LightPath Technologies (LPTH) has announced its fiscal second quarter 2024 financial results, revealing a strategic shift towards value-added solutions and imaging systems, and a decreased reliance on Germanium components. Despite a reported net loss of $1.7M and a revenue decline to $7.3M, the company is optimistic about its future, citing major potential revenue opportunities, such as an expected initial production order from Lockheed Martin (NYSE:LMT) exceeding $50M. LightPath has also emphasized its progress with automotive Tier 1 customers and the defense sector's embrace of its new BlackDiamond glass products.
Key Takeaways
- LightPath is transitioning from component manufacturing to providing value-added solutions, focusing on imaging solutions and defense market share growth.
- The company is collaborating with Lockheed Martin on a major project with an anticipated initial order worth over $50M.
- LightPath is replacing Germanium with its proprietary BlackDiamond material in infrared imaging systems.
- The company reported a net loss of $1.7M and a decrease in revenue to $7.3M for the fiscal second quarter.
- The total backlog as of December 2023 was $21.2M, with the China business reaching its bottom.
- LightPath's Orlando facility expansion could potentially increase revenue capacity to $50-70M.
- Kim Crider, former CTO of the U.S. Space Force, has joined the Board of Directors.
Company Outlook
- LightPath anticipates an uptick in revenue in the second half of the fiscal year, driven by defense and automotive industry partnerships.
- The company is optimistic about the demand for its Mantis cameras and passive detection capabilities in military applications.
Bearish Highlights
- Revenue and gross margin have decreased, primarily due to a decline in visible component sales.
- The total backlog has decreased compared to the previous year.
Bullish Highlights
- Infrared component sales have increased, and the company is seeing demand from new markets, including Israel and Ukraine.
- The defense business has launched a new gun sight product and is designing future products with BlackDiamond material.
Misses
- LightPath did not book their usual annual renewal order for Germanium optics from their largest customer in the second quarter.
Q&A Highlights
- The company discussed the impact of the China export ban on Germanium and their efforts to transition customers to BlackDiamond materials.
- LightPath addressed their capacity to handle large projects and the positive reception of their BlackDiamond glass in new defense products.
LightPath Technologies' fiscal second quarter 2024 results reflect a company in the midst of a strategic transformation. While facing challenges such as a net loss and decreased revenue, LightPath is forging ahead with new products and partnerships that promise to redefine its market position. The company's proactive response to supply chain risks and its innovative material solutions position it to capitalize on emerging opportunities in both the defense and automotive sectors. With a focus on growth and a clear vision for the future, LightPath Technologies remains a company to watch in the evolving high-tech optics and imaging industry.
InvestingPro Insights
LightPath Technologies (LPTH) is navigating a period of strategic realignment, as indicated by its fiscal second quarter 2024 financial results. InvestingPro data and tips offer additional context for investors considering the company's future prospects.
InvestingPro Data metrics highlight the company's current financial standing:
- Market Cap (Adjusted): $58.19M, reflecting the company's valuation in the market.
- P/E Ratio (Adjusted) for the last twelve months as of Q1 2024: -14.53, suggesting that investors are expecting future earnings growth despite current losses.
- Revenue Growth (Quarterly) for Q1 2024: 9.64%, indicating a recent uptick in sales that could signal a positive trajectory.
InvestingPro Tips provide additional insights that may influence investment decisions:
- Analysts have recently revised their earnings expectations downwards for the upcoming period, indicating potential challenges ahead.
- The company's liquid assets surpass its short-term obligations, which could provide some financial stability as it pursues new market opportunities.
Investors can find more InvestingPro Tips on LightPath Technologies at https://www.investing.com/pro/LPTH, including an analysis of the company's profitability and dividend policy. There are an additional 4 tips available, offering a deeper dive into the company's performance and outlook. For those interested in a comprehensive analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
Full transcript - LightPath Technol (LPTH) Q2 2024:
Operator: 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.
Al Miranda: 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.
