Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal First Quarter 2024 Financial Results Conference Call. Please note that, today's event is being recorded. And at this time, I'd like to turn the floor over to Al Miranda, LightPath's Chief Financial Officer. Please go ahead, Al.

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 as discussed in its periodic SEC filings. Although, the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there can be no assurances that the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures. 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 quarter. 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. Good afternoon to everyone, and welcome to LightPath Technologies' Fiscal First Quarter 2024 Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted on our corporate website. The first quarter was highlighted by our acquisition of Visimid and with it the win of a significant project for an imaging engineered solution. Both are significant steps in our strategic shift from a component manufacturer to a value-added solutions provider. To recap our investors, LightPath has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to a value-added partner for complete solutions based on optical technologies, who differentiate us on mostly based on technology. A long-term lines we have been focusing on three pillars of growth: Imaging Solutions as a strategic shift, such as cameras, growth in new markets such as automotive and specifically growth in our market share of the defense business. All three pillars of growth tie into and support our transition from a components manufacturer to a provider of engineered solutions based on these proprietary technologies. This transition began a couple of years ago, starting from customized lens assemblies, which are what we call today LightPath 2.0 through camera solutions or LightPath 3.0. The first of which was our innovative mounted sport band infrared camera, which we announced in December and which enables new applications and capabilities for our customers. The latest step in this transition is acquisition of Visimid Technologies. Visimid Technology is a small engineering firm based out of Dallas, Texas, does the back end of thermal cameras. and does what Lightpath has been doing for the front end of those same cameras. Lightpath has been tailoring and customizing the optics for cameras based on our…

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 for the period. I encourage you to visit our website in lightpath.com to access these documents. I'll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company. For the first quarter, we've made significant changes to our product groups. We previously organized our products in three groups, which were precision molded optics, or PMO, infrared products and specialty products. We've been considering changing revenue reporting along the new product lines for some time to align with our strategy. With the addition of Visimid in July, it became clear that the timing was right to make the change. We believe the new revenue groupings lend more visibility on our progress against our strategic goals. Therefore, we reorganized our products into four product groups. One is infrared components, two, visible components; three, assemblies and modules and four, engineering services. Assemblies and modules were previously included in PMO infrared or specialty product groups, depending on the lens type. We basically carved it out. So you can think of the new reporting as components being LightPath 1.0, assemblies and modules as LightPath 2.0 and 3.0 and engineering services as the activity that will create new revenue in assemblies and modules. With that said, on a consolidated basis, revenues for first quarter were $8.1 million, compared to $7.4 million in the year ago period. Sales of infrared components were $3.8 million or 47% of the company's consolidated revenue fiscal first quarter. Revenue from visible components was $2.7 million or 33% of consolidated revenue. Revenue from assemblies and modules…

[Operator Instructions] Our first question today comes from Glenn Mattson from Ladenburg Thalmann. Please go ahead with your question.

Hi. Yes. Thanks for taking the question. So I'm curious, Sam, you talked about automotive and the possibility that the order that you've talked about in the past could get pushed out due to some slowdown in the production schedules for some of the Detroit guys EV lines. But did you -- so two things. First of all, do you think that the delay up to this point, was it at all related to some early hesitation by those customers in terms of like what -- how the fast they’re going to move forward or anything like that or it seems like things did change abruptly in Detroit for the EV models in general. So, curious about that. But then I guess, furthermore, do you have like some hard discussions that you've had with people or just from what you're reading in the news and that kind of thing leads you to believe that there'll be potentially a slower uptake.

Yes. Sure, absolutely. First of all, I'll start by just framing this in saying that in the situation or in the use case of adding a new technology like thermal imaging into a cars, the car manufacturers that we work with are all tending to add this into the EV line, simply because those of the new models, new platforms, sometimes new architecture altogether. It doesn't mean that they would not roll it out in the internal combustion engine cars. It also depends, I think, on where DOT is going to go with the proposed rule of mandating some of it. But as of now, what we've been working on all tend to be around the EV platforms, even though are with larger car manufacturers that are -- that produce far, far more than just EV. So, that's one part. Then to answer the question, I think the -- a few different things that play into the delays. To begin with the initial delay compared to where we were nearly a year ago where we thought we're going to get the supply agreement almost any day, that came from the almost opposite direction that came from the car manufacturer that decided to rolled this out instead of in one car model in five car models. And therefore, all the timeline got shuffled around because we were suddenly talking about much larger volumes, but scaling more quickly than we were before. So, we went back to the drawing board. We had to redesign actually something in the mechanics of the modules to fit those other car modules and therefore, started renegotiating everything. At some point, already after that delays, I'd say, were more because of us not moving fast enough on the negotiation of supply agreement, coming from a point that…

And can you give any further color on what gives you confidence that once this starts back up or the conversation begins again, that they'll be able to clear those hurdles?

