Good afternoon, everyone. And welcome to the LightPath Technologies Fiscal Second Quarter 2024 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 note, this event is being recorded. At this time, I’d like to turn the conference 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 our current expectations, involve various risks and uncertainties, as discussed in its periodic SEC filings. 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. 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 and associated disclaimers. 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 quarter 2024 financial results conference call. Our financial results press release was issued after the market closed today and posted on our corporate website. First, I’d like to apologize for any coughing or horsey sound. My throat is still recovering from COVID I had recently. Second quarter was underscored by a key first order in our partnership with Lockheed Martin for an imaging engineered solution. The ongoing integration of Visimid acquisition and progress with customers transitioning from the use of Germanium to the use of our BlackDiamond material. All these developments continue to highlight our strategic shift from a component manufacturer to a value-added solutions provider. To recap for our investors, LightPath has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to value-added partner for complete solutions based on optical technologies, whose differentiators are mostly technological. Along those lines, we have been focusing on three pillars of growth; imaging solutions, such as cameras; growth in new markets, such as automotive; and growth specifically of our market share in the defense business. All of which are driven by unique technologies -- by our unique technologies and materials. All three pillars of growth tie and support our transition from a component manufacturer to a provider of engineered solutions based on our proprietary technologies. This transition began a couple of years ago, starting from customized lens assemblies, which are what we call LightPath 2.0, through camera solutions. The first of which was our innovative Mantis broadband infrared camera, which enables both new applications and capabilities for our customers and significant growth in that direction coming from the Visimid acquisition. Visimid Technologies, a small engineering firm based out of Dallas,…

Thank you, Sam. You can rest your voice for a little bit.

Thank you.

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 everyone to visit our website, lightpath.com, to access these documents and to see some of our new products. I will discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company. On a consolidated basis, revenue for the fiscal second quarter were $7.3 million, compared to $8.5 million in the year ago period. Sales of infrared components were $3.6 million or 49% of the company’s consolidated revenue in the fiscal second quarter. Revenue from visible components was $2.7 million or 37% of consolidated revenue. Revenue from assemblies and solutions were $1 million or 13% of total company revenue. Revenue from engineering services was $0.1 million or 1% of total company revenue. Infrared component sales increased approximately $283,000 or 9%, primarily due to an increase in shipments against an annual contract for an international military program. This contract was also renewed during the first quarter of fiscal 2024 for a higher dollar value than in the previous year. Visible components sales decreased approximately $1.2 million or 31%. All this is primarily due to the ongoing trend in China, excuse me, and the telecom industry in general. This quarter we also experienced declines in Europe due to recessionary conditions, particularly in Germany and in the U.S. due to the timing of defense contract deliveries. Assembly solutions revenue decreased approximately $241,000 or 20% and that’s primarily due to timing of shipments against a multiyear contract with a defense customer. That was partially offset by the addition of Visimid revenue. Gross margin in the second quarter…

[Operator Instructions] Our first question is from Jaeson Schmidt with Lake Street. Please go ahead.

Hey, guys. Thanks for taking my questions. I just want to start with the Lockheed program. You mentioned units -- production units might begin even before the decision date. Just curious if this is something you’re hearing from the customer or is this industry chatter, or I guess, a combination of both?

Both directly. Yeah. Directly from the customer. This is the customer is actually extremely confident in their solution and the superiority of their solution. And they want us to start setting up the production line, the physical production line in Orlando, where we’re going to do production in the very near future to start gearing up to that. The expectation is that once the decision is made, the Army will want units as soon as possible and they’re willing to make some bets in that direction.

Got you. No. That’s really good to hear and that leads me to my next question and I know it’s going to be dependent on the program, but at a high level, how should we think about your total revenue capacity now with the expansion completed in Orlando?

Yeah. Exactly. As you said, that’s a very dependent on the program. If we were to continue with the current business mix, meaning not a lot of cameras in there and mainly growth coming from infrared assemblies, then revenue capacity in Orlando altogether would probably go to -- could go to as much as $50 million, I think, or even more of account expansion.

Yeah. I think we could do $60 million to $70 million.

Okay.

Yeah.

