately 2.2 million, a decrease of 1.1 million or 33% as compared to the same quarter of the prior fiscal year. Total cost of sales is approximately 5.1 million for the second quarter of fiscal 2024 compared to approximately 5.2 million for the same quarter of the prior fiscal year. Gross margin as a percentage of compared to 38% for the same quarter of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to the decrease in visible component sales, which typically have higher margins than our IR components product group, which comprised a greater portion of our sales for the second quarter of fiscal 2024. Selling general administrative costs were approximately 2.9 million for the second quarter of fiscal 2024, a decrease of approximately 172,000, or 6%. as compared to approximately $3 million in the same quarter fiscal year. The decrease in SG&A costs is primarily due to a decrease in stock-based compensation, partially offset by an increase in wages. Net loss for the second quarter of fiscal 2024 was approximately $1.7 million, or $0.05 basic and diluted loss per share, compared to $0.7 million basic and diluted loss per share for the same quarter of the prior fiscal year. The increase in net loss of approximately $1 million for the second quarter of fiscal 2024 as compared to the same quarter of the prior fiscal year was primarily due to the decrease in revenue and gross margin partially offset by other income of approximately $190,000 from our Chinese subsidiary for the return of funds previously misappropriated by our former Chinese management team as a result of the ongoing legal proceedings. This is the last bit of activity that we expect to have related to that situation. Our EBITDA for the quarter ended December 31st, 2023 was a loss of approximately $454,000 compared to an income of $207,000 for the same quarter of the prior fiscal year. The decrease in EBITDA in the second quarter of fiscal 2024 was primarily due to lower sales and gross margin, again, partially offset by the mentioned Chinese . Turning to the results for the first half of fiscal 2024, revenue was 15.4 million, only a 3% decrease from 15.8 million in the same period of the prior, fiscal year. Sales of infrared components were $7.4 million, or 48% of the company's consolidated revenue for the first half of fiscal 2024. Revenue from visible components was $5.4 million, or 35% of consolidated revenue. Revenue from assemblies and solutions were $2.2 million, or 15% of the total company revenue. And revenue from engineering services was $0.4 million, or 2% of total company revenue. In the first half of the fiscal year, infrared component sales increased almost $1 million, or 14%. That's primarily due to an increase in shipments against an annual contract for an international military program. Visible component revenue decreased approximately $1.8 million, or 25%. Again, this is primarily due to the ongoing trend in China and the telecom industry in general. We also experienced declines in Europe due to recessionary conditions, and in the U.S. due to timing of defense contract shipments. Assembly Solutions revenue increased approximately 150,000, or 7%, primarily due to the addition of Visumid revenue, which was partially offset by a decrease in shipments against the multi-year contract that I mentioned regarding the quarter. If I take a step back and look at revenue, our visible components are declining. However, in the first half, revenue increased in infrared components, assemblies and solutions and engineering services, which aligns well with our strategic plans. As of December 31st, 2023, we had working capital of approximately 9.1 million and total cash, cash equivalents and restricted cash of approximately 5.9 million. of which greater than 25% of our cash and cash equivalents was held by our former subsidiaries. Cash provided by operations was approximately $851,000 for the first half of fiscal 2024 compared to cash used in operations of approximately $751,000 for the same period of the prior fiscal year. Cash provided by operations for the first half of fiscal 2024 was largely driven by a decrease in accounts receivable as sales were higher in the fourth quarter of fiscal 2023 than in each of the first two quarters of fiscal 2024. Cash used in operations in the first half of fiscal 2023 reflected a decrease in accounts payable and accrued liabilities during that period resulting from the payment of certain expenses related to previously disclosed events that occurred at our Chinese subsidiaries. Capital expenditures were approximately $1.5 million for the first half of fiscal 2024 compared to approximately $412,000 in the same period of the prior fiscal year. The spending in the first half of fiscal 2024 is largely driven by the Orlando facility expansion, excuse me, where we constructed additional tenant improvements in our Orlando facility subject to our continuing lease of which the landlord agreed to provide 2.4 million in tenant improvement allowances. The balance of the tenant improvement cost is estimated to be 3.7 million. During the first half of fiscal 2024, we expended 994,000 towards this project, with the remaining estimated 380,000 expected to be expended during the second half of fiscal 2024, pending the final construction invoices. We also expended approximately 722,000 net of cash acquired to acquire VisiMed during the first half of fiscal 2024. Our total backlog at December 31st, 2023 was approximately 21.2 million, a decrease of 28% as compared to 29.4 million as of December 31st, 2022. Compared to the end of fiscal 2023, Our total backlog decreased by 2% during the first half of fiscal 2024. The decrease in backlog during the first half of fiscal 2024 is primarily due to shipments of several annual and multi-year contract renewals, which orders were added to the backlog in prior periods. In the second quarter of previous years, we have typically received a contract renewal from our largest customer for infrared products made of germanium. However, as previously discussed, we've decided to reduce the amount of optics we produce from germanium, both to reduce our risk of supply chain disruption, and more importantly, to work with customers to convert their systems to use optics made of our own black diamond materials. As such, in the second quarter of fiscal 2024, we did not book our typical annual renewal order for germanium optics for this customer. Instead, we continue to work with this customer as well as other customers to convert their systems to use black diamond optics. With this review of our financial highlights and recent developments concluded, I'll now turn the call over to the operator to begin the question and answer session.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Jason Schmidt with Lake Street. Please go ahead. Hey, guys.