Nothing. Yes -- I mean nothing changed in the form of the -- there weren't -- at any point, there were no discussions or comments made in the form of we're not sure if we'll even include this anymore or anything like that, not at all. And so technical dialogue continues. And we have other automotive customers with which we also have technical dialogues, and we have also new designs that we're building as we speak, actually, for one specific automotive customer. But the sense is that everyone is a little bit lower in terms of pushing on the date and so on. And then my own interpretation from seeing and reading and getting survived from people that I talk to in the industry, and then customers is as part of it is due to the EV sort of, I don't know, direction of diorite.

Okay. Thanks for the color there. And just one -- the second one on the other kind of issue that you raised on the germanium side. Is that it's a little cumbersome to get through the process of a whatever. Can you -- is that -- so is it a little trickier to get germanium? Is that driving the process? Or is it more just that you potentially being a probe on the road? And so you're trying to get ahead of it.

Well, no, first of all, it's tricky to get mail. And while we have not had to push out deliveries of anything because luckily enough, we had enough inventory work in program and managed to eventually get shipment from germanium this week, actually, I think the last week in the first time. What we're seeing on doesn't give us the confidence that supply is necessarily going to be smooth now. I mean I'll give you a few examples. One is we started applying for export licenses in July when they announced it, even though it wasn't supposed to go into effect in until August, but they still stopped all shipments in July already. We're now mid-November and only now did we receive first shipments. When we first applied for licenses, we were told that every license is good for a year. Then we were told that every license is per order. So if you have an order for year, it will be for you. Now the last shipment, the vendor of ours in Southern China, I think I can remember which one is which, but one vendor in South, one is in the north, one vendor managed to ship and keep the license open. Another vendor was sold by custom that she gets on shipment from this license, and that's it. So I think they don't know yet what exactly they're doing and where -- we're also hearing about customs stopping compounds sometimes, which are definitely not the more material, but if something includes germanium in it, they've been also stopping at some point. So I think knowing China and how long it takes until they figure out and what, I want to reduce their way exposure there. I also want to free up capacity for the work that is happening on converting customers over disorder material. I don't want to reach the point that a customer wants to now switch over to an assembly made of ZBV and my capacity is all tied up into machining, Timon turn in to me because that's the orders they have at that point. So we are proactively reducing that, even to the extent of canceling some of parts of an order we have with the customer. And we'll be cautious now on how much gomanium we take on.

That's great color. And then just a follow-up on that. And then last one for me. Just the -- so is that level of germanium that you've received? Or is there -- can you give us -- is there like a magnitude of impact that you would expect revenue this year based on this shift that you're...

I think as of now, we're looking at $1 million to $1.5 million of -- in the next two quarters, maybe I think that we can something like that?

1.3

1.3, right so 1.3. But we also -- if you remember, December -- November, December is usually the time of annual renewal for two of our largest customers for infrared components and one of them is very heavy on germanium. So even though what we did so far is only for the short-term impact there, we're probably not going to reduce that contract to the level it was before, at least some in germanium. I do want to note that our two largest germanium customers are working with us very actively at designing and testing alternatives made of BD6 or our Black Diamond altogether. So we wouldn't do this if we wouldn't feel like a real potential very, very soon to fill the tank capacity upwards better work. And so I think it goes hand-in-hand, but it's sort of sometimes it's sort of a bandage you have to rip and start working on it.

Okay. Thanks for the color.

Absolutely. Thank you.

[Operator Instructions] Our next question comes from Brian Kinstlinger from Alliance Global Partners. Please go ahead with your question.

Hi, there. This is Shervin on for Brian. Congrats on a solid quarter. Let me just hop right in here. So I know that backlog can be lumpy given the timing of multiyear contract renewals isn't always consistent. Now with Visimid opening your addressable markets, even more commercial applications, when can we expect to get more consistent growth in the backlog specifically? And do you see it coming from a specific product?

Yes, I definitely think that the Visimid thought and sort of the higher ASPs that come both from Visimid and overall, our transition into more engineered solutions could mean two things, really. So in terms of the backlog, one is, again, larger chunks being added in at the time because the ASPs were higher, but it could also accelerate our growth on the top line, again also because the ASPs are much higher. So booking an order for 100 Mantis cameras at $7,000 each would have a big chunk to the backlog, even though by volume, it's nowhere near an order of 100,000 lenses, for example. So I think we're going to start seeing more and more so. I think that the new reporting group structures that I'll present it and that we're starting to work with will help give much more visibility into that

Yes. The one thing I would add is Visimid prior to acquisition wasn't really geared towards sort of the long-term contracts with customers. It kind of wasn't their focus, a smaller company, the owner sort of relied on relationship and handshakes that things would come through. And they did. It worked. But technically, that's not a backlog. A couple of e-mails and a promise is not backlog. So we're going to -- we're sort of transitioning the customers, which are large customers and a customer doing it. They just had not been it. Going forward, we're going to get longer-term orders or 12-month orders or what have you. We'll start seeing that in Q2 coming from Visimid, the first of which would be the Lockheed contract that Sam mentioned.

