LightPath Technologies Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 14, 2023

There are 6 speakers on the call.

Operator

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.

Speaker 1

Thank you. Good afternoon, everyone. Before we get started, I'd like to remind you that during the course of this conference call, 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 SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, Any of them can be proven to be inaccurate and there could be no assurances that the 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.

Speaker 1

We refer to these as non GAAP financial measures. Please refer to our SEC reports and certain of our press releases, Which include reconciliations of non GAAP financial measures. Dan will begin today's call with an overview of the business and recent developments I will then review financial results for the quarter and fiscal year 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.

Speaker 1

Sam?

Speaker 2

Thank you, Al. Good afternoon to everyone, and welcome to LightPath Technologies fiscal 2023 4th quarter and full year financial results Conference call. Our financial results press release was issued after the market closed today and posted on our corporate website. The Q4 was highlighted by significant developments in several of our pillars of growth, Which I have been discussing as part of 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 a value added partner for complete solutions based on optical technologies, Whose differentiators are mostly technological.

Speaker 2

Along those lines, we have been focusing on 3 pillars of growth: Imaging solutions such as cameras, growth in new markets such as automotive and the defense business, all of those Driven by our differentiating technologies, such as our proprietary materials. As previously outlined, one pillar of growth revolves around the defense business, increase driven mainly by leveraging our unique Al. To achieve significant growth and market share in that established defense market, While still commanding a preview, we're leveraging these exclusive materials for infrared imaging as an entry point into new programs And to become the supplier of choice for infrared optics in the aerospace and defense industry. One advantage of our materials is that they are an alternative to germanium, the dominant material used in lenses for infrared imaging. The DoD and the White House have identified germanium as a strategic vulnerability within the supply chain, With most of the germanium originating from China and Russia, alternatives are strategically important.

Speaker 2

China is the world's largest supplier and recently announced a limit on the exports of gallium and germanium. Our family of chalcogenide glasses branded as Black Diamond or BD is the leading alternative for germanium. In anticipation of this possibly happening and to mitigate the potential supply chain liability, We have been working with the DoD and various government agencies to accelerate the qualification and readiness of our new materials. Most of this work is funded directly by those agencies. Recently, we announced the U.

Speaker 2

S. Department of Defense Bayer, the Defense Logistics Agency, DLA, will provide the funding necessary to qualify our Black Diamond chalcogenide glass Al. These materials will be in addition to our BD6 material, which is already fully qualified And field deployed in multiple systems. The DLA funding will be made in 2 phases. The first phase of $250,000 is earmarked explicitly for 3 of LightPath's Black Diamond Glasses.

Speaker 2

The second phase is expected to cover the remaining 6 material and total approximately $1,000,000 While new defense contracts can take a significant amount of time to come to fruition, this is a very positive lead indicator to Al. This most recent announcement represents one of multiple fundings we have received to Al. Those funds Are not included in our published backlog numbers. Currently, we can produce up to 10 tonnes a year of BD materials. According to different public estimates, the U.

Speaker 2

S. Defense market consumes between 50 to 150 tonnes of germanium Annually for the use in optics alone. Therefore, we are also discussing with the DoD about the Possible increase in capacity. Our recent expansion in Orlando facility set the foundation for such a capacity expansion. Previously, our BD6 raw material would only be available in the form of finished Al.

Speaker 2

Optical lenses or integrated assemblies in our customers' solution. However, the time it takes to produce prototypes For new optical designs is one of the challenges to customers looking to make a change and to move away from germanium Al. So, to aid the market transition from germanium into the new materials, we will make our most popular glass, BD6, Available as raw material. Doing so will help accelerate the transition away from germanium. We are also mindful that export restrictions could have a short term adverse effect on sales of our products that currently use Germany.

Speaker 2

And that while the recent developments around our materials support significant growth in that area for LightPath, it does take about 2 years from the moment a system is redesigned until or a redesign starts until we see volume production orders. The second pillar of the growth strategy concerns the adoption of thermal imaging in more applications. And right now, primarily with a focus on automotive. In the last 2 to 3 years, we have been working with multiple automotive Companies at different levels of the supply chain to design, test and qualify thermal imaging as an additional safety sensor, Primarily for emergency braking systems. Those efforts are often independent of some of the other activities And advancements in automotive, such as LiDAR or autonomous vehicles.

