LightPath Technologies, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies' third quarter fiscal 2025 earnings conference call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, May 15, 2025, and the earnings press release accompanying this conference call was issued after the market closed today. 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 as discussed in its periodic sex filings. Although the company believes that the assumptions underlining 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 made may be made to certain financial measures that are not in accordance with the general accepted accounting principles or gap. We refer to these as non-gap financial measures. Please refer to our SEC reports in certain of our press releases, which include reconciliations, of non-GAAP financial measures and associated disclaimers. CEO Sam Rubin will begin today's call with a strategic overview of a business and recent developments of the company, while CFO Al Marunda will then review financial results for the quarter. Following their prepared remarks, there will be a formal question and answer session. I will now turn the conference over to CEO Sam Ribbon. Sam, the floor is yours. Please go ahead.

Thank you, operator. Good afternoon to everyone and welcome to LightPath Technologies' third quarter fiscal 2025 financial results conference call. The third quarter of 2025 demonstrated our continued transformation from a pure component supplier to a vertically integrated global solution provider. for infrared imaging technologies for defense and commercial applications. The quarter was highlighted by the close of our acquisition of G5 infrared. Incremental camera product launches, exciting progress on key defense contracts and ongoing growth driven by geopolitical tensions and these incremental product line launches. As a reminder, up until about four years ago, LightPath was a pure play optical component manufacturer. The core technology of LightPath up until that point, precision glass molding, was an innovative technology that was leading the way in early 2000s. However, gradually became commercialized and consequently commoditized over the last 20 years. What was the leading differentiator for the company years ago had become by 2020 a widely deployed technology with aggressive and ample competition, pushing LightPath out of the market and crippling any growth prospects. In late 2020, shortly after I joined, we outlined a new strategy that leverages our differentiators into a more value-added position, with the goal to eventually become a solutions and subsystem provider, all of which is still in the optics space. where we have a strong domain expertise, with the ultimate goal of becoming a systems supplier. We started that journey by first offering optical assemblies based on our optical components, then began to offer compact thermal cameras, such as our uncooled Mantis multispectral camera. And later on, through the acquisition of Vizimid Technologies in the summer of 2023, We added advanced capabilities in video engine and camera cores for uncooled infrared cameras and optical gas imaging technology. And now, most recently, the acquisition of G5 infrared, which added a product line of cooled infrared cameras for long-range imaging. These acquisitions and organic investment in R&D and the new product design have led to significant growth of LightBath in these new categories of cameras, assemblies, and subsystems. What just a few years ago was a small part of the company that mainly did optical components has now become the majority of our business. At this point in time, the new direction we have taken, which includes optical assemblies, cooled and uncooled cameras, and other subsystems, is becoming roughly 50% of our revenue. with the other half of the revenue being optical components. And with ASPs, that's average sale prices, of those products being naturally higher than the component business, we expect this ratio to continue to grow. These numbers, by the way, match our past predictions, which we discussed publicly in the past, of the product mix we estimated to achieve when we started the transition. With this move up the food chain comes, of course, more complex products and systems, and with them higher value and larger projects, oftentimes with very significant upside potential. These opportunities are not specific to one product or another, and at this point span across our entire vertical array of products and offering, including some large projects on the material side, optical assemblies, cooled cameras, and uncooled cameras. In prior calls and investor presentations, we would often spend time discussing one or two specific projects. However, at this point, the number of such large potential projects we have makes it not practical to discuss each one of them in great detail. Not to mention that due to their nature, oftentimes being defense programs, we're actually restricted at times from discussing in as much detail as we would like to. Nevertheless, in order to continue to provide as much visibility as possible, I will provide a quick update on the various projects. First, the NG-SRI program with Lockheed. NG-SRI stands for Next Generation Short Range Interceptor, or the replacement for the Stingo missile. This is our largest revenue opportunity and is progressing to plan. As has been publicly disclosed, this is a competitive bid against a solution developed by Raytheon. And due to the