Thanks for taking my questions. I just want to start with the Lockheed program. You mentioned production units might begin even before the decision date. Just curious if this is something you're hearing from the customer or is this industry chatter or, I guess, a combination of both? Oh, yeah.

Directly from the customer. This is the customer is actually – extremely confident in their solution and the superiority of their solution. And they want us to start setting up the production line, the physical production line in Orlando where we're going to do production in the very near future to start gearing up to that. The expectation is that once a decision is made, the Army will want units as soon as possible. and they're willing to make some bets in that direction.

Gotcha. That's really good to hear. And that leads me to my next question. And I know it's going to be dependent on the program, but at a high level, how should we think about your total revenue capacity now with the expansion completed in Orlando?

Yeah, exactly as you said, that's very dependent on the program. If we were to continue with the current business mix, meaning not a lot of cameras in there and mainly growth coming from infrared assemblies, then revenue capacity in Orlando altogether could go to as much as $50 million. I think, or even more with the current expansion.

I think we should do 60 to 70 million.

Okay, but very, very dependent on where that comes from. If it's individual components, probably less. The more complicated things are, the less space per dollar revenues that they take, and the more we would grow. The assembly of the Lockheed, for example, or any of the cameras actually doesn't require an enormous amount of space. A lot of it is very automated calibration systems and assembly processes. And so we can probably serve this entire Lockheed program from the extra clean room space we built in Orlando and still have room to expand in other programs as well.

We have the molding machines, too. Gotcha. That's really helpful. And then just the last one from me, and I'll jump back into Q. I know China is becoming less of a focus for you guys, but just curious if you think that business has bottomed yet.

Yeah, I definitely think it has bottomed. I mean, in reality, at least if you talk about China or Asia, most of our revenue in what we call the China operation actually comes out of out of China, from Thailand, from Vietnam, customers over there that we call, we bundle it in the China part, but it's not really in China. Our revenue in China is very low, and we're not counting on that part really recovering, if you would, to anything near what it was. I mean, just to recap, the China operation was delivering about 12 million of revenue in 2020, and it is down to $3 million or so. So all that $9 million of revenue that vanished in China was really made up for in the U.S. and Europe, which is why the growth in the U.S. and Europe is very strong, even if the consolidated numbers don't show that.

Okay, understood. Thanks a lot, guys.

Thank you, Jason. The next question comes from Scott Buck with H.G. Wainwright. Please go ahead. Hi.

Good afternoon, guys. Thanks for taking my questions. Dan, you mentioned in the release and on the call here the acceleration to production for the Lockheed project. I'm curious whether the geopolitical environment is causing you to see kind of similar uptick in demand or acceleration of interest in other parts of the business.

Yeah, definitely. I mean, we've had uptake in some areas of the business. For example, customers in Israel that built some of the vision systems for the Israeli military and so on had had a big push on orders to rebuild some systems that were destroyed on October 7th and during the war. And, of course, Ukraine continues indirectly to drive some demand for some of the optics. And that's just beginning to grow. I think the U.S. is only now really starting to replenish some of the inventories that it depleted. Unfortunately, we don't make ammunition directly, which is, from what I understand, one of the things that is in most shortage. But definitely the optics and the cameras that go on some of these drones and loitering ammunition are growing demand.

That's helpful. And a follow-up to an earlier question, it sounds like you guys have the capacity to be able to handle not just the Lockheed project, but also perhaps one of these other potential deals you're working on as well, right?

Yeah, absolutely. I think when it comes to those kind of projects that are tens of millions of dollars in potential revenue, we probably, with the capacity we have worldwide and balancing things worldwide, can probably handle two, maybe even three of them.

Great. And then last one for me. Al, I'm curious, how are you thinking about the unrestricted cash balance here and how that you know, bridges you to 2026 and beyond when maybe some of these larger, you know, deals kick in?

