LightPath Technologies, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies' fiscal fourth quarter and full year 2026 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, September 10, 2026, and the earnings purchase 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, and discuss in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them could 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 or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports in certain areas 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 the business and recent developments for the company. while CFO Al Miranda will then review financial results for the quarter and the fiscal year. Following the prepared remarks, there will be a formal question and answer session. I'd like to now turn the conference over to CEO Sam Rubin. Sam, the floor is yours.

Thank you, operator. Good afternoon to everyone and welcome to Lightpath Technologies' fiscal fourth quarter and full year 2026 financial results conference call. The last few calls I typically opened by talking about the strategy and how the strategy is working and where it's taking us. Tonight, instead, I will let the numbers talk and let the fiscal year results do the talking. Fiscal 2026 is the first year in which the transformation we have been describing shows up cleanly in every line of the financial statements, not just the backlog. Four numbers frame the year. Revenue grew 93% from $37 million to nearly $72 million. Growth margin expanded from 27% to 36%. Adjusted EBITDA moved from $5.1 million loss to a $4.2 million profit, a swing of more than $9 million. And backlog finished at 110.9%. The fourth quarter was our best quarter in every one of those categories. Revenue of $21.2 million was a company record, and our fourth consecutive quarter was sequential growth. Growth margin was 39.4%. Adjusted EBITDA was $2.1 million, or 10% of revenues. which was our fourth straight profitable quarter on that measure. All great results which we expect will continue to grow and improve. Now, I'd like to spend a moment on the quality of that margin because it is the part that I am most pleased with. The 39.4% margin did not come from a one-time favorable contract or from raising prices. It did come from two things with it. First is the mix of products. Assemblies, modules, and cameras were 43% of the fourth quarter revenue and 44% of the full year, compared to 23% of the revenue in fiscal 2025. These products, which our strategy has really took us towards, have both higher prices and higher margins, as a result of the significant value-add compared to our legacy component business. Second is execution. The yield and throughput problems that dragged our component margins in the past are, well, in the past. And every one of our four product groups improved its margin year over year. The mix improvement is a result of strategy. The margin improvement is a result of operation. We needed both, and this year we got them. and while the backlog has not grown sequentially, shortly after we closed the quarter, we reported two large orders totaling 24 million and have been continuing to book and grow our backlog. So the backlog you will see for the quarter ending in about three weeks' time will show already some more growth. While we continue securing new customers, both by converting them to Black Diamond and by providing them with assemblies and systems, Much of the orders coming now, like the two large orders I just mentioned from July, are for production. As many of the programs we have been working on move from qualification to production. We have said in the past that a design qualification of a new program, whether it's a redesign to use Black Diamond or a new program altogether, can take up to two years. Much of the growth in our backlog and bookings recently is the result of such new programs beginning to move into production. Two years ago, in late 2024, China imposed the first restrictions on export of germanium and gallium and we began to see a growth in demand to black diamond and systems using black diamond glass. Now we are beginning to see the transition of some of those into production. A trend I expect will intensify as most customers did not start their redesign and substitution effort until much after the initial export ban on Germanium. To that end, I will provide now an update on some of our key programs we have in the pipeline and their status. As mentioned in recent calls, due to the good problem of experiencing exponential growth in all our sales fronts, I can't really cover all the large programs So instead I will focus on ones where we had some changes or recent developments. NGSI, our three-year-old interceptor program with Lockheed Martin. As many have heard, the Army has pushed out the timeline by a few months in an effort to potentially explore other options. We do not see this as a risk to us, only a delay. We have seen this happen in multiple other programs. where the Army wants to foster a truly competitive environment. Our confidence continues to be very high, and given that our SECO is being designed and evaluated into multiple platforms now, we have little concern here. In the last few months, we have relocated the group that works on that SECO into a new building and have begun investing in increasing capacity for building SECOs. Knowing that any program that moves into production will need to scale very quickly. More broadly about seekers and listeners, our camera systems are now being designed into or actively evaluated in seven different platforms, three of which are with Lockheed Martin. The remainder are with Primes, or as they're sometimes referred to recently, Neo Primes, newer companies entering the defense market. The full qualification of our low-cost seeker that was completed as a result of the NGSRI flight test, as expected, opened the door to many other opportunities. The same manufacturing facility in Texas will support all of those opportunities. In Border Patrol, or Border Tower, we have seen funding being released from