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LightPath Technologies, Inc. (LPTH)

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LightPath Technologies Inc. (LPTH)

Q3 2019 Results Earnings Conference Call

May 09, 2019 04:30 PM ET

Company Participants

Don Retreage - CFO

Jim Gaynor - President & CEO

Conference Call Participants

Marc Wiesenberger - B. Riley FBR

Gene Inger - The Inger Letter

Presentation

Operator

Good afternoon, and welcome to the LightPath Technologies Third Quarter 2019 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded.

I will now pass the call off to Don Retreage, Chief Financial Officer of LightPath Technologies. Please go ahead, sir.

Don Retreage

Thank you. Good afternoon. Before we get started, I would 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 and involve various risks and uncertainties that are discussed in the periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proved to be inaccurate and therefore, there can be no assurance that these results would be realized. In addition, references may be made to certain non-generally accepted accounting principles, or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases. Following management discussion, there will be a formal Q&A session open to participants on the call.

I would now like to turn the conference over to Jim Gaynor, LightPath's President and Chief Executive Officer. Please go ahead.

Jim Gaynor

Thank you, and good afternoon. Welcome to LightPath Technologies' Fiscal 2019 Third Quarter Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted to our corporate website. Following my remarks, our CFO, Don Retreage, will further review our financial results and provide more perspective on key areas. We will then conduct a question-and-answer session. But now on to my remarks. The first half of fiscal 2019, we experienced meaningful progress on our initiatives towards delivering sustainable improvements in long-term revenue performance, profitability and cash flow. Our fiscal 2019 third quarter results reflect broader economic conservatism as well as our changing product mix as we expand into stronger growth markets amid a competitive pricing environment for our legacy products. This affected key performance indicators for bookings and revenues, which clearly fell short of expectations in the fiscal third quarter but are reflective of our strategy to increase our penetration into the faster-growing market for infrared optics. Our strategy began implementation in large part in mid-fiscal 2017 and included our acquisition and integration of ISP Optics and related product lines, which are complementary to our investments in our next generation chalcogenide or Black Diamond IR precision molded optics products. As a result of our strategy, our product portfolio has become more diversified, including an important line of ISP Optics business, IR Optics. And by its nature requires longer cycle times and has historically produced lower gross margins.

LightPath's next generation chalcogenide-based infrared precision molded optics are being offered to reduce the related direct costs and cycle times of legacy IR materials while further developing our newly accessible market channels. Our investments in the development of this material are intended to allow us to address new and existing opportunities with more competitive pricing. Although our blended gross margins have continued to improve, at least during this interim period, we're seeing some needed increases in inventory related to our infrared optics business, particularly related to the continued infrared precision molded optics rollout.

The result, LightPath is well positioned in a growing and developing market and with a product portfolio that has become more diversified and complex. Today, we essentially have 2 primary sides of our business: Precision molded lenses, or PMO products, is our legacy business, which is slower growing and smaller now than our infrared or IR business. The PMO addressable market is estimated at about $300 million and grows at about 3% to 5% annually. The infrared addressable market is estimated at greater than $500 million, growing at about 7% to 10% annually. Each of these markets is impacted by seasonality and cyclicality.

On assessing the PMO markets in 2016, we made it very clear that our focus as a company was on leveraging our core competencies and experience in the PMO business to become more diversified optical technologies company through a transition into the infrared-driven operation. From that high-level strategic objective, we have delivered. In fact, our insights into the PMO industry in 2016 were impressive since we were seeing pricing pressure and economic conditions globally that have brought our financial performance metrics for this area of our business lower as compared with prior years. Meanwhile, in transitioning into an infrared-led business, we have made some incredible progress, along with some bumps along the road. Our work is not done. However, as we are developing a platform for sustainable revenue growth and cash flow generation. We have investing in and have allocated a lot of time to our transition and positioning for the future. We have been consistently assessing how our growth strategies are impacted by different market conditions. One of the major differences in our changing business is the longer delivery cycle, the infrared business has compared to our PMO visible business. It is more than twice as long and the effect of that was certainly demonstrated in our third quarter. This is why we are focused on the following 3 key initiatives.

Read the rest of this transcript on seekingalpha.com