Good afternoon. And welcome to the LightPath Technologies Fiscal 2022 Fourth Quarter Financial Results Conference Call. All participants’ will be in listen-only mode. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Albert Miranda, Chief Financial Officer. Please go ahead.

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, including the impact of COVID-19 pandemic those discussed in this periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them to be proven to be inaccurate and there can be no assurances 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. Sam will begin today’s call with an overview of the business and recent development for the company. I’ll then review financial results for the fiscal year. Following our prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to Sam Rubin, LightPath’s President and Chief Executive Officer.

Thank you, Alan. Good afternoon to everyone, and welcome to LightPath Technologies fiscal 2022 fourth quarter and full year financial results conference call. Our financial results press release was issued after the market close today and posted on our corporate website. Looking back on the fourth quarter of fiscal 2022, we see evidence of LightPath Technologies in transition. Earlier in the year, we further laid out our long-term strategy to repurpose LightPath, a provider of optical solutions, rather than a producer of components. LightPath will leverage the vast amount of engineering and design expertise built up over the years and key owned technologies to provide customers with a compelling value proposition. We believe that such a transition will result in a company that is an integral part of our customers design process, and ultimately more profitable. The area of photonics and optics is poised for significant growth and the technology is being more rapidly adopted and implemented into commercial and consumer products. Optics can be customized for different products applications based on similar core enabling technologies for a diverse customer base. The same technology and knowhow can be used for defense, telecom, and medical fields, automotive, industrial or commercial to name a few. We believe product development will be instrumental in our transition to a solutions provider. One key product we're excited about is our game changing [Indiscernible] called chalcogenide glasses [Indiscernible] with our US military approved diamond like coating. These products are an alternative to germanium, of which the US imports roughly $675 million worth a year we use in optics, primarily from Russia and China. The benefits of our materials are multilayered. We produce our Black Diamond glasses domestically, allowing for greater supply chain resilience for our partners at a lower price, while reducing reliance on foreign suppliers…

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-K for the period. I encourage you to visit our website lightpath.com to access these documents. I will discuss some of the primary financial performance metrics and provide additional color on them to better assist investors and an analyst in the company. As a reminder, we've been significantly impacted by the transition and business conditions in China during the fourth quarter of fiscal 2021 and into this fiscal year. Revenues from China have been recovering, but they remain well below the pre transition levels. On a consolidated basis, revenue for fiscal 2022 was $35.6 million, compared to $38.5 million in the year ago period. Sales of infrared products were $18.7 million or 52% of the company's consolidated revenue of fiscal 2022. Revenue from PMO products were $15 million or 42% of consolidated revenue, revenue from specialty products were $1.8 million or 5% of the total company revenue. The decrease in revenue from sales of infrared products is primarily due to a decrease in sales to customers in the industrial market. As a reminder, we experienced an increase in demand for infrared products during fiscal 2021 as demand for medical and temperature sensing applications peaked during COVID. Sales of PMO products decreased primarily due to a reduction in orders from one key customer due to a decrease in that customers market share, and pre sales in specialty products was primarily due to NRE projects for customers in the industrial and defense industries during fiscal 2022. Moving on to margins, I'd like to remind listeners that PMO margins are typically higher due to our molding technology, which enables…

[Operator Instructions] And our first question today will come from Brian Kinstlinger with Alliance Global Partners.

Hey, great. Thanks so much for taking my questions. I have several questions. The first is kind of an easy numbers question. If we excluded that one large customer where revenue was pressured, what would the year-over-year revenue growth comparison be for PMO?

Yes, great question, not specifically on PMO, Brian, but our year-over-year increase in sales would have been 8% for both - for all three product lines, if we -- if you back out the one customer.

Okay. And then I want to dig into the backlog. I know you gave a bunch from the August backlog. But first, how was it weighted infrared versus PMO. I didn't hear anything. Secondly, on freeform optics, the opportunities there. And so if anything is there that’s materialized that'd be great to hear.