nature of the competitive bid, we are actually very limited in what we can provide in terms of information, performance, and results. Other than the fact that we are progressing according to plan and are very pleased with this project. The NGSRI is a camera program and is run out of our Vizimid group in Texas. The G5 group in New Hampshire also has a few large projects. Chief among them is the SPIR program. SPIR stands for Shipboard Panoramic Electro-Optic Infrared System. In this program, we are providing L3 Harris with advanced infrared cameras that will be mounted on all naval surface vessels. for passive detection of threats in the area, such as detecting unmanned vessels and drones. Many times you guys would hear this as CUAS or counter UAV systems. Our G5 group also has some additional large programs in border security, other counter UAS and more. We believe G5 will continue to win more of those large programs, which could each bring revenues in the range of $5 to $20 million a year for each one of those programs. And actually, you can see those in some of the last few press releases of large wins for G5. Lastly, our two large programs in optics, both related to our proprietary black diamond glass, for which we have an exclusive license from NRL. One of those programs we discussed in the past, the Apache program. It is progressing, yet we encountered some delays and are somewhat behind schedule. Another program is fairly new and we have not discussed it previously, but it is also based on our NRL license materials. And while new, this program is moving at a very fast pace and is expected to soon join our club of multi-million dollar orders. So as you can see, those are what we would call our large programs, programs that each have a revenue potential that is north of $10 million a year, and therefore each one of them can be somewhat transformative to a company our size. It used to be one or two of those, and we would discuss them in great detail, but now having at least six of them in a mature stage, it becomes a bit less practical to discuss all of them in such great detail. Some of those programs, as I just mentioned, are based on our unique black diamond materials. Black diamond, to remind everyone, is a family of infrared glasses. I'm not sure if glasses is plural or materials, but infrared materials, let's say, which are made in the USA and provide two separate advantages. One is that they are an alternative to the use of germanium and gallium, two materials which heavily depend on supply out of China and for which China has limited the export of. And the Black Diamond materials also provide some significant technical advantages in system design, often driving significant reduction in the size and weight of the overall system, while often also improving the overall performance of the system. Our Black Diamond materials include our proprietary BDNL materials, which we own exclusively via a license from U.S. Naval Research Laboratory, as well as our more general BD-6. In recent months, we have seen a very strong growth in demand for all of those materials, but in particular for the BDNL materials such as BDNL-4 and BDNL-8, to a point that required us to start adding manufacturing capacities. in anticipation of this demand and the new programs translating into shipments. Since these materials are now key to several programs of record, we also receive monetary support from the DoD, Department of Defense, to increase our capacity and processing capability. So for the most part, the upcoming expansion, which we're starting now in our manufacturing capacity, is actually going to be financially supported by our customer, the government or end customer. The expansion in the capacity and the financial support from the DoD to do so should be seen as a positive indication we are on the right track. And our investment in Black Diamond technology, which we started about four years ago in full force, has indeed created a differentiator we are looking for. While I have been focusing so far on big programs, we also have a lot of progress in many other fronts, and especially the adoption of our black diamond material to replace germanium. In the last 90 days since the closing of the G5 deal, we have booked over $19 million of new orders in a 90-day period. Closing of the G5 acquisition was done mid-quarter. And so these numbers are not fully reflected in the backlog, again, so the last 90 days from before today, which Al will talk about shortly. But given that it happens to be exactly three months since we closed, I thought I would share this booking number for that period, as it is a very strong indicator for what we're looking for to see in the near future. Now, I've spoken a lot about sales and our growth opportunities, or actually at this point, growth reality, no longer just an opportunity. But I would also be amiss to focus on just that and not also discuss some of the shorter-term aspects of the business. Specifically, I would like to share some of my views on how recent geopolitical events and the subsequent economical events impact us or might impact us. and what risks we face as a result of those and how we plan to address them. Over the last five years, Lightpath has changed in many ways. Not only have we changed our product mix and value proposition, as we just discussed, but with that, we have also seen a change in our manufacturing footprint and our end markets. Five years ago, most of the company's manufacturing