Yeah, so baked into this quarter, yeah, great question. So baked into this quarter, we actually were, or this first half of the year, we were operating cash flow positive and will continue to be operating cash flow positive. Cash has gone down in the first half, That's largely because of the Orlando facility. We're still paying invoices, still receiving and paying invoices there. And the investment of another coding machine that we made in Riga. But the big chunks of that CapEx spend for this fiscal year is over. So in the second half of the fiscal year, we're just going to dribble out the normal, actually below average CapEx. From a cash flow perspective, I feel pretty confident that we'll be okay.

All right, perfect. That's it for me, guys. Thanks a lot.

Thank you. The next question is from Brian Kinslinger with Alliance Global. Please go ahead.

Hi there. This is Shervin on for Brian. My first question pertains to your backlog. Last, you mentioned that despite the lost revenue and the rules for your germanium contracts, that you're working on transitioning Vizimid to drive some meaningful backlog starting in 2Q. Did that happen this quarter? And if so, is there a sizable portion of the backlog that's attributed to Vizimid that you quantify?

Yeah, definitely. The Lockheed Martin 4.7 million portion in the backlog that entered during Q2 is purely Vizimid. as well as a few other smaller projects. But right now, I'd say around 5 million of the backlog.

Okay, thank you. And then secondly, with the Lockheed partnership, just wanted to clarify, is Lightpath competing with anyone for the component that you're creating for Lockheed? Or is it guaranteed that if Lockheed selected, that Lightpath will be in every delivered missile?

The latter. We're the sole source on the Lockheed part. It's a very big deal. That's why Lockheed actually was extremely supportive of our acquisition of Vizimid. From their point of view, it's a significant bet that they made in that direction. And at the time they decided, or were going to decide on it, Vizimid was a standalone nine-people company. And so the acquisition of Visamit by Lightpath actually played a major role in this and sort of gave peace of mind to Lockheed in that. But we are definitely the only one developing that part for Lockheed.

Great. That's great to hear. Last question. While I appreciate the strong demand from the defense industry, although we know it's like, you know, lumpy and can be unpredictable, your products and Mantis specifically has really strong commercial applications like the flame detection recycling centers that you've mentioned the past couple of quarters. So how do you go about building a healthy portion of a backlog that is more predictable? Like, are you doing anything there? Like looking to hire more personnel, increased marketing spend, et cetera, just trying to get an idea. Thanks.

No, that's a great question. And really a lot of our focus now is around the sales and soon will be on the marketing of those products. So, you know, if you look at myself as CEO, I tend to move around the business and focus my time on where it's needed. And right now, absolutely my time is focused on the sales of these new cameras and new products. We're building up more in the sales team. We're tooling up to align ourselves to that. and we're working very hard to lock in some strategic partnerships in some of those areas. Again, we can't do everything. We're not gonna build a sales team now that will go after 500 different camera companies, customers for cameras. And so the strategic relationship and alliances with key players in some of those areas, firefighting, of process control, of drones. They're going to be key for us scaling up, sir.

Well, and then in relation to the backlog, in the fire detection for which we already have a running business for those cameras, they're not going to give us an annual order. They give us a forecast, and we work off of that. So we'll never see that in the backlog. All right, great.

Makes sense. Thanks, guys. Thanks. The next question is from Glenn Madsen with Lattenberg. Please go ahead.

Yeah, thanks for taking the question. So it was about seven or eight months ago that China made the announcement of the export ban for germanium. So at the time, I think, Sam, you might have mentioned a timeframe of like how long it takes your customers to design in your alternatives, kind of nine to 12 month timeframe. And so I guess, You know, I'm curious about how that's going and if there should be some expectation of that to start to kick in kind of in the second calendar half of this year. And, you know, that may also relate to the one customer who didn't renew yet on the backlog side just to, you know, you could use him as an example, but just across the customer said in general? Can you just give us a sense of how that process is playing out?

That's a great question. Thank you. It's going really well. I mentioned a couple of customers as an example. One of them is that largest customer for the sporting part. Typically, our annual orders from that customer have been between $4 million to $6 million, as much as $6.5 million, I think, on one year. And we haven't renewed that. Our expectation now is really for the entire product line of that customer to possibly convert to using black diamond materials. What we're seeing is that things have gotten even worse with germanium. At first, I think many customers were still accessing germanium through inventories. Germanium maybe was making its way out of China in different ways, in different, I don't know, creative ways, let's say. But that is decreasing significantly. And as of now, from what we know, China has given zero export licenses to any germanium that its final destination is the U.S. So they're very, very specific in sort of what they're going after there. And so we have two large customers for handheld devices, gun sights, binoculars, and so on, They probably have around $10 million of potential revenue between the two of them. Both of them are working very hard to convert over. Next week, I think we're actually shipping some more samples to them. One of them already converted one product, which I mentioned during the SHOT Show. They announced it as a new product, and they also made it very clear at the SHOT Show to ourselves and anyone else that was asking that all new products are being designed only with Black Diamond now. So I think we're doing very well. I wish it could be faster than the time it takes. But unfortunately, doing some of those also requires some of the capacity and capability that is used for day-to-day production. And we can't disrupt that too much. So it's a balance we play.