Yes, so it was the freeform optics, we continue working on those projects, we've shipped I believe at least three prototypes that have passed qualifications or in final stages of qualifications by the customer. As I mentioned in the past is not only sufficient for our product to be qualified within the customer, the customer needs to have his or her own product qualified. And so that's the stage we're in where I believe three of the eight large opportunities, I did not provide the update on those opportunities this time, thanks for reminding me somehow slipped. But we're still around the same volume of work as we were three months ago into last call so seven or eight opportunities. Three of them have moved into the customer qualification. So we passed our qualification pretty encouraging there, but also we need to remember, these are mostly LiDAR and ALDL applications. And so the market acceptance of those both applications and our customers products are key here.

Yes, and just before [Inaudible] go ahead sorry.

Yes. So in terms of the backlog, I don't know if you have the exact number Al of separating between the two –

51% infrared, 45% PMO.

Got it. I guess I missed this. I do want to emphasize it. See, that's about the same the intelligent backlog what we have right now, really indicating again and again on multiple fronts that what we've been investing our efforts in the last 12 months or so, is breaking [Inaudible].

Yes. You've talked a few times about a higher quality backlog. How will that -- how is that measured? Is that and how will that be evident on the income statement? Is it bigger revenue opportunities? Is it higher margins just talk about when you're saying quality? How that can translate for investors?

Yes, it's pretty much in the margins to be frank, it's just about there. So on the infrared part of the solutions, it's higher margins because we're doing more significantly more value added. As I mentioned, even two years ago, when we started down this strategic path, most of those engineered solution projects can take up to two years until they reach actually even low volume production. And this is just about that two year cutoff. So a lot of those are things that we've started even as far back as two years ago, we're seeing more defense related, mostly infrared, but not only and that is good for us. Defense is a good market for us. It is multiyear contracts, which is being locked into designs. And as the saying goes war it's good for business and now that it's good for business. The other front is Europe. In Europe until a few months ago, all I would all our sales were through a distributor and that was both a significant discount we gave to a distributor as well as some additional price pressure from it. In January of this year, we discontinued the work with the distributor. And although some contracts are still phasing out most of the sales now in Europe are completely direct. So that is the direct impact on our margins. The last part is also in China where the fraud that we discovered a year ago, impacted our gross margins because of the way these former employees were stealing money. And without that the margins are higher because the unit sale price is high. So this is already evident, I think, in average sale prices of our products if you look at that trend over the last year.

But I guess my question is, I mean, you've got high energy prices, you've got a couple of other things impacting the margins. How do we think about with the new strategy the solutions, freeform optics, probably have higher margins long term. What's your reasonable long-term margin, gross margin goal for this business? And if you want to split by the segments, that's fine. If you want to talk about the entire business, that's fine, too. However you think about it.

So, Brian, I think 35% to 40% is where we should be with our current - our sort of our current mix and what you can imagine our, what our backlog looks like. Like, I think we can do better as we shift more towards assemblies in the near term, but in the short term, our backlog looks like that's where we should be. Will we get there? That's the big question that is more environmental at this point. Utility costs are skyrocketing. Recession is not even depression is how you can describe China at this point. And in raw materials, there's a lot of cost pressure on raw materials, I think we've mitigated pretty well, we certainly mitigated personnel expense very, very well. So the things that we can control we had, things that we can't control, probably will hurt margins, in the short term, but 35% to 40% is well within what we wouldn't be able to do under normal circumstances.

Understood. Last question I have, and I'll get back in the queue. You mentioned 20% of your backlog is solutions. Was there any in that record, the previous record backlog that was I think three quarters ago that was close to this number? And what's the sales cycle of solutions?

Yes, so I believe the last time we had a backlog that was close to this, it was below 10% for the solutions.

I think it was 8% Brian.

