Good afternoon, and welcome to the LightPath Technologies Fiscal 2023 First Quarter Financial Results Conference Call. [Operator Instructions] Please note this 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 that is discussed in our periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be prove to be inaccurate and there could 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 reconciliation in the company's SEC filings and press releases. Sam will begin today's call with an overview of the business and recent developments for the company. I will 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, Al. Before I begin I just like to inform everyone that due to internet shortage in Orlando, or internet outage, we are on cellphone, so excuse us if there is any quality issues with the audio. So good afternoon to everyone and welcome to LightPath Technologies’ fiscal 2023 first quarter financial results conference call. Our financial results press release was issued after the market close today and posted on our corporate website. As could be seen from our sales number for the quarter, LightPath this quarter faced multiple headwinds starting from Hurricane Ian, affecting our shipments in the last few days of the quarter, a slowdown in China and the war in Ukraine. The hurricane was sufficiently intend to force LightPath to close operations at our Florida facility for the last three days of the quarter. The facility closure resulted in a delay in shipments, which impacted revenue for the last week of fiscal 2023 first quarter. An initial assessment is that the fiscal first quarter revenue could be negatively affected by $400,000 to $700,000 due to delayed orders shipping, all of which have simply shifted into the following quarter without losing any of this revenue. In the past quarters we have acknowledged a slowdown in China's economy affecting demand for LightPath’s products. The first fiscal quarter of 2023 saw a continuation of this trend with demand in China lagging. As mentioned in our record backlog disclosure earlier this quarter, demand has been picking up significantly in other regions for future shipment starting in one to two quarters, but that is not yet visible in our sales numbers for first quarter of the fiscal year. Sales inside China for this quarter represented roughly 13% that is one three percent, of LightPath’s revenue for the quarter. That is down…

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-Q. I encourage you to visit our website at 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 analyzing the company. On a consolidated basis, revenue for fiscal first quarter was $7.4 million compared to $9.1 million in the year ago period. Sales of infrared products were $3.6 million or 49% of the company's consolidated revenue. Revenue from PMO products were $3.3 million or 44% of consolidated revenue. Revenue from Specialty Products were $0.5 million or 6% of total company revenue. The decrease in infrared products revenue is primarily driven by sales of molded infrared products particularly to customers in the China industrial market. Sales of diamond-turned infrared products also decreased, also attributable to customers in the industrial market. Sales from PMO products were $3.3 million compared to $3.8 million in the same period of the prior fiscal year. The decrease in revenue is primarily attributed to decreases in sales through catalog and distribution channels, as well as sales to commercial customers. The majority of the decrease in sales through our catalog and distribution channels is due to the termination of our distributor agreement in Europe during the third quarter of fiscal 2022. We are no longer accepting new orders through this distributor; they are now soliciting and receiving orders directly from the end customers. This transition will continue through the third quarter of fiscal 2023, as we will continue to ship distribution orders that were in place prior to the contract termination. The remainder of the decrease in…

[Operator Instructions] Our first question will come from Scott Buck with HC Wainwright. You may now go ahead. We'll move on to the next question. Our next question will be Brian Kinstlinger with Alliance Global Partners. You may not go ahead.

Sounds like we're all managing multiple conference calls at once. So, I want to start with the exiting of your distribution partner in Europe. Maybe you can provide some detail behind what led to that. I don't know if you've shared it before, maybe I forget. How much revenue did that distributor help generate in the trailing 12 months? And then how do you plan to replace that revenue or reconnect with those customers?

Yes. So great question and thanks for joining today, Brian. The work of replacing the distributor has been ongoing since I joined. We announced opening an office in Europe as early as I think a year-and-a-half ago or maybe even two years ago in preparation for that and have been preparing and negotiating our way to direct sales. We now, I believe have not only not lost any customer since then, but actually have significantly grew sales in Europe since then. And there's two reasons for it: one, the distributor was focused really on a few specific areas, mainly in industrial customers and growth from the distributor was in stagnation wasn't really growing. They achieved nice growth many years ago and have been sitting on it since then. Once we replaced a distributor, a few things happened. First of all, our margin for those products went up because we're not paying any more the 15% or 20% discount or sharing of profit with the distributor. The cost related to selling directly have already been embedded in our SG&A for a couple of years now. So there's no new cost related to that and since we have already a facility in Latvia that is part of the EU we essentially funnel all our sales in Europe through that facility and are able to really ship domestically inside the European Union from there without any problem whatsoever; so very, very little added cost. So our margins went up because we're not paying to distributor anymore. Our sales have gone up because one, the new team is highly energized and wants to drive that. And two, we are focusing much more now on defense business, which we started working towards defense business in Europe about the year-and-a-half ago. Obviously the war and everything happening there has really been a driver for that. So I'd say that overall our sales in Europe are growing really nicely and our margin from those sales are growing too.

