Good day, and welcome to the LightPath Technologies Fiscal Fourth Quarter 2024 Earnings 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. 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 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 could be no assurances that the projected results would be realized. In addition, references made by -- 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 in 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 and the full 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. Good afternoon to everyone and welcome to LightPath Technologies fiscal fourth quarter and full year 2024 financial results conference call. As always, our financial results press release was issued after the market closed today and posted to our corporate website. Fiscal 2024 was an important year in our transformation from a pure component supplier to a system provider, delivering during the year new products, new contracts and starting to see growth driven by these new product lines. Just over three years ago, we set on a new course with a new strategic direction, taking us from being a pure component supplier to a systems or solutions provider. For those not familiar with this, I will provide a brief overview. Prior to this shift, LightPath has been for the greater part of 30 years an optical component provider. What many years ago was a unique technology molded optics had become over the years a crowded marketplace going through the classic transformation and commoditization. As such, LightPath's core business was eroding, unit prices decreasing and with them margins and profits. In 2021, we set a course on a new strategic direction, one that leverages some of our key technologies to deliver subsystems and system level solutions instead of just components. Aiding in this have been two important shifts happening in our industry. First optics or photonics more generally as a whole is being used in more and more applications and industries. More times than not those new customers starting to use the technology seek a partner that will provide a complete optical solution rather than components they would need to build in themselves. So essentially the structure of the supply chain of our industry is changing, creating an opening or an opportunity for a company like LightPath to become…

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 to access these documents. 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, revenues for the fiscal fourth quarter were $8.6 million compared to $9.7 million in the year ago period. Sales of infrared components were $3 million or 35% of the company consolidated revenue. Revenue from visible components was $32 million or 37% of consolidated revenue. Revenue from assemblies and modules were $1.4 million or 16%. Revenue from engineering services was $1 million or 12%. Infrared component sales decreased approximately $1.7 million or 36%, primarily due to decrease in sales against a large annual contract for Germanium-based products, which was not renewed in the second quarter of fiscal year 2024. As we decided to reduce the amount of optics, we produce from Germanium, both to reduce our risk of supply chain disruption and more importantly to work with customers to convert their systems to use optics made of our Black Diamond materials. Visible component sales were approximately $3.2 million or flat in comparison to the same quarter of the prior fiscal year. By industry, there was a decrease in sales to defense customers due to timing of orders and an increase in sales through U.S. catalog and distribution channels. Assemblies and modules revenue decreased approximately $0.2 million or 14%, primarily due to sales of a custom visible lens assembly to a medical customer, for which we have an end-of-life order backlog going into fiscal 2025.…

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

Great. Thanks so much. A lot of information to unpack, based on your backlog and your pipeline and a lot of things you've discussed, how should we think about fiscal 2025 in terms of revenue just from a high level? Do you expect a year of double-digit growth given this year was -- or this past year was depressed? How do you think about seasonality and as your largest customer I was unclear have they begun to order Black Diamond Optics?

Hey, Brian. The first answer is that, if you -- we would take the low end of double-digit growth is our expectation for growth, for the next fiscal year.

Okay. And the seasonality in your largest customer?

The largest customer has not started yet taking volume delivery of Black Diamond. It's still in the evaluation stage on their side. We've delivered everything needed for that and -- but we expect them to be able to ramp up quickly once the decision is made. So it was given…

The timeline targets without them?

Yes, I mean we've -- part of the, the reason for the decision was that with the defense license in Europe, we feel and know that we can use the same capacity for more lucrative defense business in some cases. And so moving away from Germanium, it's not only because of germanium per se, but it's because when we're talking about the commercial customer like this gun sized company, even when it's not germanium, when they're still being comparing us to suppliers from Asia, let's say. Where in the defense business in Europe, once we have that license, we're competing against other European companies and our cost basis in Latvia is very of a low compared to most European companies. So, we want to leverage as much of that capacity as we can for defense business in Europe. I expect that even when this customer comes back, it would not be at the levels of what it was when the germanium was at full force, simply because we're starting to land in already new customers for the same capacity that are honestly more lucrative and better for us.

And Brian, we can use the Latvian facility for ITAR defense work in the U.S. as well. And considering their cost position, there's not too many companies in the U.S. that can go lower.

And then you mentioned Raytheon is Lockheed's competitor for the new missile system. Assuming like most procurements, there was a down select process and it started with more competitors. Have you received feedback yet as far as Lockheed standing? And then when do you expect reasonably there might be an award, especially, as we enter constant continuing resolutions, which are going to start right away?