DHS to the Primes. However, that has not yet translated into orders for cameras. What we have seen is a growth in demand for similar towers and cameras that end up installed outside the U.S., primarily in the Middle East. A few other programs. We have an unnamed airborne program which has completed qualification and we await the production order for LRIP. The Apache program is looking like it might make a comeback soon with a renewed interest in that system. Drones, and in particular drone dominance programs, are generating significant demand, which we are addressing by starting to add automation to some of our processes for high-volume assemblies. And county UAS programs continue to move along well, with two of the programs now transitioning to a cadence of deliveries of tens of systems a month. In parallel to more design wins of our existing product, The teams have been working on designs and redesigns of additional products, all of which leverage our black diamond glass and make use of our supply chain resilience and having alternative materials instead of depending on germanium. On the camera front, we have been redesigning the last of the G5 pooled cameras. We used black diamond instead of germanium. That program is progressing well technically, though behind schedule. However, all the results we have seen so far indicated the cameras will work at least as well as the germanium-based cameras. We have also been working on zoom lenses and zoom cameras in what is called long-wave infrared, often referred to as uncooled cameras. Here, too, we identified an area of the market in which we can leverage our position to provide products without supply chain constraints. An effort that has been ongoing for the last year is now coming to fruition, with our first orders for zoom lenses and complete uncalled zoom cameras to be delivered soon. Once those are fully production-ready, we expect to see the need in the market translate into orders fairly quickly. Let me now turn to the structural changes we have completed after year-end, which is a divestiture of our China operation. In July, we signed a definitive agreement to sell our China subsidiary to an entity owned by the local management team that has run the facility for us. for $4.5 million, payable in installments over five years. And that transaction is expected to close later this month. Financially, it is a modest event. Roughly $4.5 million of annual third-party revenue leaves our consolidated results. Antibio continues to supply us as a third-party vendor for our commercial customers in the U.S. and Europe. So there is no disruption to those customers. Strategically, it is not modest at all. Six years ago, most of our manufacturing footprint was in China, and more than a third of our revenue came from China. As of this fall, LightPath now does everything, melts glass, coats optics, builds cameras and assembly, exclusively outside of China, in Orlando, in Plano, Texas, in Hudson, New Hampshire, and in Riga, Latvia. We have no ownership, no facility, and no commercial activity in China. For a customer base that is now dominated by the defense primes and public safety agencies, that is no longer a nice-to-have talking point, but something that will now open up significant bid opportunities where that is a condition for participation. That connects directly to our regulatory backdrop. Defense programs are required to move off optical glass and optical components sourced from other nations before the end of the decade. What has changed over the last year is not the rule, it is the timing. Qualification cycles for an optical system run two to three years. So the sourcing decisions that determine who supplies those programs in 2029 and 2030 are being made now, in this fiscal year and in the next one. However, several executive orders around waivers for germanium and classification of material as critical and specific tariff supply would likely pull that timeline even closer. Now, to address that, let me talk about capacity a bit, because capacity is our single biggest operational theme going into fiscal 2027. When we acquired Amorphis Materials in January, we increased our black diamond melting capacity, and just as importantly, we unlocked large diameter melting, up to 10 inches and beyond, versus the 5 inches we could produce before. In optics, the further you need to take, the larger the optics need to be. Large diameter is what opens up long-range camera systems, large assemblies, and space-based missile detection and tracking. I told you in May that doubling the glass capacity was nowhere near enough. That is still true. Demand for glass is running ahead of supply even after the acquisition. So we are adding melting capacity in Orlando and Texas. We are moving the AML, our office operation, into a larger building near our business camera business in the Dallas area. And we're expanding downstream capacity in optical fabrication, coating, and assembly across the U.S. and Latvian sites, including adding shifts in all locations. Al will talk about what that means for capital spending. The short version is that physical 2027 capex will be higher than physical 2026, and that is a deliberate choice made against a visible order book and pipeline. Before I hand it to Al, I'd like to discuss the balance sheet. In June, we raised $50 million in a primary offering alongside a secondary sale by North Fund Capital, who funded our acquisition of G5. We ended the fiscal year with $93.2 million of cash and effectively no debt. Some of that capital will be used to fund the capacity and working capital required to convert our growing backlog that has now grown over five consecutive quarters and continues to grow, and some will be to pursue accretive, capability-adding acquisitions such as the ones similar to G5 and AMLs that have proven Thank you, Sam. As always, I'll keep my review to a succinct highlight of the financials. Much of what we're discussing was also included in our press release issued earlier today, and will be included in the 10-K for the period.