But very, very dependent on where that comes from. If it’s individual components, probably less. The more complicated things are, the less space per dollar revenues that they take and the more we would grow. The assembly of the Lockheed, for example, or any of the cameras actually doesn’t require an enormous amount of space. A lot of it is very automated calibration systems and assembly processes. And so we can probably serve this entire Lockheed program from the clean room -- extra clean room space we built in Orlando and still have room to expand in other programs as well.

And the molder machine that we have…

Got you.

Yeah.

That’s really helpful. And then just the last one from me and I’ll jump back into queue. I know China is becoming less of a focus for you guys, but just curious if you think that business has bottomed yet.

Yeah. I definitely think it has bottomed. I mean, in reality, at least, if you talk about China or Asia, most of our revenue in what we call the China operation actually comes out of China, from Thailand, from Vietnam, customers over there, that we call, we bundle it in the China part, but it’s not really in China. Our revenue in China is very low and we’re not counting on that part really recovering, if you would, to anything near what it was. I mean, just to recap, the China operation was delivering about $12 million of revenue in 2020 and it is down to $3 million or so. So all that $9 million of revenue that vanished in China was really made up for in the U.S. and Europe, and which is why the growth in the U.S. and Europe is very strong, even if the consolidated numbers don’t show that.

Okay. Understood. Thanks a lot, guys.

Thank you, Jaeson.

The next question comes from Scott Buck with H.C. Wainwright. Please go ahead.

Hi. Good afternoon, guys. Thanks for taking my question. Sam, you mentioned in the release and on the call here the acceleration to production for the Lockheed project. I’m curious whether the geopolitical environment is causing you to see kind of similar uptake in demand or acceleration of interest in other parts of the business.

Yeah. Definitely. I mean, we’ve had uptake in some areas of the business. For example, customers in Israel that build some of the systems for -- vision systems for the Israeli military and so on had had a big push on orders to rebuild some systems that were destroyed on October 7th during the war. And of course, Ukraine continues indirectly to drive some demand for some of the optics. And that’s just beginning to grow. I think the U.S. is only now really starting to replenish some of the inventories that it depleted. Unfortunately, we don’t make ammunition directly, which is, from what I understand, one of the things that is in most shortage. But definitely, the optics and the cameras that go on some of these drones and loitering munition are growing demand.

Great. That’s helpful. And a follow-up to an earlier question. It sounds like you guys have the capacity to be able to handle not just the Lockheed project, but also perhaps one of these other potential deals you’re working on as well, right?

Yeah. Absolutely. I think when it comes to those kind of projects that are tens of millions of dollars in potential revenue, we probably, with the capacity we have worldwide and balancing things worldwide, can probably handle two, maybe even three of them.

Great. And then last one for me, Al, I’m curious, how are you thinking about the unrestricted cash balance here and how that bridges you to 2026 and beyond when maybe some of these larger deals kick in…

Yeah. So baked into this quarter -- yeah. Great question. So baked into this quarter, we actually were or this first half of the year, we were operating cash flow positive and will continue to be operating cash flow positive. Cash has gone down in the first half. That’s largely because of the Orlando facility. We’re still paying invoices, still receiving and paying invoices there, and the investment of another coating machine that we made in Riga. But the big chunks of that CapEx spend for this fiscal year is over. So in the second half of the fiscal year, we’re just going to dribble out the normal, actually below average CapEx. So from a cash flow perspective, I feel pretty confident that we’ll be okay.

All right. Perfect. That’s it for me, guys. Thanks a lot, sorry.

Thank you. Scott.

The next question is from Brian Kinstlinger with Alliance Global. Please go ahead.

Hi there. This is Shervin on for Brian. My first question pertains to your backlog. Last you mentioned that despite the lost revenue and renewals for your Germanium contracts that you’re working on transitioning Visimid to drive some meaningful backlog starting in 2Q. Did that happen this quarter, and if so, is there a sizable portion of the backlog that’s attributable to Visimid that you quantify?

Yeah. Definitely. Lockheed Martin, $4.7 million portion in the backlog that entered during Q2 is purely Visimid, as well as a few other smaller projects. But right now I’d say around $5 million of the backlog probably is about Visimid.

Okay. Thank you. And then, secondly, with the Lockheed partnership, just wanted to clarify, is LightPath competing with anyone for the component that you’re creating for Lockheed or is it guaranteed that if Lockheed selected that LightPath will be in every delivered install?