Yeah. So first of all, the down select has already happened. The first round included more vendors. The army then chose to take a very unique approach, something that almost never gets done and that is to fully fund Lockheed and Raytheon all the way to the end. So they are both fully funded to deliver missiles ready for prime time and that is simply because they really want to accelerate this, running out of missiles, which they haven't run out of them yet and geopolitics unfortunately is not improving around the world. And so, this is all done on an accelerated course at which by the end of it both companies are going to have a ready product in the same time. We know that the Lockheed Martin solution is preferred on paper, since it provides significant advantages, which we cannot talk about. But the Raytheon is the incumbent. Raytheon designed and made their first generation single missile all these years and is incumbent in this player. So obviously have some built in advantages, even though the technology of Lockheed, we believe is far superior in this case. The earliest we expect is a year from now, September or November 2025 as a possibility of a decision as it stands right now.

That's very helpful. And then you mentioned last quarter and this quarter again, the second opportunity for an airborne system. It sounded like it's a program of record and I thought you have the design win, which I'm assuming means this is your program. If I have that and you mentioned tens of millions of dollars of potential annual revenue, first of all, why is it potential if you've already won? Is it just an estimate, is it difficult to understand and when will production begin for this?

Well, potential is something my lawyer taught me to say in every sentence. So he will beat me to death, if I say anything definitive. But we are the sole source for the prime such as building that system, that system is going to go on the Apache helicopters by the way. We are already awarded buildings that prototypes for it and we expect to deliver the first three prototypes in -- by the end of this calendar year more or less, so maybe beginning of next calendar year. At which point if it goes well, we will immediately be awarded the elevates, the low rate initial production. Right now, the award we have similar to the Lockheed is the award for the development effort. We don't have yet a contract or if we would, we obviously would have.

But does anyone else have a development award for prototypes or just you or just your team?

Just us.

Got it.

It's using Black Diamond material.

Yeah. It's using the NOL materials by default we are the sole source.

You can't get them anywhere else, Brian. That's it.

Got it. My last question is, you announced the launch of your new MANTIS camera for greenhouse gas emissions. First of all, does that mean readily available for sale to all customers or is it also still in prototyping or proof of concept? And then, I know you put out the TAM, can you quantify the pipeline say in the next 18 months and how do you think about the sales cycle?

Yeah. So first of all, I thought we said it in the press release, if not we should have emphasized, we have already shipped. So we have orders and started shipping to that. The term or what our addressable market or serviceable market would be, I would say the price we're looking at is up to 30,000 per unit and I think there's a reasonable amount of it being in three digit units. So being 102, 100 units a year, I'm not sure how fast we'll get there. I doubt it would be immediate. I wish it would be, but I doubt it would be, but that sort of gives the range of where we think currently. What we think -- and that's just based on existing market and technology. What we think and hope might happen is that we are enabling customers to do more with those cameras compared to other solutions in the market, in terms of optimization of the burners inside the furnaces, inside the power plants and therefore the market size will grow. But right now, I'd go with those numbers.

Yeah. And Brian, the other thing is, is this is sort of like a standard product almost. It is application specific, but it is sort of a standard product, which means we're actually building to forecast. So you don't -- we're not going to see that backlog anymore. And so that's one of the things that we relied on backlog before to sort of be very definitive in terms of what the future looked like. That's not really going to be the case for the gas detection cameras. And then, for related cameras that sit in that same camera family.

Okay. Thanks. I will cease the floor for others.

Thank you, Brian.

The next question comes with Jaeson Schmidt with Lake Street. Please go ahead.

Hey, guys. Thanks for taking my questions. I just want to follow-up on that last question on the next-gen MANTIS. I know it's more targeted for this specific end market, but just curious if some of the features on this new camera were things that your customers in that market were specifically asking for? I know kind of the previous MANTIS version could have theoretically addressed this market, but just trying to get a sense if there was kind of customer demand for kind of the features in this new one?

No, you're absolutely right. And I think you hit it on the -- at a really important spot. This version of MANTIS came out of very detailed conversations with the customers. Some of them because we just had the conversation with customers, some of them because of the team we have now. Jason Messerschmidt has joined us from FLIR along with a couple of other new recruits in the sales, business development, product management side come with an extensive experience in the oil and gas industry. I mean they know things like, even – understand before, that’s all possible, so with their help, with these new team members that joined us all in the last few months, we've been able to fine-tune what we felt like is a great technology MANTIS that from a pure technical point of view could do an enormous amount of things. They were able to take it and fine-tune it and saying, okay, it's great we can do ABCD thing. Let's just focus it down on doing CO2, looking at the CO2 emissions in a furnace, switching between looking at the flames to looking at the heat distribution, things like that. In theory, it's the same MANTIS. Realistically, this is the application side now driving it, which honestly is the way it should be.

Got you. That's really helpful. And then just looking at OpEx, I know Al, you mentioned taking $1.2 million of costs out of, out in 2024. Just curious how we should think about sort of the new level of SG&A going forward?