Speaker 2

On May 29, the U. S. Department of Transportation Institute of Highway Safety announced their intention to set a rule Mandating emergency braking systems in all new cars and have explicitly Called out the gap in performance of those systems at night, naming thermal imaging as a technology that could solve this. Since this announcement, we have seen increased interest in those solutions and customers looking to possibly deploy those systems to more car models than originally discussed. We are very pleased to have had a 2 year head Start on many of the other players, time which we use to get field qualified by at least one major car manufacturer And established ourselves as an important player in this field.

Speaker 2

Our success in positioning ourselves in Al. This market has led to some of our customers, including and using our name in their proposals as a selling point. And in one case at least in one case, a car manufacturer specifically suggesting to potential vendor that they work with us. The ASP is between $20 to $50 per car. This can be transformational to the company.

Speaker 2

This technology relies on our infrared materials, molding technology and design and assembly at a subsystem level, All of which really providing a successful proof for our strategy to leverage those technologies to become a solutions provider. The 3rd pillar of growth, which ties directly into the first two, is our transition from a component manufacturer to provider of engineered solutions Based on optical technologies. This transition began a couple of years ago, starting with from customized lens assemblies, Which are what we tend to call LightPath 2.0. Through camera solutions, The first of which is our innovative Mantis Broadband Infrared Camera, which we announced in December and which is enabling our customers To do things they could not do before. The latest step in this transition is acquisition of Visumet Technologies.

Speaker 2

ViSument Technologies does to the back end of the thermal cameras what LightPath has been doing to the front end, the optics. Like LightPath's business model of customizing optical assemblies to be used in infrared cameras and then making the large profit in production, VISAMID has established itself as a go to for customizing the electronics and software part of uncooled infrared cameras. In fact, VISAMID has customized for LightPath the electronics and software of our Mantis camera. Together with Visumet, LightPath can now extend our offering of customized imaging solutions to include a wholly integrated camera core, Where the camera can be customized from its electronics, software and optics, producing an integrated calibrated camera core For OEM customers to integrate into their system. With Vizzomid, Our Engineered Solutions business will now have 2 distinct offerings.

Speaker 2

1 is the customized solutions, as I just described. The second is offering standard products that are derivatives of such projects, Which we can then offer to customers with little to no customization. An example of that is a new product we announced last week Al. Of a high frame rate thermal camera core, something that was developed by Vizimed some time ago and now we can offer it as a standard product. In short, the Visumid acquisition boosts not only our technical capability by adding more disciplines Such as electronics and software, but also brings with it a portfolio of designs we can commercialize Al.

Speaker 2

The complexity of those opportunities leads to the fact that some of them have the potential of Engineering charges of 1,000,000 of dollars per project. To conclude, we believe With our expanded manufacturing facility in Florida, the acquisition of Visabit and the recent developments in automotive and defense, We are well positioned to take advantage of the larger opportunities that lie ahead and continue transforming the company to grow Lastly, before I pass the mic over to Al, I would like to commend our team for the ongoing growth of sales in the U. S. We ended the fiscal year with a 19% growth, Al. 0.1 $9 growth in the U.

Speaker 2

S. Sales year over year. While this is not easily evident In the consolidated view, due to the sharp decline of sales in China, it is a major achievement in our Biggest and the most important market. And for that, I want to congratulate the team. It is the hard work And focus on execution that is positioning LightPath to deliver on the promises of our technology and capability And translate that into growth and shareholder value.

Speaker 2

With that in mind, I will now turn the call to our CFO, Al Miranda, review our Q4 year end financial results.

Speaker 1

Al? Thank you, Sam. I'd like to remind everyone that much of the information are discussing during this call is also included in our press release issued earlier today and in the 10 ks for the period. I encourage you to visit our website at lightpath.com to access the documents. I will discuss some of the primary financial performance metrics and On a consolidated basis, Revenues for fiscal 4th quarter were $9,700,000 compared to $8,900,000 in the year ago period.