The latter. We’re the sole source on the Lockheed part. It’s a very big deal. That’s why Lockheed actually was extremely supportive of our acquisition of Visimid. From their point of view, it’s a significant bet that they made in that direction, and at the time, they decided or were going to decide on it, Visimid was a standalone nine-people company, and so the acquisition of Visimid by LightPath actually played a major role in this and sort of gave peace of mind to Lockheed in that. But we are definitely the only one developing that part for Lockheed.

Great. That’s great to hear. Last question, while I appreciate the strong demand from the defense industry, although we know it’s like lumpy and can be unpredictable, your products, and Mantis specifically, has really strong commercial applications, like the flame detection recycling centers that you’ve mentioned in the past couple quarters. So how do you go about building a healthy portion of a backlog that is more predictable? Like, are you doing anything there, like looking to hire more personnel, increase marketing spend, et cetera, just trying to get an idea? Thanks.

No. That’s a great question. And really a lot of our focus now is around the sales and soon will be on the marketing of those products. So if you look at myself as CEO, I tend to move around the business and focus my time on where it’s needed. And right now, absolutely my time is focused on the sales of these new cameras and new products. We’re building up more in the sales team. We’re tooling up to align ourselves to that. And we’re working very hard to lock in some strategic partnerships in some of those areas. Again, we can’t do everything. We’re just -- we are not going to build a sales team now that will go after 500 different camera companies -- company -- customers for cameras. And so the strategic relationship and alliances with key players in some of those areas, firefighting or process control of drones, they’re going to be key for us scaling up there.

And then in relation to the backlog, in the fire detection for which we already have a running business for those cameras, they’re not going to give us an annual order. They give us a forecast and we work off of that. So we’ll never see that in the backlog.

All right. Great. Makes sense. Thanks guys.

Thanks.

The next question is from Glenn Mattson with Ladenburg. Please go ahead.

Hi. Yeah. Thanks for taking the question. So, it was about seven months or eight months ago that China made the announcement of the export ban for Germanium. So, at the time, I think, you said, you might mentioned a timeframe of, like, how long it takes your customers to design in, your alternatives kind of nine-month to 12-month timeframe and so, I guess, I’m curious about how that’s going and if there should be some expectation of that to start to kick in kind of in the second calendar half of this year and that may also relate to the to the one customer didn’t renew yet on the backlog side just to, you could use him as an example, but just across the customer set in general, can you just give us a sense of how that process is playing out.

Yeah. No. That’s a great question. Thank you. It’s going really well. I mentioned a couple of customers as example. One of them is that largest customer for the sporting part. Typically, our annual orders from that customer have been between $4 million to $6 million as much as $6.5 million, I think, on one year and we haven’t renewed that. Our expectation now is really for -- the entire product line of that customer to possibly convert to using BlackDiamond materials. What we’re seeing is that, things have gone got an even worse with Germanium. At first, I think, many customers were still accessing Germanium through inventories to many maybe was making its way out of China in different ways and different creative ways, let’s say. But that is decreasing significantly. And as of now, from what we know, China has given zero export licenses to any Germanium at its final destination at the U.S. So they’re very, very specific in sort of what they’re going after there. And so we have two large customers for handheld devices, gun sites, binoculars and so on. They probably have around $10 million of potential revenue between the two of them. Both of them are working very hard to convert over. Next week I think we’re actually shipping some more samples to them. One of them already converted one product, sorry, which I mentioned at during the SHOT Show. They announced it as a new product and they also made it very clear at the SHOT Show to ourselves and anyone else that was asking that all new products are being designed only with BlackDiamond now. So I think we’re going -- we’re doing very well. I wish it could be faster than the time it takes. But unfortunately, doing some of those also requires some of the capacity and capability that is used for day-to-day production, and we can’t disrupt that too much. So it’s a balance we play.

But I think, sort of, Glenn, it took -- the Chinese made the announcement in July. And I would say, Sam, you can disagree. But it took until maybe November and December for the customers to start feeling…

Yeah. Absolutely.

… payment of that announcement and start the scramble looking for a solution.

Yeah.

And our conversations with those customers didn’t give them confidence that they were going to continue to get Germanium, right? So when it was clear that we weren’t going to solve, weren’t going to be able to solve their Germanium problem. That prompted them to take action. But it took -- I would say, took…

Yeah.