Okay, I just wanted to make sure, and then I understood in your prepared comments, I joined a few minutes late. I thought you said that losing at the end of this distribution partnership led to some lower revenue, but you say you're growing faster, so is it you lost some, but now you're growing what you've got faster. Is that what you're trying to communicate?

Yes. So Brian, sorry, that's probably my fault. I was a little worry the way, the way I said that. It was not my intention to say that our sales are going down. It's more regarding categorization. We don't have – we don't have as much catalog and distribution sales in Europe, but it's being replaced by direct sales in the verticals like defense and commercial like Sam would say, that's my fault. I should have – I should have worded that.

No worries. Excellent. And then you mentioned three or I believe were freeform products that have completed qualifications. Two gone further than you expected and I'm using your words could be a game changer. Help us with the timing of when we would know if it in fact is a game changer and how do you define a game changer of $2 million, $5 million per year, I mean could you talk about some...

I would say, yes, absolutely.

In the past you've talked about there's a big difference if it's a new product for the next generation of existing product, maybe help us with all of that, sorry?

Yes. No problem whatsoever. So first of all not all of them are necessarily Freeform Optics. Freeform Optics is a key technologies that sort of gave us a second win for the PMO for the Molded Optics, but it's one of multiple technologies that we use as differentiators. The Black Diamond glass, the Freeform Optics, the Coatings, the DLC and many more, so of those projects I'd say the tools that are potentially game changers in my wording or actually not Freeform Optics, they are both in the Infrared Optics. And when I say game changer, I mean something that can – is supposed to very quickly scale according to the timelines that we have, meaning within two, three years scale to somewhere between $5 million to $10 million a year revenue. So usually I refer to those as 10% customers and I feel it's something in those numbers are more of a game changer. One of them is in automotive, another one is in defense. They're both projects we have been working on for well over a year. Very extensive qualification, both in both the defense and automotive, but in both of them once you're there you are in it for years. Of course, the automotive in particular is interesting because it's a leading car company that at first is going to roll it out a few models that later on plans to have it in all of their models.

And lastly, when help us with a timeline. Will at the year in six months, a year will it take you to know where are we in timing?

I'd expect to see a – I'd expect to see us signing a supply agreement for both of them and announcing qualifications in the next six to 10, maybe 12 months. The supply agreement will not necessarily be the purchase order itself, it could be a supply agreement for five years stating the range of quantities and such, but there's already a commitment that we are the supplier for those thoughts.

Okay. Last question I've got and I'll jump back in the queue. With your – I missed the start of the call, but with your BD6 press release, I think at least since I've joined the LightPath story, BD6 hasn't taken off for reasons we've discussed on the calls in the past yet. Does this open a door for that to take off? What's the timing for that? You start replacing that with Germanium. Just help us understand what this means to your business and the timing of it?

Absolutely, Absolutely. I think if this announcement is very, very important on a strategic level but not necessarily what people think of meaning absolutely the space lower forwarding missions and so on is a good market. It's a market we're in. We're going to push even further in. But to me what's made special about this announcement is that the government organization has decided to spend money with us, specifically to qualify the material to replace Germanium. And we've been singing that song or talking about this for a long-time, about the dependence of risks of very, very significant supply chain liability risks that the DoD here and other governments have. And this is the fact that they decided to put their own money into that and to now essentially – it's not formally qualified because they need to finish the project, but it's the most critical part of the radiation part, the hardest, the radiation resistance, the fact that they are doing that is an indicator we have them on board. Are they going to now go and really switch everything to BV6? No, and it's not needed. What's important is that they will reduce the exposure and the amount of germanium significantly. And they understand that we have the solution for that.

Great. Thank you very much.

Thank you, Brian.

[Operator Instructions] Our next question will come from Gene Inger with ingerletter.com. You may now go ahead.

Hi, Al and Sam. And I first congratulate you on being brave enough to do a conference call with the kind of results that have been – which we knew were forthcoming. My first thought would be that for investors, because the questions have been asked about some of the products and about Europe that I would have, but for investors, this has been sort of a half pregnant hazy picture with LightPath always trying to develop the baby, but somehow never delivering. If I take the questions that I've already heard, I would say that you are expecting delivery. Basically, you are in about the first trimester right now. And you are pre-announcing a good quarter later in the year.

