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LightPath Technologies, Inc. (LPTH)

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LightPath Technologies, Inc. (LPTH)

Q2 2017 Earnings Conference Call

February 14, 2017 16:30 ET

Executives

Dorothy Cipolla - Chief Financial Officer

Jim Gaynor - President and Chief Executive Officer

Analysts

Matt Koranda - ROTH Capital

Gene Inger - Ingerlettter.com

Presentation

Operator

Good afternoon and welcome to the LightPath Technologies Second Quarter 2017 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. I would now like to turn the conference over to Dorothy Cipolla, LightPath’s CFO. Please go ahead, ma’am.

Dorothy Cipolla

Thank you and good afternoon. Welcome to LightPath Technologies’ fiscal 2017 second quarter financial results conference call. Our financial results press release was posted to our corporate website earlier than planned due to an administrative error. Upon learning of this, we expedited the issuance of the earnings press release publicly through the wire service, which occurred prior to the close of market.

Moving on, our conference call today will be hosted by Mr. Jim Gaynor, President and Chief Executive Officer. Following management’s discussion, there will be a formal Q&A session open to participants on the call.

Before we get started, I would like to remind you that during the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any of them can prove to be inaccurate and there can be no assurance that the results will be realized. In addition, we will also make a reference to certain non-generally accepted accounting principles or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in our SEC filings and press releases.

With that out of the way, it’s now my pleasure to introduce Mr. Jim Gaynor, President and CEO of LightPath.

Jim Gaynor

Thank you, Dorothy and welcome to everyone who has joined us on the call today. We appreciate your interest in LightPath. I will open with an overview of operational results, highlights and recent developments and then will turn the call over to Dorothy for a more in-depth review of our financials. Following that, we will open the call to your questions.

The most important development that took place in the second quarter is the acquisition of ISP Optics. I would like to once again publicly state how excited we are to have made this acquisition and welcome the many talented people within that organization to the LightPath family. As part of making this acquisition, we took out a bank loan and raised equity capital. So, I want to welcome our new stakeholders, many of which are institutional investors and thank them for their support of our growth initiatives. Also participating in that equity raise were members of LightPath’s Board of Directors and Executive Management who all along has been committed to our success.

The financial results for our fiscal 2017 second quarter better out the successful execution of organically driven growth strategies developed by our leadership team and the addition of ISP demonstrates our ability to make strategic opportunistic acquisitions. The acquisition closed on December 21, 2016 setting in motion the transformative event for LightPath. With the addition of ISP, we have positioned the company for accelerated long-term growth in revenues and profitability with comprehensive capabilities at a time when our target markets are increasingly demanding infrared and other optical components.

In our fiscal 2017 second quarter, we consolidated the results of ISP Optics for only 10 days. So, we have not seen the full impact of its contributions. However, in the second quarter, we reported double to triple-digit growth in numerous operating performance metrics and achieved very high levels for quarterly revenue, operating income, net income, adjusted EBITDA and period-end backlog and cash balance.

Here are just a few of the highlights. Second quarter revenue increased 39% to $5.9 million, which is consolidated for all our businesses. Excluding ISP, our core revenue growth was still very strong with a 26% increase from the prior year. Gross margin was 56% as compared to 54% for all of fiscal 2016. Total operating expenses as a percentage of revenue improved to 33% in the quarter from 41% in the same period in fiscal 2016. Along with the expense management performance improvement, we increased spending on research and development for new products by 60% and this comes after an 80% year-over-year increase in the first quarter.

Second quarter operating income was $1.3 million, an increase of 119% from last year’s second quarter. Net income was $1.1 million compared to a loss of $536,000. Adjusted EBITDA, which excludes the non-cash income or expense related to the change in fair value of the company’s warrant liability, was $1.4 million in the second quarter of fiscal ‘17, an increase of 85% as compared with the $739,000 in Q2 of fiscal ‘16. The 12-month backlog was approximately $12.4 million at December 31, 2016 compared to approximately $5.8 million at September 30, 2016 and $6.6 million at June 30, 2016.

And finally, our cash balance at December 31, 2016 was $5.7 million, an increase of 95% compared to June 30, 2016. LightPath’s base business was very strong for our fiscal 2017 second quarter with continued momentum within telecom, industrial tools and molded infrared business lines. Revenue reached the highest level of quarterly revenue in the company’s recent history. The revenue growth reflects our ability to diversify our product lines at end markets which has been a competitive strength.

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