Good afternoon and welcome to the LightPath Technologies Fiscal 2021 Third Quarter Financial 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.

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, including the impact of COVID-19 pandemic that are discussed in this periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable. Any of them can prove to be inaccurate, and therefore, there can be no assurance that the 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's discussion, there will be a formal Q&A session open to participants on the call. I would now like to turn the conference call over to Sam Rubin, LightPath's President and Chief Executive Officer. Sam Please go ahead.

Thank you and good afternoon. Welcome to LightPath Technologies fiscal 2021 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 Donald Retreage will further review our financial results and provide more perspective on key areas. We will then conduct a Q&A session. For those of you who have been following closely the company you know that the past nine months or more have been following closely the company hat the past nine months or more have been marked by changes designed to position LightPath for growth. I'm very pleased to report that our long term growth plans are beginning to yield their intended results, and seen the stronger results for the quarter, including the highest level of quarterly revenue in our history. This marks the second consecutive quarter, in which we set a new record for quarterly revenues, and we continue to deliver double digit growth rates on annual terms. In the nine months since the beginning of our fiscal year, we won over 15 new business contracts, including 16 from new design wins. This supports both our new strategic direction of being a partner for solutions, as well as our goals to diversify our customer base and reduce our customer concentration. With reflection I was appointed CEO of LightPath, a little more than a year ago. The onset, my initial focus was to assess the company's strengths, weaknesses, opportunities and leadership capabilities as they relate to our strategy forward. Once we completed the initial assessment, we began implementing our new strategy with an orientation towards becoming a valued and trusted photonics partner in the form of providing engineered solutions, which goes well beyond serving as a component manufacturer. As…

Thank you Sam. First, I'd like to mention that much of the information we're discussing during this call is also included in a press release issued earlier today. And in our 10-Q filed with the SEC. I encourage you to visit our website at LightPath.com specifically the section titled Investor Relations. Now onto my remarks pertaining to the fiscal 20 21 third quarter and nine months ended March 31, 2021. Sam's remark covered the highlights of the changes that came in form of strategies designed to position LightPath for growth. I will be specifically discussing some of the key financial performance areas. Revenue for the third quarter of fiscal 2021 was 10.7 million of 8% sequentially from 9.9 million in the second quarter of 2021, and an increase of 23% as compared to 8.7 million in the second quarter of 2020. Revenue for the first nine months of fiscal 2021 was 30.1 million, an increase of 4.2 million, or 17% as compared to 25.9 million in the same period of prior fiscal year. Infrared products revenue was 6.5 million in the third quarter of fiscal 2021 or 60% of the total revenue. This is up from 4.4 million or 50% of the total in the third quarter of fiscal 2020. IR revenues grow sequentially from second quarter of 2021 by 35%. Visible precision molded optics or PMO. Product revenue in the third quarter of fiscal 2021 was 3.9 million, or 36% of the total up from 3.8 million, or 44% of the total in the third quarter fiscal 2020. PMO products revenues were down sequentially from the second quarter of this year by approximately 800,000 due primarily through a reduction in spending on a large telecom customers' long term supplier agreement following accelerated purchases during the first half of the…

Thank you. We will now begin the question and answer session. [Operator Instructions] Today's first question comes from Brian Kinstlinger from Alliance Global Partners. Please go ahead.

Hi, thanks for taking my questions. This is Jacob on for Brian. Can you talk about the slowdown in PMO orders related to inventory for 5G rollouts? Can you talk about what's causing this? And do you believe this is temporary and related to global supply chain shortages? Or do you think this will persist?

Yes, first of all, hi, Jacob. And thanks for joining us. The slowdown that we're seeing is specific to one geographical area for customers in China itself. And the reasoning for that is two, first of all, this has been a significant overstocking on the behalf of that customer earlier on in 2020 and the second is some slowdown that they are seeing in the rollout of their equipment. We're pretty confident that this is a temporary thing. In fact, the customer is already discussing with us what will be the timeline for their future releases of orders. But right now, this customer typically releases orders on quarter by quarter basis that is affecting both our backlog number as well as sales for the coming two quarters to this customer.

Okay and are there any industries that you sell to facing inventory shortages which will result in fewer numbers of lenses in the near term? And if so which ones?

Yes, we've definitely seen our shares with customers mentioning shortage in certain chips or devices that are impacting the supply chain. We've had in a couple of occasions customers shuffle around schedule. I think a couple of quarters ago we talked about this that one of our larger customers was moving shipments around and was doing so at the short notice which impacted our inventory levels back then. But since then we haven't seen anything to a level of anyone canceling orders, not releasing new orders or delaying significantly our shipments because there's a shortage, shortage of other components.

Thanks. And one more and I'll hop back in the queue if I have any more. Can you talk about how far along you are for correcting your to yield issues? You identify that the year end conference call both the coding issue at the end of the process and the problem in the middle of the process. I think you said before that you plan on having this address in the next couple of weeks.

Yes, we're definitely very-very close to this. I think the results we're getting extremely encouraging. They're not yet statistically viable to the point of us saying definitely we resolved it. But the engineers are walking around with a smile on their face. So that's very encouraging.

Alright, thanks so much.

The next question comes from Scott [indiscernible]. Please go ahead.

Hey, good afternoon, guys. And Don, congrats on retirement.

Thank you Scott.