But I think, sort of, Glenn, it took, the Chinese made the announcement in July. And I would say, and Sam, you can disagree, it took until maybe November and December for the customers to start feeling the pain of that announcement and start to scramble looking for a solution. And our conversations with those customers didn't give them confidence that they were going to continue to get germanium. So when it was clear that we weren't going to be able to solve their germanium problem, that prompted them to take action. But I would say it took a good six months before they realized it was real.

Yeah, which is why our largest customer first wanted just one product redesigned. But as we were working on that, they started realizing how difficult the situation is and immediately switched over to saying, let's redesign everything.

Right, right. Okay, great. That's very helpful on the backdrop. And I don't know if this would be for Sam or Al, but can you give us a sense of, as you look at your back half of your fiscal year, you know, you mentioned in the prepared remarks a little bit about European recessionary conditions and things like that. Can you just give us a sense of how you feel about, you know, all the factors, you know, coming together with the I don't know if there's any potential further disruption from the lack of supply or the supply drying up on the germanium side, and maybe the new design is not kicking in yet, or maybe there's some revenue coming through on the mantis side and things like that. Can you just give us a general sense of how you're feeling about the revenue top line in 2H versus 1H? Yeah, so it's interesting.

The situation, the softening in Europe is really more around the visible optics where there's a lot more competition globally and a lot of price pressure, a lot of production capacity and all that kind of good stuff. And those products tend to have industrial applications that sort of deliver more to consumer-oriented products. And that's where we're seeing the softening. The infrared side, because the infrared component is even without the major contract, on the infrared side, We're still seeing growth in Europe and in the U.S. and demand in Europe and the U.S. for infrared components and the assemblies and solution type start of the business. But where we're seeing sort of the economics impact is on the visible component side. And, again, they tend to lead towards a more direct path to a consumer product. So that's where we're seeing it in Europe. And they don't say the recession word. If you Google it, Europeans are like, we were a year ago. Nobody wants to say the recession word. But their economies are contracting.

Right, right. That's helpful. So then when you factor that in, plus all the other moving parts, when you think about the top line outlook, can you give us any general sense of directionally how you feel about the second half versus the first half? And that's it for me. Sure.

My gut tells me that this past Q2 was the softest quarter we're going to experience. So in Q3, we should see a little bit of an uptick, and in Q4, a little bit of an uptick. Again, it's the visible components that sort of we worry about, and you kind of nailed it with that. But they're in decline regardless. So it's just happening a bit faster than we would have predicted six months or a year ago.

Okay, great. Thanks.

Again, if you have a question, please press star, then 1. The next question comes from Gene Inger with Ingerletter.com. Please go ahead. Mr. Inger, your line is open. You have it muted on your end.

You hear me now?

Yes, we do. Thank you.

I apologize. I muted it as a courtesy. Sam, I hope you're feeling better. Hi, Al, as well. And my first question I'd like to start is something you haven't touched on, which is the annual meeting and the paperwork that was pending due to problems from the previous management before you guys began an enormous task of turning around this small company. And I'm wondering if you can tell us if all of that is not of concern to shareholders.

Yeah, absolutely. Thanks. I appreciate it. Definitely could have touched on that. I'm very, very glad to say that it's all completely resolved now. And to recap, it was pointed out by some external group that there were some problems in the registration of the company that went back all the way to 1995 when a 7-to-1 split or reverse split was done. and was done incorrectly or so, and so we had to postpone the annual shareholder meeting to it, file with the Delaware Court, Chancellery Court, for a correction of the registration, since we couldn't go back and locate all shareholders from 1995 to have them revote that. All of that is behind us. Last week, the day before the annual shareholder meeting, the court ruled on that, Fix the legislation and we're all done. We're in very good standing now. And I think I can say that at this point, every single issue that we have found in the last three years has been fixed.