And even there it was I'd say, on the simpler side of the solutions, it was really basic lens assembly that we were starting to get into. Now we have much more defense work much more proper imaging solutions, I'd say, which are multi element more complex systems, which is part of the evidence of the sort of trust the customers are giving us and the success in upselling ourselves into there, a cycle time on the solutions can be in the defense world, two to three years from the beginning of engagement until we start some volume of production. And then it can one up to 15 years, the defense world, typically something like 10 years of production in another five years of post-production support. In the commercial world, it is obviously much faster. This can be half a year to a year of form engagement until we're production and production can scale much, much faster. But the lifetime of the design is usually around five years.

And our next question will come from Gene Inger with ingerletter.com.

Hi, gentlemen, Al and good metrics on the numbers. I appreciate it. You've already answered a number of questions I would have. Sam, perhaps you can give us a little more color. First of all, on the backlogs. I've heard all this discussion. And yet I'm not sure if we've addressed whether the customers find the lead times acceptable in terms of not probably to take two or three years to develop for the military. But basically are you able to get things out the door in a timely manner. And so your customers aren't upset?

Oh, absolutely, let me clarify that, two to three years is a customer's timeline. It's not the time it takes us to develop the solution. Our solution is usually from the moment the customer have signed off on the design is very fast as a matter of a few months, it takes two to three years in the defense world to go through all the field testing for the customer to have hit product, whether it's a weapon or anything like that, pass all of the qualifications required by the DLT. It's not to confuse things.

No. Okay, go ahead.

However, in terms of our lead times on delivering, I'd say definitely in the component parts of the business, we've had some challenges with supply chain pressure over the last six months or so. I don't think we've had too many issues on delivery time or turnaround time on the solution side. And I think they diligent, supply chain teams that we have here, it's constantly looking for solutions around that. One area that we mentioned in previous call, I think was the one before that was that for example, when the invasion of Ukraine started, we had to immediately discontinue all purchases for Russia, which is one of the two sources of germanium in the world. So we had to switch all orders over to China, and that caused some delays. Not sure that answers the question.

Yes, what would happen if there was the Chinese invasion of Taiwan? To what extent you're not involved with Taiwan particularly that I'm aware of, but you have no idea, I presume, how that would affect your operations in China?

Wow, that's a great question. I mean, I can't guess -- I cannot guess what the State Department will do in such a situation. I can say that, from our point of view, that China portion of the backlog is cut by half. So China is half of the significance it was up to a year ago in our world future business. So from that point of view, that dependence is reduced. From the operational logistics point of view since the day I joined, regardless of the fact what was happening in China, we have worked hard and diligently to diversify internally. So we are not dependent on any one facility whatsoever. And that is as we'll be seen in Orlando with essentially doubling our manufacturing space here. And mostly dedicated for molding PMO lenses, which was done in China till now, only in China. Additionally, in the Riga, we set up the cleanroom facility for the coating and left enough rooms there that we can also set up moldings in Riga as a lower cost ITAR approved facility. So I'd say I sleep much better at night from that point of view. But nothing ever goes smoothly. So hopefully they do not invade.

I played better as well, with respect to LightPath because you speak Mandarin. You turned around the company before in China. And I think if you did not come upon LightPath I don't know if they would have been able within reasonable time to catch the fraud that was going on and clean it up which you did.

I appreciate the nice words. I mean, that's for -- that has been going on for over 10 years, as far as we know. And although the quality of my Mandarin deteriorates every day, I don't use it. I appreciate you pointing that out. I do want to go back a second to the China Taiwan question because there is one very important element that we didn't touch on. And that is Germanium. The US today imports 95% of the germanium, so $675 million a year of germanium, for the optics industry alone. 95%, two thirds of that roughly come from China. The third was coming from Russia and right now it doesn’t. The US has some reserves of germanium. The Defense Logistics Agency has spent a lot of money on building the pile of germanium as a reserve, but if such event happens and the US for example, decides not to import from China because of that, our Black Diamond glass is really in the prime spot to replace germanium. This is something I cannot emphasize enough. I've been to multiple meetings in DC over the last few months and flying there again next week for different activities related to that. But this is -- these materials are the ones we were making for many years at BD6. And the materials, we have received the exclusive license from the US Navy Research Labs. Those materials are the alternative to germanium. And potentially while I never wish anyone to invade anyone, potentially that can work in our favor.