… a good six months before they realized it was real.

Yeah.

Which is why our largest customer first wanted just one product redesigned. But as we were working on that, they started realizing how difficult the situation is and immediately switched over to saying, let’s redesign everything.

Right. Right. Okay. Great. That’s very helpful on the backdrop. And I don’t know if this would be for Sam or Al, but could you give us a sense of, as you look at your back half of your fiscal year, you mentioned in the prepared remarks little about European recessionary conditions and things like that. Can you just give us a sense of how you feel about, well, all the factors coming together with the potential, I don’t know, if there’s any potential further disruption from the lack of supply or the supply drying up on the Germanium side or -- and then maybe the new designs not kicking in yet or maybe there’s some revenue coming through on the Mantis side of things like that. Can you just give us a general sense of how you’re feeling about the revenue topline in in 2H versus 1H…

Yes. So it’s interesting that the situation, the softening in Europe is really more around the visible optics where there’s a lot more competition globally and a lot of price pressure, a lot of production capacity and all that kind of good stuff. And those products tend to have industrial applications that sort of deliver next or the -- deliver more to consumer oriented products and that’s where we’re seeing the softening. The infrared side, because the infrared components, even without the major contract, on the infrared side, we’re still seeing growth in Europe and in the U.S. and demand in Europe and US for infrared components and the assemblies and solution type start of the business. But where we’re seeing the sort of the economics impact is on the visible component side. And again, they tend to lead towards a more direct path to a consumer product. So that’s where we’re seeing it in Europe. And I don’t have a crystal ball and they don’t say the recession word. If you Google it, the Europeans are like, we were a year ago. Nobody wants to say the recession word, but their economies are contracting.

Right. Right. That’s helpful. So, then when you factor that in, plus all the other moving parts and when you think about the topline outlook, can you give us any general sense of directionally how you feel about the second half versus first half? And that’s it for me.

So, my gut tells me that this past Q2 was the soft this quarter we’re going to experience. So, in Q3, we should see a little bit of an uptick and in Q4 a little bit of an uptick. Again, it’s the visible components that’s sort of what we worry about and you kind of nailed it with that. But they’re in decline regardless. So, it’s just happening a bit faster than we would have predicted six months or a year ago.

Okay. Great. Thanks.

[Operator Instructions] The next question comes from Gene Inger with ingerletter.com. Please go ahead. Mr. Inger, your line is open. Do you have it muted on your end?

Yeah. You hear me now?

Yes. We do. Thank you.

I apologize. I muted it as a courtesy. Sam, I hope you’re feeling better. Hi, Al, as well. And my first question I’d like to start is something you haven’t touched on, which is the Annual Meeting and the paperwork that was pending due to problems from the previous management before you guys began and an enormous task of turning around this small company. And I’m wondering if you can tell us if all of that is not of concern to shareholders?

Yeah. Absolutely. Thanks. I appreciate it. Definitely could have touched on that. I’m very, very glad to say that it’s all completely resolved now. And to recap, it was pointed to us by some external group that there were some problems in the registration of the company that went back all the way to 1995 when a 7-to-1 split or reverse split was done and was done incorrectly or so. And so we had to postpone the Annual Shareholder Meeting to it, file with the Delaware Court, Chancery Court, for a correction of the registration since we couldn’t go back and locate all shareholders from 1995 to have them revote that. All of that is behind us. Last week, the day before the Annual Shareholder Meeting, the court ruled on that, fixed the registration and we’re all done. We’re in very good standing now. And I think I can say that at this point, every single issue that we have found in the last three years has been fixed.

Good. Very briefly let me ask you a couple more questions. One, Scott’ Faris, Chairman of the Board and I appreciate the new Board members, by the way, the former major general, as well as a business manager, I believe, brought over from Luminar. A, are you bringing in more people intentionally from Luminar? And B, is there any linkage between LightPath and the private company that Scott is the CEO of called Infleqtion, and I mention that, because the Pentagon is in the process of jump-starting several key applications, I wonder, and some of that includes quantum computing, photonics, and I wonder if this is or can involve LightPath in the future?

