LightPath Technologies Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 6 speakers on the call.

Operator

Welcome to the LightPath Technologies Fiscal Third Quarter 2024 Earnings. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. And I would like to now turn the call over to your host, Albert Miranda, Chief Financial Officer. You may begin.

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, 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 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 can 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 and associated disclaimers. Sam will begin today's call with an overview of the business and recent developments for the company. I will then review financial results for the quarter. Following our prepared remarks, there will be a formal question and answer session.

Speaker 1

I would now like to turn the conference over to Sam Rubin, Lightpath's President and Chief Executive Officer. Sam?

Speaker 2

Thank you, Al. Good afternoon to everyone. Welcome to Lightpath Technologies' fiscal Q3 2024 Financial Results Conference Call. Our financial results press release was issued after market close today and posted on our corporate website. Fiscal Q3 and additional developments in early 2024 continue to underscore our strategic shift from a component manufacturer, what we like to refer to as LightPath 1.0 to LightPath 2.0, a value added provider of assemblies and set the stage for LightPath 3.0, a custom infrared camera and manufacturer.

Speaker 2

To recap for our investors, Lightbar has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to value added partner for complete solutions based on optical technologies whose differentiators are mostly technological. As you likely recall, during our 1st fiscal quarter call 6 months ago, we stated that Lightpath was making a strategic decision to move away from germanium based business. And that as a result of that the company would likely see 2 slow quarters. The quarter we're reporting on today is the second of those two quarters And as expected, we're now on a recovery trajectory and on track to return to profitability during the next fiscal year. Together with the recovery in sales, we have also been working on multiple tactical initiatives that will assist in our return to profitability.

Speaker 2

One such initiative has been to finally complete the full integration of ISP Optics, which was acquired in 2017 into Lightfast ERP system. I don't think I need to explain why that is needed and its impact on efficiency and operation. It did however create some short term impact to our inventory value that also hit the cost of goods sold line for this quarter. I mentioned this just to provide the context of the lower gross margin and assures that this is a one time event related to finally completing that integration. In addition to finally completing the integration of the ERP entities, we have also taken a number of initiatives that improve our cost structure.

Speaker 2

In the last few months we have trimmed down our cost structure by over $1,000,000 and continue to do so with a few more project that are not yet complete. All of this is designed to hand in hand with the growth in top line bring us back to profitability. All of this has been on the tactical level and short term impact. I'll now discuss some of the strategic direction and longer term outlook of those. As has been the case since we started our strategic transition, we focus on 3 pillars of growth.

Speaker 2

1 is imaging solutions becoming a subsystem or camera provider. 2nd is growth in new markets such as automotive. And the third is growth specifically in the defense business. All three pillars of growth are driven by the unique and differentiating technologies. Chief among them are our Black Diamond infrared materials.

Speaker 2

Also all three pillars of growth tie into and support our transition from a component manufacturer to provider of engineered solutions based on our proprietary technologies. This transition begun a couple of years ago starting from customized lens assemblies, which we now refer to as LightPath 2.0. Through camera solutions, LightPath 3.0, the first of which was our innovative Mantis broadband inferred camera, which enables both new applications and capabilities for our customers. Demantis was our first major step in that pillar of growth of becoming a solutions provider of higher value products such as cameras, which we sell in the 1,000 of dollars versus the ASPs of components we were used to in the past. Further activities in that pillar of growth included the acquisition of Vizimit last year.

Speaker 2

Announcement of more additional cameras such as our high sensitivity camera with a ultra low noise of 15 millikelvin and hiring our new VP Sales, Jason Messerschmidt, who joined us from Teledyne FLIR, where he was responsible for $250,000,000 sales organization for infrared cameras. As mentioned, we strive to have every quarter some developments to report in each one of those pillars of growth and this quarter is no exception. The last point related to that pillar of growth is to share that in this third quarter the revenue attributed to Lightpath 2.03.0 including customized lens assemblies and camera solutions and engineering related engineering services accounts to 18% of our revenue, demonstrating our ongoing success and commitment to our strategy. The second pillar of growth is the defense industry. Here too there are multiple of important developments.