Agreed, Sam, if you don't mind on the military and defense, and maybe even satellite side of matters, could you give us a little more color of whether you're developing modules, whether it's for the navy or for naval contractors, or for SpaceX or for Globalstar? And are you doing modules or simply lenses in these operations, because I suspect the profit margins are considerably better with modules than just selling lens.

I’d say it's most of our new defense activity, most of it but not all of it is modules more than it is components. And the PMO business into which is pure components into the defense has probably not grown much, I don't have the numbers in front of me. But I don't think that has changed drastically. It is the infrared and within the infrared it is assembly. And it is the uniqueness that we bring to the table of both materials. It is our low cost ITAR approved manufacturing facility in Latvia. And it's our complete vertical integration for making materials also way to coating, assembly and testing of complete subsystem. So it is significantly more of that. And I believe that if someone would follow our product releases and coming months and so on, one would see more and more announcements related to that.

Could you clarify possibly, if the FCC, the Federal Communications Commission has approved the communications linkages, for example, that applies to others. But for example, with SpaceX, they asked for that. And you cannot really fire up satellite to ground systems that connect through the birds of the grid around the planet without the FCC approval. Is that approved? And are you involved with even if you don't want to identify which of the three or four competing firms are providing such services?

Yes, I mean, we're definitely we have some involvement to QuantLR or quantum encryption free space system that we announced is ultimately even if not, since the first version is ultimately designed for that. And part of the technology we're developing and that’s what they like in these funded projects is we really get money to develop a technology that we can use elsewhere. In that case, we're developing a technology that uses to point the beam or the camera alternatively, dynamically at the satellite, or whatever device you want to track. And so while that funding is specific for the QuantLR or quantum communication project, the outcome of that is going to be a technology that we can use in infrared imaging also, to point cameras in different directions and track elements. So we like that area for sure. But we're definitely not at the point where we are involved in any FCC discussions or regulations.

No, the FCC simply had to approve it. But I'm glad you're involved in that area. Can you reflect on the new laser weapons that have just been installed? Instead of on a command ship on an FFG on a destroyer, and frigate by the Navy? Are those your component parts in the system and/or Lockheed new missile systems that are being mounted on F-18?

I always see cannot comment on specific activities. I can say that, like our energy laser is extremely interesting area. And I'm extremely happy to see that technology finally advanced into deployment. That was the focus of infrared imaging. Our both components and subsystems would tend to be more on the smaller devices, whether it's missiles or whether it's payloads such as the pods and so on, and would not be so much used in extremely high power laser that require very, very unique optics that typically are not the same optics that's used in imaging.

Great. I appreciate the comment, gentlemen, I think what you're dealing with is turning around a company where previously people had often on good expectations and it sort of rotates between exasperation and optimism. And I believe and that's why the stock went down even this afternoon, after the close, even though you already told us that what the backlog would be and that there would be slightly negative earnings. I don't see why people don't understand it, because you've pre announced that. But in any event, it seems to me, this should not be a $38 million or $40 million market Cap Company. Shouldn't it be priced at four or five times or two or three times sales?

I would tend to agree with you and hopefully everyone else on this call and in the market.

And this will conclude our question and answer session. I'd like to turn the conference back over to management for any closing remarks.

Thank you. We appreciate the time you took to listen to us and follow the company. We look forward to meeting any investors at upcoming H.C. Wainwright Conference next week for the MicroCap Rodeo and MicroCap Conferences later next month. As always, management is available for any direct discussion with investors and can be contacted either through our Investor Relations, or directly through our website. Thank you and goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.