Speaker 1

Sales of infrared products were $5,500,000 or 56% of the company's consolidated revenue. Revenue from Precision Molded Optics or PMO products was $3,200,000 or 33% of consolidated revenue. Revenue from specialty products were $1,000,000 or 11% of total company revenue. The increase in infrared products sales Was primarily driven by sales of diamond turned infrared products and is primarily attributable to customers in the defense and industrial markets. The decrease in PMO revenue is primarily attributed to a decrease in sales to customers in the telecom and commercial markets, Which partially offset by increases in defense and industrial customers.

Speaker 1

PMO sales in China continue to be soft across all Al. The increase in specialty optics during the quarter was a result of increased sales of custom visible lens assemblies to the medical industry. Gross margin in the Q4 of fiscal 2023 was approximately $3,100,000 An increase of 10% as compared to approximately $2,800,000 in the same period of the prior fiscal year. Total cost of sales was approximately $6,600,000 for the Q4 of fiscal 2023 compared to approximately $6,100,000 for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 32% for both the 4th quarters of fiscal Al.

Speaker 1

The mix of revenue by product group for the Q4 of fiscal 2023 was more heavily weighted towards specialty products With less PMO products, which typically have similar margins, all the percentage of infrared products was similar as compared to the same period of the prior fiscal year. Selling, general and administrative expenses were approximately $3,000,000 for the Q4 of fiscal 2023, An increase of approximately $223,000 or 8 percent as compared to approximately $2,800,000 same period for the prior fiscal year. The increase in SG and A costs is primarily due to increase in stock compensation And other personnel related costs, including commissions on higher sales. We also incurred costs of Approximately $140,000 in the quarter associated with the acquisition of Vizimed, which closed in July 2023. Net loss for the Q4 of fiscal 2023 was approximately $809,000 or $0.02 basic and diluted loss per share Compared to $1,400,000 or $0.05 basic and diluted loss per share for the same quarter of the prior fiscal year.

Speaker 1

The decrease in net loss for the Q4 of fiscal 2023 is primarily due to a favorable difference in the provision for income Our EBITDA for the quarter ended June 30 was approximately $72,000 Compared to $107,000 for the same period of the prior fiscal year. Decrease in EBITDA in the Q4 of fiscal 2023 Primarily attributable to increase in operating expenses, including SG and A and new product development, which were partially offset by higher revenue And gross margin. Turning now to our fiscal 2023 full year results. Revenue for the year was $32,900,000 a decrease of approximately $2,600,000 or 7% as compared to Al. Sales of infrared products were $16,700,000 or 51 percent of the company's consolidated revenue in fiscal 2023.

Speaker 1

Revenue from PMO Products was $13,400,000 or 41% of consolidated revenue. Revenue from Specialty Products was $2,800,000 or 8 percent of total company revenue. The decrease in Infraoid Products sales was Primarily driven by sales of BD6 based molded infrared products, particularly to customers in China Commercial and Industrial Markets. These decreases were partially offset by increased revenue from BD6 based products, Driven by customers in the defense industry, Sam mentioned earlier. Sales of diamond turned infrared products were nearly Flat for fiscal years 'twenty two and 'twenty three.

Speaker 1

However, there were shifts in customer mix. The decrease in PMO revenue is primarily attributable to a decrease in sales to customers in the telecom and commercial markets, Again, partially offset by increases in defense and industrial customers. Again, On a fiscal year basis, PMO sales in China continue to be soft across all industries. The increase in specialty optics during the year was a result of increased demand for collimator assemblies and increased sales of custom visible lens assemblies to the medical On a global level, revenue has shifted geographically as well as based on Product. Year over year sales increased in the U.

Speaker 1

S. By 19%, as Sam mentioned earlier. It decreased in China by 55% and Decreased in the EU by 27%. U. S.

Speaker 1

Sales can be attributable to our shift towards defense products And a positive economy. China's decline is similarly twofold, a poor economy and a lack of demand for telecom and industrial products In contrary, the EU decline is a little more nuanced. Germany, which is a large market for us and is a mild recession or flat. But the real decline is related to a key customer's Annual contract and the year over year timing of deliveries and therefore more transitory than really the trend that we're seeing in the EU. While the 19% growth in the U.