Speaker 2

First is that we have delivered on our first milestone in the Lockheed Martin missile program. In this project Lockheed Martin is competing against another prime defense contractor to develop an updated missile system. The project as we had previously reported includes in the short term a $7,500,000 development money, dollars 4,700,000 already committed, But most importantly, a massive, massive sales opportunity for us down the road in 100 of 1,000,000 of dollars over the lifetime of this program, if we successfully deliver the system and are chosen by the army. I will not elaborate more on this project right now since it is on track and there are no additional changes or updates to report on. For those that are not familiar with it, I'd encourage you to listen to our previous calls or press releases that discussed this project as we see it as a major growth driver in the next couple of years.

Speaker 2

In the defense side, we also announced last month availability of the first of the exclusively licensed NOL infrared materials. That material is BDML 4. This announcement has created significant interest from existing and new customers and we have in fact started booking already new orders almost instantly for this material. As a reminder, this is one of 9 new materials licensed exclusively from Innovate and the qualification of their manufacturing readiness is paid for by DLA through a grant. We expect to continue announcing new materials on a regular basis with the next one being BDML8 which we plan to announce in the coming weeks.

Speaker 2

Also announced around the same time is another major design win for our products, in this case our new materials. This new airborne program is for an optical system designed almost exclusively with our own exclusive materials. This program of record is separate from the Lockheed Martin missile program. I'd like to emphasize that in case there was any confusion. Those are 2 separate opportunities.

Speaker 2

Each one of them is very, very significant, significant in size. This is also has a significant potential almost as large as the Lockheed Martin opportunity. This program serves to demonstrate very well our strategy related to the new materials. It's a new system which is designed using our exclusive materials and which we end up building the entire optical system as a product. In our previous strategic Now because of the unique capabilities we developed, we get a much bigger piece of the pie and we own exclusively a key ingredient in that pie.

Speaker 2

Last in the defense pillar of growth is our recent award the European Defense Manufacturing License. This license that is similar to what ITAR is in the U. S. Allows us to now participate in European defense projects that are required to be designed and produced within the EU. Just like ITAR requires US defense projects to be designed and produced in the US.

Speaker 2

We received this license as a result of the investments we made in our Wrigg operation 3 years ago, adding coating capabilities and making it therefore vertically integrated and self sustaining. Or in other words, able to serve the European defense market completely locally. We also happen to have just completed and announced further expansion of that coating capacity and coating capabilities in Enrica, in what turned out to be a perfect timing for this growth now expected with this license. With the EU defense market growing at 12.5 percent to a record of $295,000,000,000 last year and the European Union publishing its first ever European defense industrial strategy, which among other things encourages cooperation and purchases in defense technology among EU members such as Latvia. We are now well positioned to substantially grow our sales in Europe through this.

Speaker 2

For comparison, our defense sales altogether have grown in the last few years from 8% of our revenue to 30% of our revenue, three-zero. Most of it, if not all of that growth has come from the U. S. Defense market. So the potential for growth from the European defense market is the solutions already fully qualified into one of the major car companies in the U.

Speaker 2

S, as well as have our products tested and evaluated by several others. Last year, we were on track to sign a significant supply agreement in the field, one that would be valued at tens of 1,000,000 of dollars a year. When some changes in the automotive market led our customer pause on that project. Part of the reason was an announcement by DOT, Department of Transportation, of the intention to mandate automatic emergency braking systems in all vehicle. As a result and understandably, car companies wanted to wait with any related decisions until DOT's ruling.

Speaker 2

A couple of weeks ago, Department of Transportation announced that starting in 2029, emergency braking systems will be mandatory in all vehicles and light trucks. As expected also, the new rule talks extensively about nighttime performance and the use of thermal imaging. The extended timeline of implementation which is longer than originally thought is said to be such in order to provide car and technology companies enough time to improve the nighttime performance of their system, systems altogether I'd say. This is great news for us. Not only are we significantly ahead of the pack on this, we already field qualified by 1 company from which we've learned a lot on that process and we're working closely with other companies.