Good. Very briefly, let me ask you a couple more questions. One, Scott Ferris, Chairman of the Board, and I appreciate the new board members, by the way, the former major general as well as a business manager, I believe, brought over from Luminar. A, are you bringing in more people intentionally from Luminar? And B, is there any linkage between LifePath and the private company that Scott is the CEO of called Inflection? And I mention that because the Pentagon is in the process of jump-starting Several key applications, I wonder, and some of that includes quantum computing, photonics, and I wonder if this is or can involve LifePath in the future.

Yeah. Well, first of all, we're not poaching specifically on Luminar, and I don't think we're targeting specifically. It does happen to be that Luminar has recruited some great people over the years, And there are some opportunities that have come up in which we recruited people that were in the past in Luminar, even the near past or the long-term past. But some great people joined us from there. And secondly, as it comes to Scott's new venture, which is extremely interesting, and I'd encourage everyone to take a look at that, Infliction, like many things, that is extremely heavy on photonics. and quantum, all things quantum, quantum sensors, quantum computing, quantum communication, they are all very photonics oriented and driven. We have a very strong presence these days in free space optical communication, primarily in space, and that ties very much directly into some of the quantum communication. And also indirectly into some of the quantum sensor work that's being worked on by many companies, Infliction being one of them. And we're always very, very happy to see optics finding more uses in more places. To me, I get an extreme joy out of even the simplest thing where seeing that the quantum engine might be replacing something as simple as a radio receiver soon. And that's mind-blowing to see optics play a role in something like radio communication.

Can any of this relate as well to enemy submarines and to detection systems? Because I know you're doing spacecraft linkage and communication. You haven't really touched on that with any more specificity. Can you elaborate?

Yeah, we have actually a couple of camera systems that are, one of them we're going to any day now, I think, a version of Mantis that we're going to release, that are of extreme interest for threat detection, counter UAS detection, detection of cruise missiles as they come in, and other things. All of those, you know, we have two camera systems, two separate camera systems, that we're working with customers on that show very, very promising results in that direction.

Did these relate to the U.S. Navy licenses we haven't heard much more about?

Yeah, the U.S. Navy license enables a lot of that. And as I mentioned, we expect within the next two, three weeks to release the first material formally from the Navy license, BDNL-4. But in reality, the Mantis camera It has already been using those materials for over a year now. We simply are now formally announcing it as a material that's available to others.

I think you have mentioned 1 to 200 Mantis cameras likely produced or sold this year. Does this year mean fiscal year? Are you talking about this calendar year?

This fiscal year, pretty much on track for that, I think.

Okay, and now I would like to ask you just an overview. The military has been stunned by the Gaza war and by Ukraine because they see the swarming of drones and how that offsets not only jet fighter aircraft, and maybe you're working on the F-35, maybe not, improvements, but also... you don't want to fire a million-dollar missile to intercept a $5,000 cheap drone. That we've learned in the Red Sea. So I wonder whether LifePath benefits or suffers from the prospect of fewer costly missile systems that would intercept or work autonomously in the future.

Yeah, yeah. Well, once we are done with the development of the Lockheed missile, and hopefully once that is awarded to Lockheed, my personal wish is that they fire a missile on everything they see, a drone or even a butterfly. But realistically, I think what we're seeing is a very... strong drive towards integrating more and more passive detection capabilities, such as infrared cameras, for detecting some of those drones. Today, you simply cannot use a radar for detecting the drones coming in. That's something that Ukraine has taught us and have learned, unfortunately, in a very hard way. Israel doesn't suffer that because of fighting an adversary that is a terror organization and not a state. But in Ukraine-Russia war, for example, in what is called a near adversary or an adversary that has capabilities close to yours, you suddenly realize you cannot use a radar to detecting drones because the moment you turn it on, a missile is locked onto the radar and will hit you within minutes, seconds. And so the use of cameras is very important. Two of our cameras that I mentioned for detecting threats from a distance one version of Mantis and one version of a different camera are of extreme importance because they can do that in $10,000 as opposed to a $50,000 camera that is often used today. So I think we have something very unique there that will pay off really well.

Sam and Al, thank you. I feel better and I appreciate the aspirational goals that you have outlined in the presentations as well lately. And I know it takes time, and I know how hard it is. So good luck, and we'll keep watching you.

Thank you, Gene.

Thank you, Gene.

Farewell.

Thank you, Jim.

This concludes our question and answer session. I would like to turn the conference back over to Sam Rubin for any closing remarks.

Thank you. I appreciate everyone joining the call and the patience that our shareholders show as we are not only turning around the company but also encouraging plotting the new direction and now finally delivering on it big time. The Lockheed Martin, the automotive, the cameras, each one of those are tens of millions of dollars in annual revenue that will be coming down the road. Very big deal. The company is going to look completely different a few years from now, and I'm excited to continue along this path. Thank you, everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.