Yes. So it's the efforts we did in 2024 to reduce our overall structural costs, doesn't really fully kick in. It does now in Q1, but we sort of changed things in Q3 with the restructuring. And then in Q4, we did more activities around restructuring and reorganizing, so that in Q1, we get the sort of full year benefit. That being said, we are plowing money back into business development initiatives. So we're probably going to take that $1.2 million and structural cost reduction and spend it elsewhere, not for the entire year, but for some of the year. Some of the things, I mean, your last question kind of dovetails into, it's nice to have a nice camera but you have to sell. So we're going to spend a tremendous amount of effort on that side.

Okay. That makes sense. And then just the last one for me and I'll jump back into queue. Looking at the auto opportunity, I know you mentioned sort of thermal imaging behind the windshield, but just at a high level has the timetable that you guys are thinking about this opportunity changed or is it still kind of a couple of years in the future?

Yes. I think because there's a definitely a desire or goal of the industry to be behind the windshield, deliverance in the next year or two are going to be small in scale. So we were hoping, I think we were expecting to be delivering already 20,000 units a year now and start scaling up to the hundreds of thousand for that key customer. It's not going to be in those numbers. We're going to be in the thousands of units and that is simply because no one wants to go and implement it in the car in high volume in a configuration that's going to be very different than the configuration that the auto industry is going to adopt in 2028 or so. And so the next two years, we're going to see some volumes that's going to be for new companies, new Tier 1s OEMs starting to get familiar with thermal imaging. So to test it in low volumes, but the real volume will start once the windshield solution is developed and that requires extensive work on the next two years by the auto industry on the windshield side, not on the thermal imaging side.

Okay. That's really helpful color. Thanks a lot guys.

Okay. Thank you.

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

Hi. Good afternoon, guys. First, I want to follow-up on one of Brian's questions, Sam. If a decision is made on the Lockheed missile program 12 months out or so, how quickly then does that move to production after that agreement is, or that decision is made? I mean is that three months, is that six months, what is that process?

Yeah. The conversation -- that's still a bit up in the air. The conversations we're having are still indicating that we will be next calendar year setting up the infrastructure for production in Orlando. So that means that our part at least, I don't know about the rest of the parts that go into the Lockheed missiles at their business, but our part we could in theory start shipping within about three months after the decision is made.

Okay. Perfect. That's helpful. And then Al, given the shift in revenue with more coming from assemblies and engineering services, can you remind us how the gross margin dynamics work and how we should be thinking about things over the next 12 to 24 months as that ratio continues to move higher?

So the margins on assemblies and modules are higher, higher than LightPath has had in the last two or three years that I've been here. So we should be -- for those products north of 40%.

Okay. Perfect. That's helpful. And then last thing, I just want to ask about cash balance. You mentioned you took out the $3 million loan in August kind of as insurance. But generally, what do you need to run the business cash wise?

Well, we are projecting being operating cash flow positive. So what we need is, whatever we decide to spend in CapEx above that and any other business development initiatives that we feel require cash investments.

All right. That's helpful.

Not huge amounts. I tried to sort of say that, it's not big numbers anymore like in the prior two years.

He doesn't allow me to spend anything is what he's saying.

I appreciate the added color guys. Thanks a lot.

Thanks, Scott.

The next question comes with Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Hi. Yeah. Just a quick one for me. Most of the things have been answered already, but just you mentioned that you could be setting up for LRIP next year with Lockheed. Can you say, is there a expense related to that or are you prepared for that or is there anything you need to do to get ready for that?

The money that went into the Orlando facility was for that. So physically, the infrastructure layout is there. Specific equipment that would be needed, capital equipment, we still expect it to be paid by the customer.

Okay. Great. And then last for me, just curious about the AI envision camera technology. I guess in the UAV space, you see a lot of people who are looking to do, especially defense side, the ability to navigate through vision systems and things because they don't want to rely on networks that can be jammed and that kind of thing. So is that -- there's a lot of growth in that space. I'm just curious is that an area that it could be?

There is definitely that's a very interesting area. I think it's definitely some companies we're in touch with at least two that do that and we know that. But most of the applications we are seeing so far are much more basics as in target acquisition, pointing the [indiscernible] by direction, tracking the target that’s moving and so on.

Okay. That's it. That's it for me. Thanks.

Okay. Thank you.

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

Hi. How are you? It's [indiscernible] from AIG (ph). In terms of the missile, I know you delivered the actual commercial version or pre-commercial version to actually fire missiles and they've got to actually test real life firing of missiles. Do you have any idea if that's commenced already? Is that something they're going to give you feedback? I assume they're going to give you feedback at least on your portion if it's involved in anything that they need to give you feedback?