Speaker 2

The timeline of 5 years for implementation also benefits us as it provides us now the time to evaluate the best way to approach scaling up our production for this market without distracting us from our growth or impacting negatively the growth in our 2 other major pillars of growth cameras and defense. In short, I think it's safe to say that this pillar of growth is now back to being active and the potential there has grown even further than we initially estimated. Last thing, I will update on infrared materials and replacing germanium. To recap, Lightpath has developed over the years and mainly over the last 2 years some exclusive unique materials that can be used instead of germanium in infrared imaging systems. These materials like the new BDML4 offer not only alternatives to germanium, but also improved performance in many applications.

Speaker 2

China announced on July 4 export restrictions on germanium and with China being the largest exporter of this material, this has become a big deal. Since then and even prior to that, we've been working diligently customers to have their systems redesigned to use our materials instead of chilmenium. These efforts are going very well and we're seeing strong adoption in the marketplace. As we indicated, when we reduced the amount of germanium work 6 months ago, our manufacturing is now being filled with those new non germanium products, which not only have lower supply chain risk, but also better margins for us. One hurdle for long term adoption of Black Diamond Glass over germanium has been the lack of a recycling process for these type of materials, which drives up its overall lifetime cost.

Speaker 2

We're happy to announce that earlier this week, our efforts to kick start development of the recycling process has taken root with Usimuth College and University of Central Florida, where the U. S. Department of Defense via Americom would fund this effort. Developing a recycling capability now will pay back down the road as more and more black diamond glass is used and more scrap and leftover materials will be available for recycling. We expect this to help drive down the long term costs of adopting thermal imaging in mass market applications such as automotive.

Speaker 2

And as always, I would like to thank our employees and stakeholders who have continued to work diligently through the various transitions and hurdles we encountered. The efforts I described earlier to continue to drive down our cost structure all driven by our team and would not happen without them and for that I thank them greatly. We see a bright future ahead and a growing company because of the dedication, patience and hard work of the team. With that, I will now turn our call to our CFO, Al Miranda to review Q3 financial results. Al?

Speaker 1

Thank you, Sam. I'd like to remind everyone that much of the information we're discussing during this call is also included in our press release issued earlier today and will be included in the 10 Q for the period. I encourage you to visit our website at lightpath.com to access these documents. I'll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company. On a consolidated basis, revenues for the fiscal Q3 were $7,700,000 compared to 7,400,000

Speaker 3

dollars in the year ago period.

Speaker 1

Sales of infrared components were $3,600,000 or 47 percent of the company's revenue in the fiscal Q3. Revenue from visible components was $2,700,000 or 35% of revenue. Revenue from assemblies and modules was $800,000 or 10% of total company revenue. Revenue from engineering services was 0 point $6,000,000 or 8% of total company revenue. Infrared component sales increased approximately $500,000 or 16%, primarily due to an increase in shipment against an annual contract for an international military program.

Speaker 1

This contract was also renewed during the Q1 of fiscal 2024 for a higher dollar value than the previous contract. Visible component sales decreased approximately $400,000 or 13%, primarily due to a decrease in sales to customers in the defense and medical industries and sales to customers in the telecom industry in China. Assembly Solutions revenue decreased approximately $200,000 or 16%, primarily due to timing of shipments against the multi year contract with a defense customer, partially offset by the addition of ViziMed revenue. Engineering services increased approximately $400,000 or 2 11 percent, primarily driven by ViziMed's contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones. Gross margin in Q3 of fiscal 2024 was approximately $1,600,000 a decrease of $900,000 or 37% as compared to the same quarter the prior fiscal year.

Speaker 1

Total cost of sales was approximately $6,100,000 for the Q3 of fiscal 2024 compared to approximately $4,900,000 for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 21% the Q3 of fiscal 2024 compared to 34% for the same quarter of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to 2 main factors. 1st, the decrease in visible component sales offset by an increase in AR component sales, which typically have lower margins than visible components. 2nd, the quarterly revaluation of inventory and standard cost resulted in several $100,000 of cost taken to the income statement.