Of course. My first question on gross margin, is it possible to give us a percentage point impact some of these new product issues had on the quarter? I mean, was it 200 basis points, 300 basis points? Is that even something that you could do?

Overall, it's between 1.5% to 2%, overall, normally would have been closer to a 40.

Perfect, that's great. And second one for me on capacity. Could you give a little color around kind of your comfort level with where capacity is today? And maybe what that means for CapEx assumptions moving into your next fiscal year?

Yes, definitely. Absolutely some of the growth, we're seeing now as a result of the capacity expansions that we have been doing over the last few quarters and especially in the PMO, and the molding area, which affects both some of the infrared that is molded with infrared and, of course, the PMO itself. I'd say that at this point, capacity wise, we're not seeing ourselves limited right now in any specific area. Most of our investments, this point is going towards efficiencies, is going towards technological advancements, investing in new technologies that allow us both to capture new business and to do existing business better.

Okay, that's very helpful. And last one for me. I'm curious if you could tell us when you became aware of the issue in China and how quickly you were able to act on that?

Yes, we became aware of it at the beginning of March and I'd say within four weeks of when the suspicion team up, we already completely handled it and dismissed those employees.

Okay, great, guys. Thank you.

The next question comes from [indiscernible] FBR. Please go ahead.

Yes, Hi, good afternoon. First question is regarding on backlog between IR and PMO. Just wondering what the mix looks like? Is that kind of comparable to your revenue mix?

Well, because in the third quarter we increase sales by 60% in the IR, we reduced almost proportionately with our backlog. So we're a little more lower in the IR as of eight, but we have a lot more things in the pipeline with IR.

[indiscernible] is a place where we tend to get more longer term contracts compared to PMO.

Sure. Regarding gross margin, just wondering how we should think about course margin for the rest of this calendar year. I mean did I hear you correctly that you expect IR to grow faster than PMOs so that then will gross margin be trending down because IR has, carries lower gross margin?

Yes, in one way, as Sam said, though, the turnaround period is longer. So you're not going to see the effect of higher margins on the IR next quarter. Also, I mean, just remember that mix. You can do 50% of our total revenue in PMO at 50% gross margin, and pointed to 30% of IR, which is 50% of our revenue, the average won't come out, it'll come out in the 30s in the high 30s. So as time goes for cycle, the IR will sell more higher ASP and increase the margin but it won't be 20% from quarter to quarter.

Got it. Thank you.

[Operator Instructions] The next question comes from Gene Inger from The Inger Letter.com. Please go ahead.

Hi, gentlemen, and Sam, congrats and Don congratulations on a good quarter and revenue with some problems continuing as you make what seems to be a grand transition.

Thank you.

Thank you, Jean. And it's good to hear your voice. Welcome backwards the living?

Yes, thank you sir. I went through hell, but glad that we're glad to be alive. In any event, and genuinely doesn't know, believe me COVID is no joke, and it is a horrible disease. But in any event, it looks like you're talking about shrinking gross margins. But not by virtue of net margins, and not by virtue of price cuts, which used to be what would happen to me competition. Is that correct?

Yes, we're not, I'd say we're not seeing a significant price pressure that leads to cut in gross margin. As always, we have a product mix that can be very different we can have in PMO and another some lenses that are much higher margins and others that make shifts around sometimes. But I don't think there is anything that is leaving our gross margin on a long term view declining gross margins or anything like that. We're definitely facing our current yield issues which we talked at length about last quarter and still exists to some degree. But other than that, there's no downward trend.

In your comment there is a lot of the financial questions have been asked in your comments you mentioned acquisitions are [indiscernible]. And I wonder whether you could give us some ideas of where you would consider those to be fruitful, or whether you rather not, because as you've mentioned, before, you have the new direction but you don't necessarily want competitors to be totally aware of what you're planning.

Yes. Yes, absolutely. I would say that it would not come as a surprise given that we're investing in technology and capabilities here that some of the acquisition opportunities that we're seeking are similar in nature, meaning companies that could bring along additional capabilities or technologies that would supplement ours and that would allow us to go to accelerate our path downs a new strategic direction, we're not likely going to look at this point acquisitions that solely bring over capacity, for example. we are not that interested in.

When I look at the staff changes, I see the background of both Albert and Peter and welcome them to LightPath and what I see is also not only optics, but an industrial engineering background and I'm wondering if this personnel changes relate to the new direction they probably do. Maybe that I should assume that. But I'm just curious if you can expand on that at all.

Yes. I mean, as you mentioned, we definitely look for people that fit our needs and in this case, I think we're lucky to have landed two exceptionally talented people that bring with them experience and skill sets that fit really well, the direction we want to go. And it would be would come as no surprise to people that as we want to grow more vertically and as we want to create more value we're looking in our leadership teams that people that have done similar things have been part of similar things before.

We show no additional questions. I'd like to turn the conference back over to management for any closing remarks.

Thank you for participating on today's conference call. Before we leave, I would like again extend my thank you and best wishes to our departing Chairman Bob Ripp. We look forward to speaking with you the next quarter for our year end results. As we have typically done we intend to issue preliminary fourth quarter results in August with the full results coming out in September. Until then our next public engagement would be at the Needham Virtual Technology and Media Conference on May 18. We hope our institutional investor followers will join us at the conference and that all of you continue to follow our progress. Thank you again. And good bye.

The conference is not concluded. Thank you for attending today's presentation. You may now disconnect.