Speaker 1

S. Might not be easily evident when looking at our consolidated numbers, we do view it as a very important validation Our strategy and execution of the strategy. Gross margins in fiscal 2023 were Al. Approximately $11,100,000 a decrease of 6% as compared to approximately $11,800,000 in the prior fiscal year. Total cost of sales was approximately $21,900,000 for fiscal 2023 compared to approximately 23 Al.

Speaker 1

3% compared to 33% for fiscal 2022. The lower revenue level for fiscal 2023 as The prior fiscal year resulted in less contribution towards fixed manufacturing costs. Improving the gross margin at 34% at that lower revenue level reflects the benefit of a number of the operational and cost Al. Those improvements were partially offset by some elevated costs in the second Al. Half of fiscal 2023, as the construction and consolidation of the Orlando facility required us to temporarily outsource certain production Adding to costs.

Speaker 1

SG and A costs were approximately $11,400,000 for the fiscal 2023, an increase of 2% as compared to approximately $11,200,000 in the prior fiscal year. The increase in SG and A for fiscal year 2023, Primarily due to increase in stock compensation, partially due to director retirements that occurred during the Q2 of fiscal 2023, as well as increases in other personnel related expenses and the Busy Med closing costs mentioned. Net loss for fiscal 2023 was approximately $4,000,000 or $0.13 basic and diluted loss per share, Compared to $3,500,000 or $0.13 basic and diluted loss per share for the prior fiscal year. The increase in net loss for fiscal 2023 as compared to fiscal 2022 is attributable to approximately 927,000 Al. Our increase in operating or business loss from lower revenue and gross margin and increased operating expenses.

Speaker 1

Our EBITDA for fiscal 2023 was a loss of approximately $355,000 compared to income of 1,200,000 Fiscal 2022. The decrease in EBITDA for fiscal year 2023 is primarily attributable to lower revenue Margin coupled with increased SG and A expenses and a significant decrease in other income. As of June 30, 2023, we had working capital of approximately $14,900,000 and total cash, Cash equivalents and restricted cash of approximately $7,100,000 of which greater than 25% of our cash and Cash equivalents was held by our foreign subsidiaries. During fiscal year 2023, We had a lot of activity around cash management. 1st and most significantly, we had an oversubscribed equity raise in January, contributing 9 point $2,000,000 in cash.

Speaker 1

During the course of the year, we used cash in operations of approximately $2,800,000 cash burn. We invested $3,100,000 in capital expenditures in production, plant and equipment, predominantly in Orlando. In the normal course of business, we paid down $900,000 in debt. In addition, we used $1,000,000 to pay our debt Al. Renegotiate to remove onerous terms and conditions from our credit facility with BankUnited.

Speaker 1

Doing so also included using cash to secure the current loan, but simultaneously enable us to make the subsequent ViziMed acquisition, An important strategic move, as Sam mentioned. The last item of substantive note is the increase in accounts receivable of $1,400,000 Which occurred in Q4 and is directly related to $9,700,000 in sales for the quarter. Inventory also increased, Al. Particularly in WIP in the second half of our fiscal year, the increase in AR and inventory contributed to the aforementioned $2,800,000 of operating cash burn. Both AR and inventory will stabilize in Q1 and Q2 of fiscal 2024.

Speaker 1

That said, we feel well positioned on cash for the company's growth in fiscal year 2024. Lastly, the increase in backlog during the 1st 9 months of fiscal 2023 was primarily due to several large customer orders. On Such orders, dollars 4,000,000 supply agreement with a long time European customer of precision motion control systems and OEM assemblies. Shipments on these large orders began in the 4th quarter and was shipped during the following 12 to 18 months. This review of our financial highlights and recent developments concluded.

Speaker 1

I'll now turn the call over to the operator to begin the question and answer session.

Operator

Al. Al. Al. Our first question is from Brian Kinstlinger with Alliance Global Partners. Please go ahead.

Speaker 3

Hey, guys. This is Shervin on for Brian. Thanks for taking my questions and congrats on a good quarter.