Speaker 1

A little more color on this event. This was not a normal quarterly review. This was the result of physically consolidating the Orlando manufacturing into 1 building 2 events removed manual handling steps and quality inspection steps that simply do not occur anymore. Therefore, the process change along with some raw materials and outside service cost reductions decreased the standard manufacturing and thus brought down the inventory values. Selling, general and administrative costs were $3,200,000 for the Q3 of fiscal 2024, an increase of approximately $412,000 or 15% as compared to approximately $2,800,000 in the same quarter of the prior fiscal year.

Speaker 1

The increase in SG and A cost is primarily due to an increase in wages, including the addition of employees with the acquisition of VisiMed. We also incurred additional legal and professional fees in the Q3 of fiscal 2024 associated with the rescheduled annual meeting and the Delaware Chancery Court proceedings. EBITDA, a non GAAP financial measure, is helpful for investors to understand our underlying business operations. Our EBITDA for the quarter ended March 31, 2024 was a loss of approximately 1 point $5,000,000 compared to $242,000 for the same quarter the prior fiscal year. The decrease in EBITDA in the Q3 of fiscal 2024 was primarily attributable to lower sales and gross margin, coupled with increased operating expenses.

Speaker 1

Turning to results for the 9 months ended March 31, 2024. Revenue for the 1st 9 months of fiscal 2024 was $23,100,000 a decrease from $23,200,000 in the same period the prior fiscal year. Sales of infrared components were $11,000,000 or 48 percent of the company's consolidated revenue in the 9 months ended March 31. Revenue from visible components was $8,100,000 or 35 percent of consolidated revenue. Revenue from Assembly Solutions were $3,100,000 or 13 percent of total company revenue.

Speaker 1

Revenue from Engineering Services was $900,000 or 4% of total company revenue. The 1st 9 months of the fiscal year, Infraway component sales increased almost $1,400,000 or 15%. The increase in infrared component sales was primarily due to an increase in shipments against an annual contract for an international military program. Visible component revenue decreased approximately $2,100,000 or 21%. Again, this is primarily due to decrease in sales to customers in the defense industry and sales to customers in the telecom industry in China.

Speaker 1

Assembly Solutions revenue was flat at approximately $3,100,000 both periods, primarily due to timing of shipments against a multiyear contract with a defense customer, which was partially offset by the addition of the VisiMed revenue. Engineering services increased approximately $600,000 or 2 13%, primarily driven by VisiMed's contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones as well as revenue from one of our space related funded research contracts. Gross margin as a percentage of revenue was 26% for the 1st 9 months of fiscal 2024 compared to 34% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue for the 1st 9 months of fiscal 2024 is driven by the aforementioned factors impacting gross margin for the Q3 of fiscal 2024, of which nearly half was due to the standard cost changes in Q3. SG and A costs were approximately $8,700,000 for the 1st 9 months of fiscal 2024, an increase of approximately $263,000 or 3 percent as compared to approximately $8,400,000 in the same period the prior fiscal year.

Speaker 1

The increase in SG and A cost is primarily due to an increase in wages, partially offset by a decrease in stock based compensation. The company also incurred approximately $97,000 of cost associated with the acquisition of ViziMed, which closed in July 2023, as well as additional legal and professional fees in the Q3 of fiscal 2024 associated with the rescheduled annual meeting and the Delaware Chancery Court proceedings. Other income for 1st 9 months of fiscal 2024 includes a gain of $190,000 for the return of funds previously misappropriated by the company's former Chinese management team as a result of the legal proceedings there. EBITDA for the 1st 9 months of fiscal 2024 was a loss of approximately $2,400,000 compared to $427,000 for the same period of the prior fiscal year. The decrease in EBITDA in the 1st 9 months of fiscal 2024 was primarily attributable to lower revenue and gross margin, coupled with increased operating expenses and partially offset by the aforementioned other income of the company's Chinese subsidiary.

