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.

Okay. Thank you, everyone, for joining us today. As we look forward, we remain laser-focused on executing our strategy to transform LightPath into a next-generation optics and imaging solution provider. With the integration of G5 Infrared, we've expanded our portfolio to high-end cooled infrared space, adding significant new growth opportunity, especially in defense. Combined with the accelerating shift towards our proprietary black diamond optics, the replacement for legacy germanium, we are positioned to deliver meaningful progress across our automotive, defense, and industrial markets. We believe fiscal 2025 marks an infliction point as we build momentum towards achieving our long-term goals of sustained growth, profitability, and market leadership. We are confident that the actions we're taking today from scaling up production to drive innovation will deliver strong value to our customers and shareholders alike. With that, I will now hand the call over to the operator for the Q&A session. Operator?

Thank you, sir. Ladies and gentlemen, we will now be conducting the question and answer session. If you'd like to ask a question, please press star then 1. on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star and then two to leave the question queue. For participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Glenn Mattson of Leidenberg's Hellman. Please go ahead.

Hi, guys. Thanks for taking the question, and thanks for all the detail of the call. First, a lot of good things going on, but I will ask you about the one kind of issue that you brought up, Sam, on the Apache. Can you talk about the delays and maybe just some color as to, like, was there some developments where the product wasn't doing what it needed to do, or was there some kind of timing delay, or is it actual, like, derailing that opportunity?

So the delay is on our side. Our team was not able to meet the timelines we've committed to afford we would. It's sort of a combination of a couple of things. First of all, we took on a stretch project. So it's a very challenging product. Otherwise, we wouldn't get the premium we're getting for it. It's really a cutting edge in terms of the complexity of the product. And it depends heavily on BDNL 8, one of our new materials. We were running out of capacity for a while as we were seeing sort of an unexpected influx of demand in a couple of other areas. And so we're balancing act between, you know, what do we make glass for while we're adding capacity? And, you know, we made enough glass to what we thought would be enough for this project, but it just wasn't. So we're a bit delayed. We had to reschedule, schedule new glass belts for this and then start over with the process of making the lenses and assembling. So we're there. We don't think it's something that's inherently a problem. It's definitely not from the customer. It's completely on us and just biting off something big and not chewing it fast enough.

Yeah, so that's great. Nothing permanent there, it sounds like. And then on the BD glass, you mentioned another new project that's very fast-paced. I don't know what color you can give, but how would you define very fast and any other color you can give?

Very fast, meaning that the government is giving us pretty much anything. any money we need or writing checks to give us equipment to move as fast as we are and for anything that we need. This material, it's a redesign of a system, an existing system that with the redesign performs exponentially better than what it did before, like, you know, orders of magnitude kind of mind-blowing a bit to see it. if I could have shared. And so the customer is very interested to move as quickly as possible with it to start upgrading existing systems and so on. Again, it sort of landed exactly at that perfect storm of everyone wanted black diamond glass because of the germanium. We took on a couple of R&D projects that were taking capacity. We needed to juggle things around. Not a big issue there, other than, you know, it's just a lot to do at the same time. But when this moves into production, and we're talking about a year to a year and a half from now, this is big time in our big league, meaning, you know, $10 million or more a year.

That's great. And with the government commitments that they're making, it sounds like there's some high degree of probability that that'll come to fruition, yeah.

Yeah, always nice when your customer's footing is a bill for the equipment.

Yeah. One more quick for Alvin. I'll jump back in the queue. The gross margin outlook, I'm just thinking about the growth in assemblies and modules sequentially. I imagine most of that is G5, and that was only, I think, a month or whatever, six weeks maybe of G5. So next quarter, you'll have a full quarter. You'll have that product line. That segment will jump again sequentially, and that's a higher margin segment than some others. that's just a natural gross margin expansion situation. Al, is that correct?

That's right, Glenn. We expect the gross margin from this quarter to next quarter to go up because we'll have a full quarter of assemblies and modules and cameras.

Okay, great. I'll jump back in the queue. Thanks, Seth.

Our next question comes from Jason Schmidt of Lake Street. Please go ahead.

Yes, thanks for taking my questions. I apologize if I missed this, but what was the backlog number ending March?

$27.4 million.

Perfect. And then just digging into some of your comments on the 51 million in expected revenue on a combined basis. That seems like a slight downshift from sort of that 55 million plus when the acquisition was announced. Just want to clarify, is maybe that delta really being driven less by the G5 business, which seems to be going really strong and more on kind of the, let's call it legacy life, like path business?