Yes, first of all, I agree and understand what you're saying, and this definitely has been a roller coaster ride in more than one thing definitely during our term and over the years here. We're excited about a number of things, and that is both in the pure financial direction of things and strategically. Absolutely seeing that the sales in China going down is painful, but realizing now that the decision we made two years ago and the somewhat painful directions that we've taken to sort of mitigate that is paying off kind of makes us a bit pleased in the sense of we're far better off than if this caught us by surprise, then now we would need to start changing directions. So we've been working on this for two years. And different activities are coming to fruition, there is some really, really significant and exciting business opportunities that are at very advanced stages that we, hopefully will have, very shortly some announcements on. Some of them could take two years to mature to full revenue, but they are a completely different type of revenue and relationships than LightPath has had in the past. So I think we are in the right time with our technology, we have the geopolitical events, we have China, we started preparing for this two years ago. Sure, we could have done it faster having known that now China is going to fall apart. But we're definitely at a far better place than we were say half a year ago.

By the way, while I don't think that China will be what it was before, after what they have done, I suspect that after the meeting with Xi and Biden, you might be surprised that they commit to improve trade relationships, but certainly not when it comes to national security issues, which takes me to my next question. And I have no choice but to ask you, and you may have seen, I've referred to another company in Orlando that is in the photonics field, not infrared lenses per se, but they are involved in radiation hardening processors. And we're talking about space for anyone that's listening, not nuclear conflict, but the space aspect, and that means satellite communications. And they referred I'm talking about SkyWater. Do you know them? I know you don't like to talk about specific customers, and I can speculate whether it's SkyWater, whether it's SpaceX, can you discuss relationships with either?

I would say that we work with a great number of companies and are deeply involved in a great number of projects related to space. When it comes to radiation one wants to also look at what is the lifespan of a satellite and location, the further away you go from earth the stronger radiation in the very low earth orbiting such as the satellite SpaceX, which also designed to last only two or three years, the radiation is not as much of an issue there. However, with geo synchronized, and with defense related satellites and so on, the radiation is much more significant. But in either case we work on multiple space projects, many of them, many if not almost all of them, are related to imaging from space. And this starts from weather satellites all the way to agriculture, detection of different events on the ground in different wave bands, both longwave, midwave, shortwave, and so on.

Would that include by any chance target acquisition systems for the upgraded version of Lockheed, Telefire, and so on?

It could very well be. Definitely, there is a lot of talk about it, and this is public knowledge, so I wouldn't be sharing anything that isn't known, but with sonic missiles and also work to towards that, really one of the only ways to identify them after launch and to track them is using mid-wave and long-wave thermal imaging. And so there is a lot of work being done towards satellites related to that. The Missile Defense Agency announced recently to think three or four satellites that are going to be dedicated for that, and they're going to be the test bed fall that.

And finally, you obviously would not have come to the company nor Al if you didn't see the potential and the stock option benefits down the road. Do you see this as a company that can emerge into something that not only justifies these quarterly calls but becomes an asset that becomes attractive? In other words, can you scale on your own as these contracts develop, or do you think you'll need a larger partner that works with DoD?

Yes. No, absolutely we believe in the company, which is why we also decided recently to take more of our compensation in the form of equity. And I think that sends the proxy, which is going to be to vote on this next week. And we strongly believe in it and want to align ourselves to it. We believe that we're able to grow along this path ourselves, and part of the reason for that is the timing on what we're doing is so well aligned with the priorities of the government and the DoD that we're seeing multiple places where we are getting and going to receive support from the government. We have strong commitment letters from customers inside the government, whether it's in the army or air force, guaranteeing essentially that they are going to switch over to using our Black Diamond materials the moment they are ready to reduce the dependence on geo menu. With that in mind, the DoD has cumbersome as it is, is pretty good at supporting small businesses, especially if they are aligned to strategic objectives. And so we are working very closely with Defense Logistics Agency, Air Force Research Lab, Army Night Vision, Missile Defense Agency, and many more on these efforts, just like the European Space Agency. And those are funded efforts with not only short-term funding, but also long-term commitments with it.

Our next question will come from Scott Buck with H.C. Wainwright. You may not. Go ahead.

Hey guys, good afternoon, and thanks for taking my question. Just one for me today. You guys have done a really nice job managing the costs given all the headwinds on the revenue side. I'm curious, if the current environment were to last for an extended period of time, whether or not there is some additional levers you could pull there to continue to minimize cash burden?

So Scott, yes, the answer is yes, there are other levers.

Okay, perfect. That's it for me guys. Thanks Al.

It appears I no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Sam Rubin for any closing remarks.

Thank you. I appreciate everyone's participation and patience with us as we continue to turn around the company and really take it in a new exciting course. I look forward to seeing everyone next week in our Annual Shareholder Meeting on Thursday at 11:00 a.m. Eastern Time. And if you haven't yet, please don't forget to vote for our proxy. Thank you. And good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.