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LightPath Technologies, Inc. (LPTH)

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LightPath Technologies, Inc. (LPTH)

Q1 2018 Results Earnings Conference Call

November 9, 2017 4:30 p.m. ET

Executives

Jim Gaynor - President and Chief Executive Officer

Dorothy Cipolla - Chief Financial Officer and Corporate Vice President

Devin Standard - ‎Vice President of Corporate Development

Analysts

Brad Noss - ROTH Capital Partners

Zack Turcotte - Dougherty & Company

Gene Inger - Inger & Company

Michael Dyett - Private Investor

Shawn Boyd - Next Mark Capital

Presentation

Operator

Good day and welcome to the LightPath Technologies Incorporated First Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dorothy Cipolla, CFO. Please go ahead.

Dorothy Cipolla

Thank you and good afternoon. Welcome to LightPath Technologies Fiscal 2018 first quarter financial results conference call. Our financial results press release was issued after the market closed today and posted to our corporate Web site. Today's conference call 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 would be realized.

In addition, we will also be making 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 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 continued interest in LightPath.

I will open with an overview of operations results, highlights and recent developments and then we will turn the call over to Dorothy for more in-depth review of our financials. Following that, we will open the call to your questions. Now on to my remarks and perspective on our fiscal 2018 first quarter.

LightPath continues to make progress with the implementation strategies to deliver global, diversified growth and solid cash flow generation. Here are some of the highlights of the first quarter as compared with the year earlier period unless otherwise noted.

Revenue increased 51% to $7.6 million from $5.0 million, thanks in large part to the addition of ISP. Total cost and expenses as a percentage of our revenue continue to decline improving to 41% as compared to 49%. Net income increased 56% to $218,000 from $140,000. Adjusted net income which excludes the non-cash income or expense related to the change in fair value of our warrant liability, was $169,000 as compared to $97,000.

Adjusted EBITDA, which also excludes the warrant liability, was $1.2 million, up 99% from $619,000. The 12 months backlog was approximately $8.6 million as of September 30, 2017, as we continue to ship against our contract that will renew later this year. We made significant investments in our global growth initiatives and product development with capital expenditures in the quarter of $1.4 million. Cash flow provided by operations increased by 80% to $1.7 million as compared to approximately $922,000. And our strong cash balance at September 30, 2017 was $8.1 million.

In continuation from last year, we delivered significant growth in key performance metrics including revenue, profitability and cash flow. These results reflect the importance of our diversification initiatives implemented over the past few years, particularly in that consolidated revenues increased amid declining sales in certain vertical market which are traditionally some of our fastest growing areas.

Sales of infrared products, one of our two key product groups, increased by $3.1 million or 579% compared to last year, primarily due to the acquisition of ISP Optics Corporation in December of 2016. We believe the acquisition of ISP is a transformative event for the company, given its contributions to our consolidated financial results, which was evident in the first quarter. Longer-term, ISP bolsters our technology roadmap and market share expansion strategies.

We view infrared as a key product group because of the associated long-term attributes of addressing faster growing and larger markets. For our key product groups consisting of precision molded optics and other revenue lines, we experienced lower sales primarily reflecting prior inventory build in China and the United States by specific customers in the telecommunications and data communications industry. We are in the third quarter of this inventory correction, which historically takes three to four quarters to complete. Our customers are forecasting recovery in the telecommunications and data communication industry during the second half of our fiscal 2018 as China begins investing to upgrade its wireless networks to 5G.

We also see a shift from 100G to 200G speeds that is being driven by increases in video content, Internet of things, cloud computing and mobile broadband demand. Further, in 2019 and beyond the shift is expected to continue to higher speeds supported by 400G networks. Our non-recurring engineering or NRE revenue increased 95% to approximately $260,000. Included in NRE during the quarter were projects relating to new designs for a major customer for the 5G build out in China. So we are very excited by the growth potential this represents.

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