LightPath Technologies, Inc. (NASDAQ:LPTH)
F4Q 2013 Results Earnings Call
September 5, 2013 04:30 PM ET
Dorothy Cipolla - Chief Financial Officer
Jim Gaynor - President and CEO
Good afternoon and welcome to the LightPath Technologies Fiscal Fourth Quarter Earnings Conference Call. All participants will be in a 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 Dorothy Cipolla. Please go ahead.
Thank you and good afternoon. Welcome to the LightPath Technologies 2013 fourth quarter and year-end financial results conference call. Our call today will be hosted by Mr. Jim Gaynor, President and CEO.
Following management’s discussion, there will be a formal Q&A session open to participants on the call. Before we get started, I would like to remind you that during the course of this conference call, we will be making an number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any of them can prove to be inaccurate and there can be no assurance that the results will be realized.
With that out of the way, it is now my pleasure to introduce Jim Gaynor, President and CEO of LightPath. The floor is now yours.
Thank you, Dorothy and welcome to everyone who has joined us on the call today. We appreciate your ongoing interest in LightPath. I will open with an overview of operational results highlights and then turn the call over to Dorothy for a more in-depth review of our financials. After some closing remarks, we’ll open the call to your questions.
I am pleased to report continued improvement in the company’s operating results driven by strong demand for our optics across a broad base of our market segments. Gross margin improved to 45% for Q4 of ‘13 versus 40% for Q4 ‘12 and 44% in fiscal year 2013 versus 30% in fiscal 2012.
This was due to the cost reductions we implemented and higher unit volume sales, which increased our overhead leverage. In fiscal 2012 and fiscal 2013, we recognized revenue not only from our product business, but also from our participation in a DARPA program.
To better understand our ongoing operating performance, it will be more helpful to look at our performance without the effect of the revenue from this DARPA program. In that case revenue generated from our products in Q4 of ‘13 was $3.1 million versus $2.6 million for Q4 of ‘12 or up 18%.
The combination of increased sales volume and lower costs resulted in fourth quarter operating income of $206,000. EBITDA which excludes the effect of non-cash expenses associated with the mark-to-market adjustments related to our warrants issued in June of 2012, increased by nearly 24% to $471,000 and we had positive operating cash flow of $622,000 for the fourth quarter.
For the year, we demonstrated strong operating leverage with increases in both sales and EBITDA, resulting in LightPath’s first profitable fiscal year. The company’s operating result for fiscal 2013 and fiscal 2012 as reported under Generally Accepted Accounting Principles, GAAP included the effect of quarterly mark-to-market adjustments related to warrants that were issued in connection with our private placement in June of 2012.
We believe a more important comparison of ongoing operations exclude the effect of the non-cash expenses associated with such warrants and is more helpful for our investors to better understand the financial results of our ongoing business operations. After adjusting for this warrant expense, non-GAAP net income for the fourth quarter of fiscal 2013 was $259,000 or $0.02 per share, compared to $92,500 or $0.01 per share for the fourth quarter of fiscal 2012.
Non-GAAP net income for fiscal 2013 was $230,000 or $0.02 per share, compared to a net loss of $968,000 or negative $0.10 per share in fiscal 2012. We believe this non-GAAP measure reflects the strength of the fourth quarter; better represents how our product business is performing and represents an inflection point for the company to build on as we go forward.
Of course these non-GAAP measures also enable shareholders to better analyze our cash flow. Dorothy will review in her remarks the changes in our cash position. But one key highlight is that we increased our cash at the end of the fourth quarter by 12%, as compared to the end of the third quarter and further bolstered our cash position after the end of the fiscal year as warrants were exercised
Our strong operating performance has been driven in large part by successful demand creation, related to our proprietary precision molded optics. Our ability to reduce unit production cost substantially more than our reduction in end user prices had led to accelerating market adoption of end products.