So it's, yeah, Jason, sorry about the confusion around that. It's really, that's really Sam and I doing, talking two different timeframes. 51 million is from February 18th to February 18th, like the next 12 consecutive months. And what Sam's talking about is more about fiscal year, calendar year. So starting in June, going forward kind of thing.

Gotcha. No, that's really helpful. And then just the last one from me, and I'll jump back into Q. Looking at the OpEx line, I know, Al, you called out a number of different kind of line items there. How should we think about OpEx going forward through this calendar year?

Yeah, so I kind of don't want to commit to anything just yet, but amortization is still going to have an impact beyond what we normally see in terms of OpEx, right? So if we sort of carve that out and then take out, you know, extraordinary M&A expenses, which we've experienced over the last year during this, although we still have that in Q4, you know, as we wrap up all the filings and whatnot. But if we look past that, I would think that combined companies are around five per quarter.

Okay, perfect. Thanks a lot, guys. Yeah, thank you, Jason.

Our next question comes from Richard Shannon of Craig Hellam. Please go ahead.

Well, thanks, guys, for taking my questions as well. Let's start with a financial question here. In the last earnings call, I think you were asked about whether you expected to see a breakeven or positive EBITDA in this June quarter, and you said yes. Is that still your expectation?

It'll be close.

That's for sure. We expected to see a bit more camera revenue in June. And we certainly have the backorder backlog Sam mentioned, the $13 million, right? We're working on building that, right? So we went through sort of the networking capital outlay. We have supply chains, so goods and materials come in. We're going to ship sort of starting this second week of June, some of those larger, more expensive systems. So we'll get a full quarter of revenue in for Q4, but not as much as when I spoke to you last and said we'll definitely break even at the EBITDA level. So it'll be close.

But just to clarify, you mentioned the $13 million that I said. That was bookings that we did. We're not saying $13 million in this quarter of June.

Correct. The current $13 million bookings from February 18th to today are somewhere around there.

Does that help?

Yes. I think we're doing an apples-to-apples comparison of what you said last time, and I got your answer, so thanks for that, Al.

We're still struggling with apples to apples between calendar year, fiscal year of the acquisition. We are definitely, we have a lot of fun.

I'm sure you are. Let's ask a question on the missile program with Lockheed Martin here. The press release here talks about potentially seeing a decision late this year, early next year. Is this the final decision? Because I think you were alluding to something late this fall about being kind of a preliminary view into the potential decision. Is this the actual decision that you're expecting?

Yeah, this is the potential decision. So let me clarify, and this was said publicly, so I'm not going to get into trouble sharing this. This summer or early fall is when we expect the customer to start their own testing of the systems. And since we're talking about an innovative system that is vastly different than the solution Raytheon proposes, you know, the comparison is really, you know, does it work or doesn't, kind of, to the level that technology promises. And we think there's a good chance that already in the fall, we will get a very strong indication from the customer of that. So, yeah, formally, the decision needs to be made by, I think, October 2026 was what publicly was said. Realistically, the customer is starting to get delivered in the summer, early fall. And if the technology is really delivering the promises that we think, we might be seeing a earlier decision even.

Okay, I'll look forward to seeing that. Maybe a last question, I'll step out of line here, is looking at the light path on the camera side here with Mantis and related products here, I guess I want to get your latest update on how the progress has been with penetrating the various markets intended there.

Yeah, the positive one is that on the furnace inspection side, these cameras, you know, the long, huge cameras, $30,000 for looking into Furnaces running at 2,000 degrees. That's going extremely well to a point that we're getting what we hoped for, and that is customers that in the past would buy from our Sony the camera and build their own optics are now seeing that our complete system performs better than their own developed system and are testing and evaluating our complete system and starting to buy those. So that's exceptionally well, and the team is doing a An unbelievable performance. You know, great job there. We're very excited on that part. Optical gas imaging is less so. And the reason is we outlined it last time. And unfortunately, I don't have an update, a big update since then. We need to go through a formal qualification test or quantification test, if you would, of how much gas exactly the camera can detect, if you would. EPA in the last two years has actually standardized that. And what used to be a sort of auxiliary technology that if people wanted, they would do optical gas imaging is now required by EPA. And obviously, once it's required, then there's also required thresholds and specifications. So now there is a formal qualification process. The line to get in line to the qualification is absurd. It's half a year to a year. We managed to secure a much sooner spot than, you know, Texas, where the test was supposed to be done, got hit by a massive storm. The long and the short is we expect it later this month, and hopefully then we'll be off running.