Speaker 1

As of March 31, 2024, we had working capital of approximately 7,800,000 dollars and total cash and cash equivalents of approximately $3,000,000 of which greater than 50% of our cash and cash equivalents was held by our foreign subsidiaries. Cash provided by operations was 450 $6,000 for the 1st 9 months of fiscal 2024 compared to cash used in operations of $920,000 for the same period of the prior fiscal year. Cash provided by operations for fiscal 2024 was largely driven by decrease in accounts receivable as sales were higher in the Q4 of fiscal 2023 than each of the previous quarters. Capital expenditures were approximately $1,900,000 for the 1st 9 months of fiscal 2024, compared to approximately $2,300,000 in the same period of the prior fiscal year. The spending in the 1st 9 months of fiscal 2024 is largely driven by the Orlando facility expansion.

Speaker 1

We also expended approximately 847,000 acquired to acquire Vizumed during the first half of fiscal twenty twenty four. Our backlog at March 31 was approximately $22,000,000 a decrease of 17% as compared to 26 point $6,000,000 as of March 31, 2023. Compared to the end of fiscal 2023, our total backlog increased by 1% during the 1st 9 months of fiscal 2024. The decrease in backlog as compared to March 31, 2023 is primarily due to shipments against several annual and multiyear contract renewals, which orders were added to the backlog in prior periods. In previous years, we've typically received significant contract renewal from our largest customer for infrared products made of germanium during the 2nd fiscal quarter.

Speaker 1

However, as previously disclosed and Sam touched on earlier, we've decided to reduce the amount of optics we produce from germanium, both to reduce our risk of supply chain disruption and more importantly to work with customers to convert their systems to use optics made of our own black diamond materials. As such, the Q2 of fiscal 2024, we did not book our typical annual renewal order for germanium with this customer. Instead, we continue to work with this customer as well as other customers to convert their systems to Black Diamond optics. The timing of multiyear contract renewals are not always consistent and thus backlog levels may increase substantially when annual and multiyear orders are received and decrease as shipments are made against these orders. Lastly, as Sam mentioned, we have begun the realignment process to shift resources towards WhitePath 2.03.0.

Speaker 1

The realignment has three elements. First, reducing overhead in manufacturing and shifting production employees toward new products. 2nd, reducing G and A expenses in most areas and increasing expenses for product development and marketing and lastly consolidating our manufacturing footprint in China. We began these efforts in Q3 and will continue in Q4. In Q4, we expect non recurring expenses related to these activities.

Speaker 1

We anticipate the lower costs to begin in Q1 and be fully realized in Q2. With this review of our financial highlights and recent developments concluded, I'll now turn the call over to the operator to begin the question and answer session.

Operator

Our first question comes from Glenn with Ladenburg Thalmann.

Speaker 4

Congrats on all the progress. A lot going on, as you guys both referenced. The particularly interested in the second defense program for the new BD and L material. I know the press release that came out, I guess about a month ago, talked about 150,000 lenses and existing program record. Can you give us a little more detail as to what that is going into and maybe like the timeframe of when do you think that stuff might start and how long of a contract that might be?

Speaker 2

Yes. So absolutely. I think the number of 100 and 50,000 lenses is definitely correct. But things have changed a bit since then for the better in a sense that we're now going to build the complete system. So we're not going to be selling them as 150,000 individual lenses, but rather build it into, I think it's something like 30 systems, roughly 5 lenses of systems, something along that line.

Speaker 2

I don't know yet the price per unit for that. So I can't comment on that, but it's a pretty complex assembly. So it's not going to be insignificant, let's say. I do note that the development part of it is started now and it's going to be probably a year is what we're looking into. In a year's time or so, prototypes followed by LRIP, low rate production.

Speaker 2

And then if all successful, starting rolling out to 30,000 systems, which would probably take a few years, I'd say most likely over 5 to 8 year period for the entire project, since this is an upgrade to existing aircrafts and therefore needs to be done gradually as aircrafts come in for service. I think that's about what I can share at this point.