Demand for LightPath aspheric lenses has increased in both its domestic and Asia sales regions. We like the advantages of this geographic diversification. Other diversification benefits maybe found in our end product markets which are now being driven by increased demand for aspheric lenses used in laser tools, telecommunications, digital projectors, industrial equipment, weapon sights and green lasers as well as other areas.
LightPath anticipates these increased demand will phase in over the next two quarters and provide potential incremental revenue growth in excess of 15% on an annualized basis. Again it is important to note that the product demand we are seeing is broad based across several of our larger market segments. It is not limited to any specific industry, market or geographic location.
Optics is a strategic technology that is critical in many manufacturing processes as well as the key component in end products. We believe that the optical market has a beginning of the multi-year growth cycle driven by four major market themes, expansion of cloud computing, digital technology used for video distribution, expansion of wireless broadband and machine-to-machine connections.
Cloud computing is causing a shift in enterprise technology with increased spending for software-as-a-service and infrastructure-as-a-service capital investment. Delivery of applications and technology in using software-as-a-service and infrastructure-as-a-service requires larger and faster network bandwidth. The explosion of mobile devices, which includes smartphones and tablet devices, is also requiring the expansion of network bandwidth, as users are receiving and transferring larger amounts of data via their mobile devices.
The number of mobile devices will exceed the global population by 2016, and is estimated to be at 1.4 devices per person. Individuals are also streaming more video on their mobile devices and through their smart TVs. This type of video distribution through digital technology, which is estimated to become 70% of all network traffic by 2016, is creating a huge demand for larger and faster bandwidth.
Finally, machine-to-machine connection technology allows wireless and wired systems to communicate with other devices of the same type. This type of networking often requires bandwidth in order for the machines to communicate with each other. All of these themes require the expansion of bandwidth, and thus, the growth of optical communication networks.
LightPath produces products, such as our precision molded optics products, that can be used as a component in optical communication networks. Beyond precision molded optics which has been the most significant catalyst for our improved financial performance, our growth strategy also includes our growing infrared optics business.
We recently announced an expansion relating to the business team with the hiring of our worldwide infrared sales manager Glenn Breeze. Glenn is a great addition and comes with direct experience in this field having previously worked for [Umicore] [ph] and Ophir.
One of our competitive advantages in the infrared markets is the leverage we have in the molding process as a disruptive technology. Molding is a key enabling technology to commercialization of new applications in infrared systems and provides further benefit through manufacturing cost reductions.
Due to LightPath’s investment in technologies and process improvements that have significantly reduced the cost of optical components and increased manufacturing output, we now have exposure to what we believe is a segmented addressable market of $100 million annually for infrared optics, derived from an overall infrared systems market estimated to be at $35 billion.
Like our precision molded optics business, infrared markets have a multitude of growth characteristics and offer market diversification including defense, paramilitary, law enforcement, automotive and other large scale commercial applications. With our improved operating performance in our strengthened balance sheet, we are now very well positioned to implement our growth strategy and access markets for both precision molded and infrared optics.
The themes driving market adoption along with our growth strategy are complemented by the excellent value proposition that we bring to our customers with competitive prices and superior quality. These are the reasons we believe we are experiencing increasing demand for our precision molded optics and why we have confidence in our continued growth going forward.
I'll now turn the call over to our CFO, Dorothy Cipolla.
Thank you, Jim. First, I'd like to mention that much of the information we're discussing during this call is also included in the press release and the Form 8-K we issued earlier today. I encourage you to visit our website at lightpath.com and specifically the section titled investor information, where we’ve included the presentations that we’ve made at recent investor conferences.
I’ll now review highlights from our 2013 fourth quarter, which ended June 30, 2013, followed by a discussion of our fiscal 2013 financials. Revenue for the 2013 fourth quarter totaled approximately $3.13 million compared to approximately $3.10 million for the fourth quarter of fiscal 2012 an increase of 1%.