Okay. Appreciate that update. That's all the questions from me, guys. Thank you.

Okay.

Thanks. Our next question comes from Scott Burke of HC Wainwright. Please go ahead.

All right, good afternoon, guys. Just a couple from me, and thanks for the time. I'm curious, Sam, it sounds like momentum on the G5 side is, I mean, I guess just outstanding, but are there any capacity constraints there, or do you guys have the ability to move some production down to Orlando, or what does that look like?

That's a great question. Capacity constraints comes in one of three forms in a business like G5. The first is the assembly constraint. To that extent, there's quite a bit of capacity. They run one shift only. We can add shifts. We can add people. There's a lot of trained workforce in that area. I'm less concerned on that part. The other two elements come from supply of the components. One is supply of the detectors. Those detectors come from a single vendor that makes them. And for that extent, to get ahead of ourselves on knowing or expecting that this is going to happen, we actually placed some very large orders for detectors with the vendor. Al was very unhappy about the amount of cash we tied up, but it's paying off in the fact that we are able to ship very quickly now some of those large orders. So I'm less concerned on that part. The second part is the optics. And this is where LightPath actually can come into play because G5 does not make its own optical components. It outsources them to other companies like LightPath and then coats the optics. They have plenty of capacity for coating. We just bought another coating chamber for G5 just to make sure there's enough capacity. But the timeline or the lead time for getting the optical components can sometimes be long. And this is exactly the place where our Latvia operation or even Orlando operation can step in and potentially will do. So short answer is I'm not worried about their capacity, but it's complicated. So there are a few things we're doing.

Sure. No, that's very good, Collar. I appreciate that. And apologies if I missed this early in the call. I jumped on a few minutes late. Could you talk a little bit about integration on the sales side Are you both out co-marketing, co-pitching at this point? And if not, when does that occur?

Yeah, so actually you touched on a point that I wanted to talk about in my notes and forgot to bring it up. Our VP sales Jason Messerschmitt had last week had to resign immediately due to some personal reasons in his family. And so that was very unexpected for us. We haven't talked about it publicly. This is really the opportunity to do so. We enjoyed very much working with Jason, regretted very much. We tried everything possible, but some family restrictions or family requirements led to that. And we wish Jason best of luck. He stays in touch with us, and hopefully we'll get to work again together in the future. That said, we still have a very strong sales team in the camera side that Jason has built here in his year with us. And that sales team is already working very closely with G5. And in fact, I myself spend some of my time on that. So sometimes some doors that a phone call or an email from the CEO can open. And so I also take part in having calls with new potential customers in order to open the door. And those are going very well. So it will take time because the sales cycle is long on a capital equipment of this magnitude. But reactions so far are great. And we're absolutely seeing that the life of name and Salesforce can open for G5 doors that before, you know, never even were never even knocked on, really.

Great. Well, I appreciate that. That's all I had, guys. Thank you.

Thank you, Scott.

The next question comes from Brian Kinslinger of Alliance Global Partners. Please go ahead.

Great. Thanks so much. I'm curious, Al, you mentioned there'll be some higher expenses, not amortization, I'm not looking for a non-cash, but in the current quarter and possibly next quarter, can you just help set our expectation for how much that might be?

It's going to be substantial is my guess. It's the ongoing legal fees for obviously all the filings we're doing, audit fees that go beyond just audit, again, for all the filings, the valuation, and consulting fees around that, right? Because we're incurring those costs essentially in March. and April and even this week. So we still have some trailing expenses that are occurring right up to this very minute.

Substantial like a million or two a quarter?

Not a million. That would be really substantial. I would guess 300, somewhere in that neighborhood.

Okay. And then in December... So a lot is kind of open-ended. And then in the December quarter, you highlighted yield issues and supply chain challenges, certain components from China. What's happening today post-April? Are the yield issues fixed? And then are you having any challenges on the supply chain right now?