Yeah. Hi, [indiscernible]. Good to hear from you. I'll answer that as much as I can since we, Lockheed is in competition with Raytheon, so I need to assume that, whatever I say can be heard by anyone really. We achieved a worthy certification, meaning that the units can go on missiles. In the next few months, we're going to start shipping units that will physically go on missiles. Once they do and they start flying, definitely we're going to be receiving a lot of feedback. I mean, let's say very, very intimate workflow between our group and Lockheed down to almost as if they're working in one company altogether. I mean, it's just a lot of back and forth there. So there'll be a lot of tweaking and work done once we start firing and seeing flight data.

How is it logically possible though, I assume there's got to go through a lot of flight testing and debugging etc. How would it be possible that they can really get into production where they'd have to -- you have to be ready for production in 2025?

Let me say it this way. These are people that have been doing this for many, many years and have a lot of trips, trick and treat trips up their sleeve that they can do and an enormous amount of existing data that they based this on in simulation. So you'd be amazed, but it's not as if they're going to be firing physically thousands of missiles to collect the data and optimize this. There's some very, very sophisticated systems that these companies have built over the years that are used for this.

Is there a significant number of deliverables that you have to do in the coming few months?

Every week pretty much.

We can't share a lot of them, but the program is very intense in its thing. I mean, in general, we're in the next few months or looking at shipping over 100 flight units to that extent. But there's many, many deliverables along the way of many different aspects of this.

I mean, I know you've alluded to an ASP, but that's a lot of $1 million of -- if I'm incorrect on that.

Yeah. I mean, you can even just go and look at the federal budgets and concede that. But if you look at the single Gen-1 and that they built over 105,000 of them, I think, and unit price of those missiles is 6 digits.

And then, just for your portion of the build that you alluded to 100 units, a lot of money, $1 million for, like that, if I'm not incorrect?

Well, that's part of that NOV that $7.5 million that we talked about. And that's yes, definitely we're doing quite a bit of business with Lockheed now.

Okay. Last question for me just in terms of the, you alluded to using AI, is that for an infrared camera or just the regular camera?

So that's an interesting point. We started focusing only on infrared cameras. Again, I strongly believe in focus, right. So we can't spread too thin. We're not a large company. We can't do too many things. But what we've seen is the moment we started talking about that, we're having a lot of conversations, people are asking also for visible. So, the company we're working with in Israel, Maris-Technology, which is a great partner to have and we're doing incredible things together, has actually developed a version that allows us to feed two cameras in. So, in theory, we can make any of our systems into dual cameras that would be both visible and infrared. Again, I'm very, very cautious. We can't spread our R&D money and development too thin. So once we start generating real revenue from there, we can look at next steps and adding more versions or more capabilities.

Part of this question, I wanted to ask today, it came via in a public forum like this call, is the security camera business for high end security cameras with a lot of intelligence built in AI intelligence is just booming in the last two, three quarters as evidenced by Motorola's business is just booming. And everybody wants more and more intelligence at the edge for the reasons that you outlined in the call. I have not heard and here's where I need your insights and what's really going on in the development of the whole industry. Does anybody have an infrared camera that [indiscernible]?

Yeah. So actually you're touching on exactly what our most of our activities right now with our AI or HI-R (ph) cameras are around that intruder detection, detection of perimeter security and so on. There are a couple of players there, but again there's just so many companies that are wrongfully relying right now on streaming and on using online computational services, and we're hearing that once they go out to the field, they're infra not so surprise because no one in a significant infrastructure facility will let you connect a system to the Internet and connect and allow you to stream. So this is exactly where we're playing.

So in my question, that is a very specialized market that dominated by Motorola and a few other players. And I guess my question is, don't you need to get into a major player where you can demo basically you're doing like you always say your expertise in terms of the infrared capability and fully packaged assembly and APAI as well, although, they have their few players have their own AI is what made me think of it. You really want to be OEM into Motorola? Isn't that the goal?

That's exactly where we want to be. So we're working on two fronts. One front is working with OEMs like Motorola and such for them to buy the camera for us and integrate it. And another front is what we call a software ecosystem, where we're developing a portfolio of say partner companies that have focused only on the software and we know that they have currently huge challenges going out and actually selling the product in the field and we're working with them to make the software, the AI that they developed compatible into our camera, so that it can make it much easier for customers to use their software. So two fronts in parallel.

Okay, very good. Thanks so much.

Thank you, [indiscernible]. Good to hearing from you.

This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you everyone for taking the time to follow-up on LightPath. I'd like again to thank our employees and all stakeholders. The last four years have been quite a bit going on with many, many different things we had to do, but we're there now. We have some incredible opportunities that we won and continue to win, thanks to the hard work of the team. We have the future ahead of us, and we're pretty much done with most of the cleanup. So we can really focus now on the future and on growth. I look forward to hearing everyone in future calls and as always, I'm available directly on the website or in any other way for anyone that needs any questions. Thank you and good night.

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