was located in China. both in headcount and footprint. As you can imagine, that opened us to quite a bit of exposure in risk when it came to tariffs and recession in China and international trade. Today, 45% of our headcount and 56% of our footprint are in the U.S. China, as a sales destination, accounts for less than 10%, maybe even as low as 5% of our revenues. What this means is that our position when events like tariff or recession in the Chinese economy happen, we are far better positioned than we ever were. However, it does not make us immune, and it has reduced our exposure, but it has reduced our exposure and provided us with a better toolkit to use when such events happen. When the April tariffs rolled out, we were able to minimize the direct impact to our business by making some quick changes in our internal supply chains. Today, almost no specific manufacturing activity occurs in only one location or depends on only one location. The only exception is glass, which is made only in Orlando. Every manufacturing capability that we have is performed in at least two locations in parallel. This is something we started during COVID and have been continuing to build upon since. As a result of that, we can shift manufacturing between locations and between countries as needed. What does that mean to our potential risk? For customers that still depend on products from China, we have found that when the supply chain pressure is very high, such as a 145% tariff, Customers are willing to pay the additional cost to manufacture in the US or Europe. The more challenging part is going to be when the tariff goes down to maybe only 10%. Where will the customers want product? So the team, this is an open question, which we don't know the answer to. So the team right now is further focused on optimizing those internal supply chains, building alternatives, And more importantly, having conversations with customers on what they're willing to pay as a premium for supply chain resilience. Or in other words, how much are they willing to pay for long-term supply out of the US or out of Europe? Of course, it helps when we all went through this, I don't know, supply chain shock therapy, if you would, in the last few weeks. It makes everyone a bit more receptive to having these conversations, conversations that in the past were very difficult to have. A second area of potential challenge for us is additional changes to the supply of germanium. This is almost an opposite problem. We benefit from the lack of supply of germanium, supply restrictions. So in the last few months, we have seen significant activities around redesigning optical systems to use our materials instead of germanium. This is what we have been hoping for when we made the investments in Black Diamond. The challenge is, and the question is really, what happens if germanium all of a sudden becomes freely available again? Do we lose all of this? The answer to this has two parts. First, there are many ways and places where our black diamond materials provide a technical advantage versus germanium or even other materials. The challenge has not been to convince customers of that. The challenge has always been, for the most part, to get the customers to make that painful decision or painful effort of making changes in existing systems and designs to use these materials. So to that extent, what we needed most was that motivation of a customer to redesign their system, something that now the export restrictions on germanium actually accomplished for us. Once they do that redesign and are using our materials, the system, we believe, works better than it did with germanium only. And so now, this is not to say we necessarily completely replaced germanium in all lenses. It is not exactly like that. But what we found through our customers is that most of the lenses, depending on the system, can be made with our materials. And once that happens, the overall system performance improves. And they provide better technical benefits in terms of operating temperature range, for example. So in essence, most of those systems that are being redesigned, once that redesign happens, are actually motivated to continue with our materials. Secondly, all signs we're seeing are that China is, if anything, tightening those export restrictions. One, if Googling it or searching on ChatGPT, can easily find articles that talk about China cracking down on smuggling. And we have even heard from our vendors and competitors in China about surprise audits done by customs to inspect the records of all the germaniums they have purchased or made, and to make sure it is all properly accounted for. Additionally, what we're hearing now, as everyone starts looking into the supply chains of germanium in more detail, is that China has likely been planning this for a very long time. They were not only working to monopolize the processing of raw materials, but also were buying up any available material in the marketplace and from other countries. So as far as we can tell, signs are that this export control will continue. But in any case, as I earlier, once a redesign happens, we feel very secure. So our team continues to work with customers to expedite those redesigns as much as possible so that even if geranium becomes available again, we will already be designed in and then remain in the system. Okay. With all this, I'll now turn the call on to Al Miranda, CFO, to talk about the actual numbers. Al, please go ahead.