Yeah. Well, first of all, we’re not poaching specifically on Luminar, and I don’t think we’re targeting specifically. It does happen to be that Luminar has recruited some great people over the years and there are some opportunities that have come up in which we recruited people that were in the past in Luminar, even the near past or the long-term past. But some great people joined us from there. And secondly, as it comes to Scott’s new venture, which is extremely interesting and I’d encourage everyone to take a look at that, Infleqtion. Like many things that is extremely heavy on photonics and quantum, all things quantum, quantum sensors, quantum computing, quantum communication, they are all very photonics oriented and driven. We have a very strong presence these days in free space optical communication, primarily in space, and that ties very much directly into some of the quantum communication, and also indirectly into some of the quantum sensor work that’s being worked on by many companies, Infleqtion being one of them. And we’re always very, very happy to see optics find -- finding more uses in more places. It’s -- to me, I get an extreme joy out of even the simplest thing, where seeing that the quantum engine might be replacing something as simple as a radio receiver soon and that’s mind blowing to see optics play a role in something like radio communication.

Can any of this relate as well to enemy submarines and to detection systems, because I know you’re doing spacecraft linkage and communication. You haven’t really touched on that with any more specificity. Can you elaborate?

Yeah. We have actually a couple of camera systems that are, one of them we’re going to, any day now, I think, a version of Mantis that we’re going to release, that are of extreme interest for threat detection, counter UAS detection, detection of cruise missiles as they come in and other things. All of those, we have two camera systems -- two separate camera systems that we’re working with customers on that show very, very promising results in that direction.

Do these relate to the U.S. Navy licenses we haven’t heard much more about?

Yeah. The U.S. Navy license enables a lot of that, and as I mentioned, we expect within the next two weeks, three weeks to release the first material formally from the Navy license, the BDNL-4, but in reality, the Mantis camera has already been using those materials for over a year now. We simply are now formally announcing it, that the material is available to others.

I think you have mentioned 100 to 200 Mantis cameras likely produced or sold this year. Does this year mean fiscal year? Are you talking about this calendar year?

This fiscal year. Pretty much on track for that, I think.

Okay. Now I would like to ask you just an overview. The military has been stunned by the Gaza War and by Ukraine, because they see the swarming of drones and how that offsets not only jet fighter aircraft, and maybe you’re working on the F-35, maybe not, the improvements, but also there -- you don’t want to fire a million-dollar missile to intercept a $5,000 cheap drone. That we’ve learned in the Red Sea. So I wonder whether LightPath benefits or suffers from the prospect of fewer costly missile systems that would intercept or work autonomously in the future?

Yeah. Yeah. Well, once we are done with the development of the Lockheed missile and hopefully once we have a missile that is awarded to Lockheed, my personal wish is that they fire a missile on everything they see, a drone or even a butterfly. But realistically, I think, what we’re seeing is, a very strong drive towards integrating more and more passive detection capabilities such as infrared cameras for detecting some of those drones. Today you simply cannot use a radar for detecting the drones coming in. That’s something that Ukraine has taught us and have learned, unfortunately, in a very hard way. Israel doesn’t suffer that because they’re fighting an adversary that is a terror organization and not a state. But in Ukraine-Russia war, for example, in what is called a near adversary or an adversary that has capabilities close to yours, you suddenly realize you cannot use a radar to detecting drones because the moment you turn it on, a missile is locked onto the radar and will hit you within minutes, seconds and so the use of cameras is very important. Two of our cameras that I mentioned for detecting threats from a distance, one version of Mantis and one version of a different camera, are of extreme importance, because they can do that in $10,000 as opposed to a $50,000 camera that is often used today. So I think we have something very unique there that will pay off really well.

Sam and Al, thank you. I feel better and I appreciate the aspirational goals that you have outlined in the presentations as well lately. And I know it takes time and I know how hard it is. So good luck and we’ll keep watching you.

Thank you, Gene.

Thank you, Gene.

Very well.

You too.

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 joining the call and the patience that our shareholders show as we are not only turning around the company but also plotting the new direction and now finally delivering on it big time. The Lockheed Martin, the automotives, the cameras, each one of those are tens of millions of dollars in annual revenue that will be coming down the road. Very big deal. The company is going to look completely different a few years from now and I’m excited to continue along this path. Thank you, everyone.

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