Speaker 4

Yes. No, that's very helpful. 2nd, just quickly, I'll move on to the highway safety stuff. Since that came out, has there been I realize it's really recent, but have you been back in touch with some of the automotive customers? And just what's your thought in terms of when they would have to like sign on with projects in order to like begin to ramp and all that stuff?

Speaker 4

And would you expect some people to kind of get it rolled out earlier than the mandated timeframe and all that kind of stuff would be great?

Speaker 2

Yes, definitely communication has picked the back up, including the large customers that went into sort of hibernation for a while. I'd say that at first the communication was mainly all of us high fiving each other on the success of getting this in. Well, I mean, we're all very excited, right? Besides the business prospect of it having better safety on the roads is something for all of us. I'm pretty sure that at least 2 companies that are already in a fairly advanced stage are not going to wait until then to start rolling it out.

Speaker 2

What is probably more likely and this is just my assumption right now, not based on much is that they will start rolling out some systems like that in a couple of selected models or so to start getting more data, more experience with it. And the 5 year timeframe gives all of us in time to take that data, take that feedback, fine tune it, fine tune the system and so that by the time it actually does hit the road on the mandated date, it's a far better system. And that's really the intention of DOT, I think. If you read through the rule, they very specifically call out there what are the areas in terms of the nighttime performance that need to be improved. They even talk about the testing subjects need to now emit heat so that the thermal imaging cameras would see them, things like that.

Speaker 2

So there's quite a bit of work to do that. For us, it's really good. A short timeframe means we would have to throw a lot at it now and it would significantly distract us from many other areas of growth. The longer timeframe lets us do it right, lets us possibly look for a partner to work with on this. There's a lot of very good options going forward now.

Speaker 4

Yes, that's great. Thanks for the updates, Dan, and congrats again.

Speaker 2

Thank you.

Operator

Our next question comes from Jason at Lake Street Capital.

Speaker 5

Hey, guys. Thanks for taking my questions. Just want to start with gross margin in the quarter. Appreciate all the color that you provided. I guess a 2 part question.

Speaker 5

What would gross margin have been without that inventory write down? And then how should we think about margin or returning to a more normalized level going forward?

Speaker 2

That's you.

Speaker 1

Sorry, Jason, I hear the second part of that question.

Speaker 5

Just how we should think about gross margin going forward?

Speaker 1

So guess it was several 100,000 was the adjustment. So if you apply that to $7,700,000 in sales, if we do the math on it, we get into roundabout 30% without the inventory cost adjustment. And margins should be in the low 30s the next couple of quarters. As we shift towards 2.03.0, we expect that to go up.

Speaker 5

Okay, perfect. And then just following

Speaker 1

I would say I'm going to qualify that and say independent of non recurring expenses because I did give you a heads up that we you're going to see some non recurring expenses in Q4 as we drive more cost out of the organization.

Speaker 2

Jason, did we lose you?

Speaker 5

All right.

Operator

I think that's the end of that question. All right. Looks like there are no further questions. Jason is back. One second.

Speaker 5

Hey guys, sorry about that.

Speaker 4

Just following

Speaker 5

up on the auto opportunity, just to clarify, you guys won't have to be requalified. It is in the new spec. It sort of just progressive. Your current relationships just continue to progress. Is that fair?

Speaker 2

Yes. I mean, for that specific customer, right, every design is different for every customer. Every customer does their qualification process, right? That's a given in the OTTA world. If that specific customer chooses to continue with the system that we're working in, that we're qualified in, then we do not need to get requalified.

Speaker 2

I don't know yet if that customer is simply going to brush off the dust now and go back to that exact same system or if that customer will say, well, you know what, this now gives me time to redesign my entire car, redesign everything and therefore we're back to square 1. In any case, it does give us a tremendous advantage since we've already shipped a large number of those, had them in the field, have them tested. So there's quite a bit of credibility and learning curve behind that.

Speaker 5

Got you. No, that's really helpful. And then just the last one from me and I'll jump back into queue. The European defense manufacturing license seems pretty significant. Just curious the timeline you're thinking about as far as when it really will have an impact.