Thank you, Sam. I will keep my review to a succinct high level of the financials this quarter. As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the 10-Q for the period. Revenue for the third quarter of fiscal 2025 increased 19.1 percent to $9.2 million, as compared to $7.7 million in the same year-ago quarter. Sales of Infrared components were 3.6 million or 40% of the company consolidated revenue. Visible components was 2.8 million or 31% of consolidated revenue. Revenue from assemblies and modules were 1.9 million or 20%. And revenue from engineering services was 0.8 million or 9%. Gross profit increased 66% to 2.7 million or 29.1% of total revenues in the third quarter of 2025. as compared to 1.6 billion or 20.9% of total revenues in the same year-ago quarter. The increase in gross margin as a percentage of revenue is primarily due to a more favorable product mix with more revenue from assemblies and modules and engineering services, which typically have higher margins than infrared components. Operating expenses increased 44% to $6 million for the third quarter of fiscal 2025, as compared to $4.2 million in the same quarter of the prior fiscal year. The increase was primarily due to higher legal consulting fees related to business development initiatives, including $0.7 million in expenses associated with the G5 acquisition, product development costs of $0.2 million, additional sales, general, and admin costs from G5 of 0.4 million, a net increase of amortization expense of 0.3 million, as well as increased sales and marketing spend to promote new products. Net loss in the third quarter of fiscal 2025 totaled 3.6 million or 0.09 per basic and diluted share as compared to 2.6 million or 0.07 per basic and diluted share in the same quarter of the prior fiscal year. EBITDA loss for the third quarter of fiscal 2025 was 2 million compared to a loss of 1.5 million for the same period of the prior fiscal year. Cash and cash equivalents as of March 31st, 2025 totaled 6.5 million as compared to 3.5 million as of June 30th, 2024. As of March 31st, 2025, total debt stood at $5.5 million and backlog totaled $27.4 million. A few more words on G5. The post-merger integration is going well. It is on schedule. The most important positive finding is how well the companies fit culturally and work together. It really is amazing. We are integrating. where it makes sense, and on a timeline that makes sense. Normally, this would be considered a balancing act, but both organizations are aligned on goals and are moving quickly towards integrating and leveraging expertise. As Sam noted, following the acquisition of G5, the expectation is for the combined companies to generate $51 million in revenue in the 12 months following the acquisitions. G5 has had new bookings of $13 million since the acquisition in February. Most of the new orders are scheduled to ship from June through December, so the financial impact will start to be visible in Q4 and be predominant in Q1 and Q2. We have spoken a little about the price and financing for the acquisition, and we've done filings previously on it. There is very detailed information in the upcoming 10Q, the previous filings, and more to come in the next weeks. We'd be happy to answer questions on clarifying anything about the financing structure. However, our focus, together with the G5 team, is how to maximize revenues and earnings. Regarding earnings, specifically net income, there will be significant complex accounting treatment and activity in the next two quarters related to financing and valuation of G5. This is normally the case. We'll endeavor to make the non-operating activity transparent so that you can see the true performance of LightPath and G5. Going forward, since bottom line numbers can be impacted by valuation of warrants and the convertible preferred, We'll rely more heavily on EBITDA and adjusted EBITDA to aid in the transparency and comparative analysis. G5 is a rare acquisition event. It is well-run, profitable, growing, strategic, and a cultural fit. It should be no surprise that I view the acquisition of G5 as a robust tool to supercharge the near-term potential of LightPath, particularly in the defense space with the introduction of high margin, high ASP, and incremental products. We see this as providing an expedited path to achieving our long-term goal of 15% EBITDA margins, defining LightPath as a platform company focused on discipline and strategy, and delivering value to our shareholders as we scale and grow. With that, I will turn the call back over to you, Sam.