Speaker 4

Thank you. I have

Speaker 3

a handful of questions. Starting off with Mantis, when do you expect evaluations to end and lead to production decisions? Do you have any greater visibility or confidence when production will

Speaker 2

Yes. So together with the Visumet acquisition now, we're getting a bit of a boost there Since some of their customers have interest in Ventus or even activities around that. So I would say, we This fiscal year to ship a couple of 100 of those, whether in different forms As a Mantis or integrated into other Visabit products, I think the biggest application we're seeing now in terms of The most significant upside is the fire detection or flame detection, in which is a $2,000,000,000 market Of optical flame detectors that exist and that Mantis can add a considerable value there Al. In improving the sensitivity and adding more functionality. So, it is a matter of teaming up with Some of those 1 or more of those vendors of the existing flame detectors, and ideally, one that has a large installed base that can roll out Al.

Speaker 2

I'd say this year, probably a couple of 100.

Speaker 3

Great. That's awesome to hear. So similar question, but when it comes to supporting autonomous braking systems, Are you working or looking to work directly with Tier 1s or the OEMs? And how long before significant adoption there? I know that Yes.

Speaker 3

Department of Transportation made that announcement, but are you seeing demand start to move as suppliers get ready?

Speaker 2

Yes. That's a great question. So, at this point, we're not working directly with Tier 1. We're working with integrators that then work with Tier 1, which is a place we kind of like to be in terms of Our exposure our liability exposure, but also The requirements needed from that. In terms of rolling out, we're there's the one Company that we've mentioned a couple of times that we're already qualified into them, and we're now in negotiation of a supply agreement And if that is the case, then this year meaning this fiscal year, towards the end of it, we'll start Al.

Speaker 3

Great. Also awesome to hear. Last couple of questions. Like you mentioned, government tends to move pretty slow. I know you mentioned one opportunity already within the DoD, but how do you think about the adoption of BD6 and other materials to replace dependence on germanium?

Speaker 3

Are there other opportunities Higher in the pipeline that are looking to replace germanium with BD6? And then I have another follow-up. Yes.

Speaker 2

So BD6 being already fully qualified and utilized It's already embedded in quite a bit of systems. The main interest right now is the new materials because Since none of the materials is a one to one replacement for germanium, you need more than one material, one type of material for that. Additionally, the new materials also offer advantages compared to germanium. So smaller systems Well, better performance in extreme temperature conditions are 2 of like the bigger the most important advantages we're seeing. I'd say that as far as I know, there are right now 2 major systems in the redesign process, With one of them, we're expecting to start receiving technical details in the next couple of months probably.

Speaker 2

So even though government does move slowly, there are cases where they're trying to accelerate it.

Speaker 3

Speaking of 1 to 1, you mentioned that right now you guys have the production capacity of 10 tons per year of the black diamond material Versus currently 50 to 150 tons of germanium are consumed per year. Thinking about tons, If you're weighing them both, would just 1 ton of BEG replace 1 ton of Germanium?

Speaker 2

Pretty much probably. Never thought about it that way. You'd probably need a bit more you'd need more of the Black Diamond to replace germanium Simply because germanium today has an advantage where the scrap from it can be recycled And regrown into a new germanium ingot where that technology does not exist today for the Black Diamond materials. That is one of the projects we are reviewing with DoD for DoD to finance that Because that will offer a substantial reduction in cost of the Black Diamond in the long term. But right now, without that technology, you would need more Black Diamond material to begin with to achieve the same number of lenses like Germane.

Speaker 3

That perfectly segues into my next question in terms of the DLA funding To qualify the other BD products, I know government, again, we said moves slow. How Soon are you expecting this first phase of funding? And then once you receive the funding, how long does it take to qualify the other BD products? And are there extended use cases Outside of BD6 with your other BD products?

Speaker 2

Yes, absolutely. So, government does move slowly, like you said. The DLA project has been a year in the making. So, it happens to be that it was signed and completed Right around the time China made the announcement of germanium, but probably more coincidence than the government suddenly moving quickly. Based on that, we actually started working on that project already a few months ago.