Speaker 5

I assume you've been assuming you would get this and does this mean that you could see a quicker impact or will this take some time as you kind of start to negotiate with these agencies? Yes. We applied for it to

Speaker 2

when it was when we received it. And I guess everyone sort of knew it would take exactly 12 months to the day, something in its bureaucracy or whatever. So to that extent, I know that we have at least 2 customers in Europe, 2 large defense companies in Europe that have started working with us in anticipation of us receiving it. So at least from those two customers, I can say with a very high degree of confidence that all is coming shortly related to that. With others, it might take longer.

Speaker 2

Question is, it's always like in those defense businesses, do we step into an existing program and get qualified as a vendor for something that was already designed and done? Or do they choose us for new programs and then a 2 year cycle or whatever in those cases? I am pretty sure that it will be more of the first one. We're going to get stepped in and qualified into existing programs because the growth of the defense spending in Europe has been so tremendous and the supply chains are so, so strained that I think they're going to welcome having new suppliers for even existing programs, which works great for us. It's very positive.

Speaker 2

Okay. Thank you.

Operator

Our last question comes from Gene with ingerletter.com. Please ask your question.

Speaker 3

Yes. Hi, Sam and Al, and thanks for your continuing hard work to develop this company, big transformation. I hopped on the call a little bit late. I've been under the weather. But in any event, I don't know if you expanded much on the potential from the Lockheed situation.

Speaker 3

I realize there's a competing prime contractor there. If not and the extent to which it at least introduces you to other projects in the realm, perhaps you can expand on that. And I'd also like you to update us, if you didn't already, on what's going on in the world of space communications.

Speaker 2

Okay. Yes, definitely a lot there. And welcome, Jean. Sorry to hear you're feeling sick. On the Lockheed, we updated that we delivered on the first mile stone on time, full performance, which is great.

Speaker 2

We didn't update much more after that since nothing has changed significantly. So we're still looking at the same time frame. We're still looking at the same massive 100 of 1,000,000 of dollars in start setting up production start setting up production even within this year ahead of time here in Orlando. And that is something we started working on, but I don't have much to report on that yet. Asking about did it open up other opportunities, that's actually a pretty good question because it did open up already for us additional programs in Lockheed.

Speaker 2

As expected, also defense contractors tend to take a core technology that's developed and try and use it on multiple platforms. And this is no different. And we have some additional programs that we're in, in Lockheed that are in the R and D stage. And we're hoping that in the next 6 months, at least 1 or 2 of them transition to become program of records and we'll be able to talk about it. But it's pretty similar in a sense of doing similar product, similar core technology of LightPath.

Speaker 2

The optical communication in space going really well. Our prime customer there has, I think, increased their order. I'm assuming it means that they're delivering more satellites. We don't know exactly full details. Everyone is a bit tight lipped and understandably on that.

Speaker 2

There's a couple of other projects. There's a small development project that we have that is more related to quantum encryption of optical communication, same free space optical communication and a few other things. But I'd say we are on a good steady rate of delivery and very good performance by our team on our biggest space program for optical communication.

Speaker 3

And perhaps all you need to do is change the name of the company to LightPath AI and people will finally find you.

Speaker 2

Yes, I can try that. That's like back into the dotcom area where everyone just added .com to their name, right?

Speaker 3

Including mister.com, the fat German guy.

Speaker 2

I'm not familiar with that, yes.

Speaker 3

Oh, it's true. And at one point, he controlled more domain names than anybody in the world. In any event, no, I think what you're doing is great. I think it doesn't take a rocket scientist, which a friend of mine happens to be, but it doesn't take a rocket scientist to recognize what Lockheed does in Orlando and it's basically one division, which is called Missile and Fire Control. So I suppose you can't get more specific, but I have a rough idea what they work on there.

Speaker 3

And certainly, there's a need and quantity for things like infrared camera modules and target acquisition sensors and what have you.