No, that's a great question. I'm glad someone pays attention when we talk, so I appreciate that. Things are much, much better. So on the yield issues and anything like that, we've done a lot of work, and I think they're pretty much resolved. Touch wood, I don't want to, you know, promise, but as of now, we're seeing everything on track and going well. Supply issues were, you know, there was a gap of getting any materials out of China. Everyone was overreacting. As I sort of mentioned in my comments about these audits from customs and things, I mean, there was a lot going on in China of customs scaring everyone out of exporting germanium to the point that many companies stopped exporting optical materials, period. And so it took a bit of time for the dust to settle and people to start exporting again. Of course, we rerouted any orders we can to suppliers outside of China, but the cost difference is sometimes such that we can't do that. That is pretty much behind us. Supply of non-Germanium optics is back on track. We're receiving most of those in the next few weeks. So within the quarter we're in now, we're hopefully going to clear away most of that backlog of items that had supply issues. Some might flow into July just because it will take us a bit longer to process, but most of that backlog of supply we're expecting end of May, beginning of June to receive the materials.

Okay. Another question I had was, and maybe just me who misunderstands, the two contracts, the border security contract opportunity for G5 and the Navy vessel contract. Are those awarded? Are they still in competition? Just help me understand where those are in the procurement process.

Navy competition is the simplest one. Awarded sole source, program of record, moving hopefully very soon into what's called LRIP, low rate initial production, and then it will be multi-million dollar a year from that point on. And that is a done deal. Border Patrol is a bit more complicated. So Border Patrol has three suppliers of record for these kind of towers, Elbit of America, ATSC, and General Dynamics Land Systems. G5 is the sole provider for Elbit of America. As far as we know, of the three vendors, Elbit of America's system is a preferred system and performs the best overall, and therefore we expect the majority of the purchases to go to Elbit, and therefore from there to G5, which is the only vendor to Elbit. However, this is what is called an IDIQ, indefinite delivery, indefinite quantity, that is split up between three vendors, which means every year, all over again, Border Patrol can decide which one of the vendors gets what part of the cake. There's very little certainty for the very long term. The only certainty we have right now is that we know from our own inquiries and discussions with Border Patrol that the Elbit system does by far perform the best, that right now they're considering the next purchase, which should be starting in the next few months. And if it goes well, this will be a you know, pretty large program for G5.

And this program, it has been ongoing. I mean, an IDIQ, you don't have to ever order, right? It could be zero, it could be all the way up to the max. Have they made several orders where Elbit is the market leader?

The IDIQ started in January, and in January, G5 received an order of a couple of million dollars from Elbit for the first few systems. And we're expecting now, and those were sort of the, I'd say equivalent to LVIP because it doesn't exactly, Homeland Security doesn't use that same terminology. But the next few months is when the real deliveries from IDIQ are going to start. And you're absolutely right. IDIQ has a lot of uncertainty in it in terms of what will actually be pulled out of it.

Okay. And my last question is based on the backlog for G5, how far along are they into their at least revenue contribution of meeting their targets for next year? What's the visibility on that?

I think they have altogether between what they shipped so far and booked to maybe $15 million, maybe higher a bit. I'm not sure. Do you have that?

I do. You want me to say it? Roughly, yeah. No. between what they've shipped, well, let's say through Q4, because we have some visibility there, through the end of the year, through February 18th. Right now, it's 19.

And just remind me, where do they have to get to to hit their first earn out?

The first earn out is 21. Okay.

And thank you so much we projected I mean we I just I early on the call, you know I said there you know we're going to 51 in total for the year that as soon as that they make at least that 21. For the trailing 12 sorry. So they're they're they're on they're on course to do revenue wise exactly what we are and there's still upside opportunities there.

In order to reach their payout, their contingent payment, they have to hit the margin, too, on top of the revenue. Is that right? Absolutely right.

20% on EBITDA. Their standalone business has to do 20% EBITDA, not White Path in total, but themselves.

Right. Is there anything to tell you so far that that's not tracking? We only have five weeks of data.

Okay. Come on, Al.

Okay.

No, but I don't see any red flags, Brian. I don't see any red flags.

Let's just say earn out is a great motivator.

I mean, it's, you know, it's ambitious even for them, right? It's not a cakewalk even for them, but it's completely doable.

Okay. Thanks. Thank you.

Ladies and gentlemen, we've reached the end of our question and answer session. I will now hand back to Sam Rubin for closing remarks.

Thank you, everyone. As you can tell, exciting times. We're getting it done. Everything we've been talking about for the last few years is all falling into place and happening. We're excited. I jump out of bed every morning coming to work. And so we're very much looking forward to continue to update everyone. Thank you for coming.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and I may now disconnect your lines.