Speaker 2

So we have a head start. I would say, By the end of this calendar year, meaning in the next 3 to 4 months, we expect to be very close to finishing the first phase of the DLA. Of course, their payment to us is gradual along the way, so we don't need to wait until the end of it to Steve, the actual dollars. But probably towards Q1 of next calendar year, our Fiscal Q3, we will have already we will start shipping those materials out to customers To integrate into systems. That said, the urgency is very clear to a lot of customers And we are working very closely with customers to enable them to start already redesigning or designing Al.

Speaker 2

With those materials now without waiting for the final sort of formal Manufacturing readiness, MRL or TRL level that they need. And we do that by sharing with them data as we're measuring, As we're going through, as we're starting to produce more materials, and within reason, they can usually use that to already Fine tune or do 80% of their design work so that once the specs are locked in and everything gets done, They are already far advanced in their redesign process.

Speaker 3

Great. Thank you for answering all my questions. Really, really excited to see all these growth drivers kick in.

Speaker 2

Same here. Absolutely. Good to hear from you. Thank you.

Operator

The next question is from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Speaker 4

Hey, guys. Thanks for taking the question. Sam, curious, The last time we spoke, I believe you kind of had you were talking about the export controls of germanium that have been placed Goodbye, China. And just the idea that it hadn't really kicked in yet or whatever. So you're still kind of in a wait and see mode to see like what kind of supply you could get or what kind of Al.

Speaker 4

Can you just give us an update on that? And also while you're doing so, I believe you had some Long term contracts in place, some futures contracts on germanium and whatnot to kind of ensure your own supply for at least medium kind of term, can you give us an update on that as well? Thank you.

Speaker 2

Yes, sure. So to put it into perspective, we Consume about 1 tonne of germanium a year, which we buy from China, used to be some from Russia, from China In the form of what's called a pre generated blank, so a raw material that is shaped close to the silo's finished lens. And then we process it into a finished lens, coat it in time to assemble it, but it's part of either components or subsystems that we So even in our own case, we're not completely switched over to BD6 and everything. There are some cases where germanium is still needed. At this point, we started submitting The different export license is already in mid July to our vendors in China for the next shipments of germanium.

Speaker 2

The end users that they then submitted to the government got kicked back a few times, went back and forth, different changes in that

Speaker 3

Al.

Speaker 2

Started working on in mid July, will ship out of China in mid November. However, once they receive their It is an export license for all shipments related to that order. And since we secure Our supply of germanium for 1 year at a time, that means that at least for the next 6 months, 6 to 8 months, We should be able to get shipments from China under those export licenses, assuming we do receive them by mid November. I have not yet heard of anyone that has the export license that did not receive or had it denied, But yet I've also not heard of anyone that actually got approved yet. So to the best of my knowledge, No germanium has shipped out of China, at least in the segment of optics and The people we speak to since that started and mid November is probably the earliest it would be.

Speaker 4

Okay. And then you have supply up until about that point or beyond that as of what you have already?

Speaker 2

We actually have enough to keep going beyond that point.

Speaker 4

Right. And can you just give investors kind of a sense of like what the backup plan would be if something like that were to get Disrupted?

Speaker 2

Yes. I mean, to us, it would mean working closer with the customers, and it's It's an incentive for the customer to redesign their systems to use BD6. In a way, long term, such a disruption is good for us. Short term, it could mean a few $1,000,000 of revenue in a given 12 month period for us. So probably about 4 to 5, I would guess, something like that.

Speaker 2

But Al. There's a lot of effort going into and a lot of work going into ensure that, that does not happen and that there is a backup and The Speedy 6 or other Black Diamond work. There is also a stockpile of germanium at Defense Logistics Agency Strategic Materials But in the cases of projects that are for the DoD end use, we could tap into that Stockpile and purchased material from there.

Speaker 4

Right. Okay. Thanks for that. Is there imagine the next round of germanium, if it comes through, would be which I'm sure will, but if does. It would be at a higher price, I imagine, right now.

Speaker 4

So is there a possibility to turn that price increase to pass it along? Or is that So, we look in

Speaker 2

the prices for a year. So, we're already at our price given. There's no change to that. We've seen a little bit of indications of price increase. What we really the most disturbing part we're seeing there Is that when we ask for a quotation, the validity of the quotation is very short.