Speaker 2

Yes, absolutely. I think one with a bit of diligence and digging in Google can also find what programs Lockheed got awarded and it's working on to connect the dots.

Speaker 3

On the space scenario, what I'm talking about is also the idea of whether there's any recurring annuity style revenues from developing communications within a constellation, whether it's for cellular, whether it's for a defense network. Obviously the encircling StarLink or anybody else, they're going to encircle the globe and they have to have downlinks to various points on earth. And if you're doing a one time sell of equipment, it's not the same as something that produces residual income.

Speaker 2

Well, I can share with you that the positive thing here is that the lifetime of those satellites is pretty short. And I believe that those satellites, if you look at Starlink as an example, I think they publicly talked about the roughly 2 year lifetime of a satellite. So, while it is not a recurring revenue, as I would love to have like a license and just a piece of software that you write once and keeps paying back, it is a recurring revenue in a sense that even when the constellation is fully deployed, we're going to need to provide optics and assemblies there and everything we provide on ongoing basis to replenish the satellites that burn out.

Speaker 3

You're basically saying you're not in a position to provide back face management, if you will, of these systems, which would be a recurring revenue approach. And that is AI.

Speaker 2

Yes. In this case specifically, in this program specifically, what we provide is a glass, the hardware.

Speaker 3

Well, and I hope it develops very well. And by the way, one quick question, which might be odd and then I'll jump off, which is, I saw that there's a new photonics department created at UCF. When I logged in, I heard first thing I heard was something about UCF and a joint project. Is that you? And I know that there was an electronics department, Eisenhoff, whatever his name is, was the co founder of Luminar, which you may have provided lenses to.

Speaker 3

And but is this the same thing or is this a whole separate department, which they and University of Arizona in Tucson appear to be the only places working on this? Yes. Well, with

Speaker 2

other organizations. This is not related to that. With other organizations. This is not related to that. This is a collaboration with Doctor.

Speaker 2

Kathleen Richardson, who is part of Creole School of Optics and has been for many years. And she's a well renowned expert on the field on infrared glass and is a very important collaboration in which DoD is spending $1,200,000 with us and other members of that collaboration to develop this recycling technology, which down the road will help significantly reduce the cost of the materials. Germanium has an advantage where 30% of the material roughly that gets scrapped or is left over in production and so on gets recycled. So you can sell back the leftover germaniums that you have for $0.01 from the dollar. And then that gets thrown in and added into the next batch of germanium that is grown.

Speaker 2

We're trying pretty much to do the same with the chalcogenides with our black diamond glass. And that means that down the road, it would drive price down quite a bit.

Speaker 3

While we're at it, could I quickly ask whether you have any involvement in plasma channel laser systems, which were bandied about for years, never made progress, but supposedly the military is not only making progress, but starting to equip ships with it. And I wonder if you're involved.

Speaker 2

It is possible. To be honest, I don't know. We provide a lot of infrared optics to a lot of different players. I don't keep track of every single project. If we do it from the level of the components, I'm not aware of involvement in the level of engineering or subsystems that we have in that.

Speaker 2

Our subsystem and sort of solutions, if you would, products all evolve around imaging.

Speaker 3

So you're not involved in, for example, even in Israel in something like iron beam?

Speaker 2

Maybe we are, maybe we aren't. If we are, it's on the component level.

Speaker 3

I got you. I appreciate it. Good luck, guys. I know this is all taking time. Appreciate it.

Operator

At this time, there are no further questions. I'd like to turn it back over to our moderator, Albert Miranda, for closing remarks.

Speaker 2

Okay. Thank you, everyone. Sam will make the closing remarks. And thank you, everyone, for taking the time to follow Lightpath Technologies. Really appreciate the continued trust you place with us.

Speaker 2

We're on a long journey, and we're making good progress. We're on a turning point right now, and the coming quarters are going to be critical. And we're going to be seeing some of the fruit of the efforts start to come to fruition and deliver results. Thank you and good night.

Operator

This concludes today's conference call. Thank you for attending.

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Earnings Conference Call
LightPath Technologies Q3 2024
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