This increase was primarily attributable to growth in revenue from sales as a company’s telecommunication products including our precision molded optics product which overcame the effect in the fourth quarter of fiscal 2012 of a large purchase order from a customer in connection with the DARPA low cost thermal imaging manufacturing program.
Looking at our precision molded optics business, revenue increased 18% compared to the fourth quarter of last year. This demonstrates that our strategy to expand our precision molded optics through improving our cost by leveraging purchasing volumes bringing anti-reflective coating in-house, improving our tooling lines, improving the productivity in our Shanghai factory and broadening the customer base to expand the distribution in direct sales in Asia and have all been successful.
Our gross margin percentage in the 2013 fourth quarter was 45% up from 40% in the prior year. Total manufacturing cost of $1.72 million decreased by approximately $154,000 in the 2013 fourth quarter compared to the same period last year due to improved productivity associated with higher unit volumes and the impact of cost reduction.
Now I'll discuss the full year highlights. Revenue for fiscal 2013 was approximately $11.78 million compared to approximately $11.28 million for fiscal 2012 an increase of 4%. This increase was primarily attributable to revenue from precision molded lenses for the telecommunications and laser tool markets and custom optics, which overcame the exclusion of the DARPA program revenues that contributed to prior year.
The number of units of precision molded optics sold increased by 35% due to the company’s increased production capabilities and the pursuit of low cost high volume lens business. We expect continued growth in sales of our precision molded optics product line, infrared products that are now being designed and will be introduced in fiscal 2014 are also expected to accelerate the company’s growth more meaningfully beginning in fiscal '14 and continuing beyond.
Gross margin percentage for fiscal '13 were 44% compared to 36% in fiscal 2012. total manufacturing cost of $6.61 million were approximately $642,000 lower in fiscal 2013 compared to fiscal 2012. This decrease in manufacturing costs resulted from a decrease of $219,000 in labor costs, a decrease of $304,000 in tooling costs, a decrease of $92,000 in freight costs and a decrease of $55,000 in supplies partially offset by an increase in direct costs of $31,000 due to higher unit volumes. Direct cost which include material, labor and services were 24% of revenue in fiscal 2013, as compared to 25% of revenue in fiscal 2012.
Cash and cash equivalents totaled approximately $1.57 million as of June 30, 2013 an increase from $1.4 million at March 31. The current ratio as of June 30 was 3.75:1 compared to 3.59:1 as of June 30, 2012. Total stockholders' equity as of June 30 totaled approximately $5.43 million compared to $4 million as of June 30 of last year.
Subsequent to the end of fiscal year, 829,000 warrants which were previously issued have been exercised and converted into common shares. We received aggregate gross proceeds from these exercises totaling approximately 1.3 million, including these warrant exercises are issued in outstanding ordinary share count has increased to approximately 13.74 million shares.
I would like to point out that 70% of proceeds came from our directors and our larger shareholders.
As of June 30, 2013, the company's 12 months backlog was $4.14 million compared to the $4.89 million as of June 30, 2012. The change in backlog does not include three large orders totaling over 70,000 which has been expected in the fourth quarter of fiscal 2013 but were delayed until the first quarter of 2014.
With this review of our financial highlights concluded, I'll turn the call back to Jim.
Our focus is to accelerate our top line growth while effectively managing our cost structure. We are rigorously pursuing opportunities to further expand our current accounts and develop new ones. We believe the themes I outlined earlier, will provide continue growth and in addition we continue to see future opportunity for our infrared products. These opportunities are broad-based across several of our larger market segment and not limited to any specific industry market or geographic locations.
We believe the company is well positioned to capitalize on many opportunities we see ahead. I will now open the call to any questions.
As it appears we have now questions. This concludes our question-and-answer session. I would like to turn the conference back over to Jim Gaynor for any closing remarks.
I'd like to thank everybody for joining us today and I particularly want to congratulate our employees for the hard work that resulted in our first profitable year. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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