Speaker 2

So if in the past, you would get a quotation and you had a month to order at that Sorry, the vendors are now giving quotations sometimes with a week of validity, one vendor gives it with 3 days validity. So to me, it's an indication that they are seeing or expecting volatility in pricing, and they want to indicate and they want to commit themselves

Speaker 4

Okay, great. That's great color. Al, I'm curious about the Gross margin is, I look at it kind of on a sequential basis because I know Q3 had the issue where some shipments got pushed Al. Due to the finishing of the facilities revamps that you were doing. So one of the reasons That Q3 was viewed as a little lower, was because of lower Throughput through the facilities and whatnot.

Speaker 4

And I'm just curious that PMO was Flattish or but hair sequentially. So just maybe some color as to sequential rate of change as to why Gross margin has bounced back just a little bit even, given that the facilities are now up and running or maybe there's Some time for them to ramp up or something like that, you can give color would be great.

Speaker 1

Yes. So mostly what we ran into was that Although the facility was shut down in Q3, we outsourced The a lot of the infrared coating and that just came with high price, higher logistic costs, Which flowed into Q4. So we pushed everything out in Q4. We nearly caught up from the shortfall in Q3, but we did it at a price and we threw over time at it as well to catch up Customer orders. So it was a little disappointing for us, but we kind of knew that we were going to spend money to catch up and satisfy customer delivery dates.

Speaker 4

Okay. And then going forward, you have an expectation on The gross margin side to kind of trend a little better given the move into more specialty products and as those facilities are more mature or whatever, Just what's the thought process for gross margins looking ahead?

Speaker 1

Margins should continue to tick up at this current Q4 mix. Well, to be honest, I'd like to see the Q4 mix also become more favorable. So in Q2, I think the mix looks similar. And then in our Q3, I think we'll get a more favorable So higher expectations for margins in Q3 and Q4. So it's

Speaker 4

just Sorry,

Speaker 2

go ahead.

Speaker 1

Two things, it's the overall improvement and certainly the Orlando construction now being done, done We'll improve our results, but also a little bit more of a favorable mix in the back half of the year.

Speaker 4

And last one for me. On the China side, do you think that you're at a base level now that the decline is complete? Or are you concerned that there could be more Run off there.

Speaker 1

I thought we were at base level 12 months ago. Yes. Right. So Every time I say, it can't get worse, somehow, I mean, Unfortunately, if you read the news, I mean, there was a Bloomberg article today that just Is predicting complete doom and gloom scenario in China. I find it hard to believe that I'm rooting for the Chinese government here.

Speaker 4

Okay, great. All right. Well, thanks for the color everybody and have a good night.

Speaker 2

Thank you, Glenn.

Operator

The next question is from Scott Buck with H. C. Wainwright. Please go ahead.

Speaker 5

Hi, guys. I appreciate the time. Just kind of one for me at this point or maybe 1.5. Al. A follow-up on China.

Speaker 5

What does China represent now as a percentage of total revenue? And then The second half part of that is, Tim, how do you view China as a longer term target market?

Speaker 2

Yes. I'll answer the second part while the guide here of pulling up the data for the first one. I'd say that given that China is Al. Even with the customers we have left tends to be the lower end of the scale, meaning the commoditized parts, Still some telecoms there. It is probably not strategic for us in any significant way.

Speaker 2

I view China at this point as an investment that we have in manufacturing, a facility that we have on the books that we're Using the most that we can, but strategically, I'm not expecting to see anything significant coming out They're rather than the regular flow of product to the extent of which we can use that facility.

Speaker 5

Great. I appreciate that. And in terms of what China now represents as a percentage of revenue, do you have a ballpark?

Speaker 1

Less than 10, Scott.

Speaker 5

Less than 10. Okay. That's it for me, guys. I appreciate it. Thank you and congrats on the quarter.

Speaker 2

Thanks.

Operator

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

Speaker 2

Thank you, everyone, for taking the time today to follow LightPath Technologies. We appreciate the trust placed with us by our Stakeholders and look forward to future calls where we further discuss the fruits of our efforts to retool the business and move the company forward. Thank you and good night.

Operator

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

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Earnings Conference Call
LightPath Technologies Q4 2023
00:00 / 00:00