I encourage you to visit our Investor Relations webpage to access both documents. In the fourth quarter, revenue increased 73% to $21.2 million as compared to $12.2 million the same year ago. Sales of infrared components were $7.1 million, 34% consolidated revenue. Visible components were $4.2 million, or 20% of consolidated revenue. Assemblies and modules were $9.1 million, or 43% of consolidated revenue. Engineering services were $0.8 million, or 4% of consolidated revenue. Gross profit increased 210% to $8.3 million, or 39.4% of revenue in the fourth quarter, as compared to $2.7 million, or 22% of revenue in the same year-ago quarter. Sam mentioned a The reasons for our gross margin increase, in addition to better absorption and higher production volume, and we also had a quarter carry-through of half a million dollar inventory reserve charge last year that didn't recur this year. Operating expenses for the fourth quarter of fiscal 2026 were $12.6 million as compared to $7.2 million in the prior year period. of the $5.4 million increase, $2 million relates to non-cash fair value adjustment to the acquisition earn-out liabilities, which are remeasured through operating expenses until fully settled. The increase is primarily related to G5 infrared, reflecting its strong performance against the earn-out targets. The final earn-out amount was agreed to and accrued in the fourth quarter of fiscal 2026 to be paid in January 2027. The remaining operating expense increase of $3.4 million is primarily comprised of increased selling, general and administrative expenses, where the fourth quarter of fiscal 2026 included the additional of AML operations, incentive compensation accruals, additions to the senior leadership team, higher sales and marketing investments, and continued information technology spend to meet customer security requirements. Net loss for the fourth quarter was $4.1 million, or .06 per basic and diluted share, compared to a net loss of $7.1 million, or .16 per share in the same year-ago quarter. adjusted EBITDA for the fourth quarter was $2.1 million, or 10% of revenue, compared to an adjusted EBITDA loss of $2 million in the year-ago quarter. This is our fourth consecutive quarter of positive adjusted EBITDA. As I said before, adjusted EBITDA is non-GAAP and not a perfect measure, but it is the better indicator of core operating performance because it strips out the non-cash acquisition accounting that otherwise dominates our reported results. For the fiscal year, revenue for 2026 increased 93% to $71.7 million as compared to $37.2 million in the fiscal 2025. Sales of infrared components were $21.2 million or 30%, an increase of 52% year over year. Visible components were $15.5 million, or 22% of consolidated revenue, an increase of 32%. Assemblies and modules were $31.9 million, or 44% of consolidated revenue, an increase of 281%. Engineering services were $3.1 million, or 4% of consolidated revenue, roughly flat with the prior year. Operating expenses for fiscal 2026 were $45.5 million as compared to $22 million in the prior year. Of the $23.5 million increase, $14.1 million relates to the non-cash fair value adjustments acquisition earn-out liabilities, which I will discuss further in a minute. The remaining operating expense increase of $9.4 million and Doug Schoen. I want to be direct about the earn-out accounting because it is the largest single line in our income statement this year and the least reflective of our operating performance. The $15.6 million charge in fiscal year 26 is a remeasurement of what G5 sellers earned. and it moved because G5 is outperforming the amount estimated at the time of acquisition, which per gap was largely weighted based on historical financials. It is not an ongoing operating cost and the majority of it is behind us as we've now accrued for the final G5 earn out to be paid in January 2027. There may be small adjustments in future quarters related to AML and Visumed still to come. adjusted EBITDA for fiscal 2026 was a profit of $4.2 million compared to a loss of $5.1 million in fiscal 2025. As Sam said, a swing of $9.3 million, a good indicator of where we're heading. Backlog of June 30th was $110.9 million, up 197% from $37.4 million a year ago. approximately 85.6 million of that is requested by customers for delivery within 12 months. And then I'll touch on CapEx, as Sam mentioned. It is an indicator of how we are managing growth. In fiscal year 26, we spent 6.3 million in CapEx, 4.4 million in Q4 alone. The last time we spent at that level was in calendar year 2023, when we expanded the Orlando facility and doubled the size of the manufacturing and the clean room. The fiscal 27 plan is larger and more ambitious. We will expand all of our locations to meet the backlog we have and the demand we foresee through fiscal 27 and into fiscal year 28. The plan is to get ahead of demand in some key areas like the production of black diamond glass. With that in mind, Let me close with the frame I would use if I were on your side of the call. Two years ago, this was a $32 million per year revenue business with negative adjusted EBITDA, $3.5 million of cash. This fiscal year, it is a $72 million revenue business with positive adjusted EBITDA, $93 million cash, no debt, and $111 million order book that continues to grow. The work in fiscal 2027 is to add capacity fast enough, hold the margin gains, and convert the book. That is a straightforward execution mandate, and it is fully funded. With that, I'll turn the call back to Sam for some closing remarks.