Great. Transitioning into Lockheed, maybe you could detail would you guys expect the potential time line would be like? Like how long is the design period and what comes next? And how many companies are you competing with, if any? And what are the risks and catalysts to reaching those tens of thousands of units at 10 that you guys were talking about?

Sure, absolutely. So first of all, the initial proof of concept was done already and delivered by Visimid prior acquisition. So this is a project we sort of knew was already in the works. We kind of monitored it from afar. But it's been something that Jason and the team at Visimid has been working on for a long time. On developing the core technology behind it, which is very, very unique. From this point, I think we have now about three years during which time we developed -- we develop the technology further into EVT, DVT, I believe we're going to deliver during that three-year period, some dozens of units, maybe even 100 or so. Following that, there's expected to be significant testing by Lockheed's customer in which by the end of that and it could take up to were told it could take up to 2028. So it could take up to a year and half almost. They will compare our customers' product with a different company that is developing a similar missile to compete on this. And we'll choose one or will choose to split between the two. The tens of thousands of units come from what we know and in public information even I can't name it, but the existing products that this is going to replace. And so -- it's not something completely new. This is really a new version of a -- if you would, an existing weapon system. And at the end of it, it would either be Lockheed or the other one or also very, very likely split between the two

Great. That's good to hear. So what -- for the next question, what are the next steps in getting all of your BD products fully qualified? And what should investors anticipate from a [indiscernible] perspective of – wider adoption over germanium, especially when you're saying that germanium is getting harder and harder to obtain.

Yes, absolutely. So the process to validate for manufacturing readiness of our new materials include very, very significant testing of essentially thousands of samples, if you would. That's what Defense Logistics Agency, DLA is essentially bank rolling and what we're working on. There's one key piece of equipment called refractor meter very technical things. Its extremely expensive piece of equipment. I believe there's only two of those in the US to give a sense of just how specialized it is, we're waiting for the delivery of ours. Once it comes, which should be any time in the next 6 week to 8 weeks, I hope, we have already prepared a lot of samples definite and will essentially be tying someone down to a chair next to it, and he doesn't leave until he measured all the sample sort of thing. So we have an enormous amount of samples and materials we've been preparing for many different measurements, but that refractor meter is probably the most important piece of equipment for the measurement and for ongoing quality control of some of those materials later on. This will provide the, I'd say, sort of book of data, if you would, for optical designers showing not only if you give a parameter what is the CTE, The Coefficient of Thermal Expansion to not just provide one number and say it and that's it, but actually provide with it some statistical information showing, this is coming out as a result of measuring its on 150 different samples from 10 different lots produced in different places or in different ways, making sure that we take into account the variability and there's very, very significant statistical data behind it. We're sort of fighting an uphill battle in a way where Germanium and other materials have the history of 60 years of usage. So there's a lot of data out there that all the optical designers know and are based on that is -- comes out of the many, many years of using it. New materials new, obviously and so we want to jump to start the process of it getting embedded into systems by providing a lot of statistical data that otherwise probably people would just wait and work slowly with it until they gain enough -- they turned enough confidence with it. So that, in essence, really what DLA, Defense Logistics Agency, strategic material is financing here. That's a portion of that. It's a very, very well-defined set of data that we already started to collect, but again, the key information reliance on one piece of equipment that we're just waiting for it to arrive. And as a side note on the equipment, we could outsource the measuring. It's very expensive. Nearly the project would cost was nearly the cost of the machine. It would take months. So it'd be longer and more expensive and DLA is funding about half of the machine cost in addition to other expenses.

All right. Really quickly with Germanium being so hard to get those export licenses. You guys mentioned last quarter that you started selling raw materials to clients who might want that. Do you see maybe an up-tick in demand for those raw materials to replace Germanium that might be hard to obtain? Or am I getting that wrong?

Yeah. Not as much as I would hope so. So, we've definitely had some work around that and definitely were definitely seen positively by customers. But I wouldn't say that we have sort of the floodgates opened and someone is buying all our capacity for that its hardly happen.

All right.

But …

Thanks so much.

But I think its sill a correct signal to our customers that just how committed we are to that direction and to those material.

And to DoD, DLA and NRL.

Yes.

Great. That's it. Thank you.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management, for any closing remarks.

Thank you, everyone, for taking the time today to follow LightPath Technologies. We appreciate the trust placed with us by our stakeholders and shareholders of course, and look forward to future calls where we further discuss the fruits of our efforts to retool its business and move the company forward. Thank you. And have a good day.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.