Sam Rubin: 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, Texas, does to the back end of thermal cameras what LightPath has been doing for the front end of those cameras. LightPath has been tailoring and customizing the optics for cameras based on our base optical technologies, and Visimid customizes and tailors the video processing engine and support electronics for the same cameras. Like LightPath’s business model for customizing optical assemblies to be used in infrared cameras, Visimid established itself as a go-to for customize elect -- for customizing the electronics and software part of uncooled infrared cameras. In fact, Visimid has customized for LightPath’s electronics and software of our Mantis camera. Together with Visimid, we now extend our offering to customize imaging solutions to include wholly integrated camera modules, increasing the offering to existing customers and providing us a bigger share of those customers’ spend. During the second quarter, we continued the integration of Visimid with a focus on new products in fire, safety and defense. This acquisition added the capability to produce end-to-end custom imaging cores and the new engineering capabilities that allow us to be involved earlier with our customers’ design cycle and increase our likelihood of servicing those designs through to manufacturing. We are integrating Visimid’s custom imaging cores into new camera products, several of which demonstrated at the recent SHOT Show in Las Vegas and some we are working to customers -- with customers to develop customized solutions. All of these products are utilize Visimid’s unique video engine in conjunction with our optics to develop low weight, high efficiency solutions for drones, UAV, as well as industrial applications such as gas sensing, process control and early fire detection. Shortly after the acquisition of Visimid, Lockheed Martin awarded Visimid and LightPath a major project for the design, development and later on the manufacturing of a complete imaging system for a new project in their Missile division. With the award came what will be up to $7.5 million for the development money. $4.7 million of that was already in a formal purchase order and is now part of our backlog. In this project, Lockheed Martin is competing against another prime defense contractor to develop a new missile system. At first, the development portion of this project was expected to last until 2028, at which point the end customer would decide if the production is awarded to Lockheed Martin or its competitor. However, there is significant pressure now to shorten this timeline as much as possible, and as such, the decision point has recently been pulled in and we now expect that the decision regarding the production award will be as early as 2026, two years ahead of the schedule we shared during the announcement of our initial award. If Lockheed Martin is selected for the production, we expect an initial production order for around 10,000 units. Our ASP per unit is between $5,000 to $10,000. That will put the initial expected production order to be north of $50 million. That is the production order to LightPath. Additionally, the volumes for follow-up production have also increased, with the potential now for tens of thousands of units. The demand and shortened timeline for the project are being impacted by recent geopolitical escalations. Results so far are very positive and our customers are in fact very confident and so confident about their solution that they’re looking to begin investing in production of the units even before an official decision is made. As such, we expect that LightPath might start building up the production line this year already. The basic infrastructure for this production line has already been prepared and paid for as part of our recent expansion of our Orlando facility and the specific equipment that will be needed is expected to be paid for by Department of Defense. Once in production, we will be delivering this assembly in volume, estimated tens of thousands of assemblies over the program lifetime and again with ASPs for LightPath between $5,000 to $10,000 per system. With thousands of dollars per unit and tens of thousands of units expected in that program, the ultimate selection of Light -- of Lockheed Martin by the military would likely result in a substantial revenue opportunity for us. This is exactly the direction we’ve been looking to transform the company to with the new strategy and it is now happening. Lockheed’s decision to outsource the development of such an important part of their system is due to -- was due to Visimid’s technical capabilities. Yet the decision to then further engage with us at the scale they’re now engaging and the potential manufacturing of this is due to the combination of LightPath and Visimid, with our manufacturing capabilities, capacities and most important, the ability to integrate the entire system. And while our strategy for having three pillars of growth are designed such that we don’t put all our eggs in one basket or one product for that matter, this award by a major prime with the massive potential for revenue on the manufacturing side is seen by us as a big win to our strategy and the execution of that through the acquisition of Visimid and our own investment in expansion in the U.S. and development of camera technologies. I could probably spend this entire call only on this specific project and activity, given that we expect it to lead to tens of millions of dollars in annual revenue. But this is only one of multiple projects and multiple opportunities we have going on, all of which are in similar scale. So I will talk briefly about some of the rest. Turning to the automotive market, as previously mentioned, our lens assembly system has already been qualified by one of the largest car companies. Since then we have shipped samples for qualification by another large Tier 1 and began the qualification process that is expected to take a few months. Last call we shared that the first company was re-evaluating their timeline in light of recent changes to the EV market. While our technology is not specific to EV, we found that most of our automotive Tier 1 customers were looking to roll out this technology in their EVs, as that was their main focus at the time. With dynamics of the market now changing, we expect that some of our Tier 1 customers will begin rolling out this technology in more traditional vehicles. We’re also seeing signs from the market that automotive companies are waiting for further development in the Department of Transportation’s announcement from May on their intention of mandating emergency braking system and mandating improvement of that -- for that technology in nighttime operation. We don’t expect any major developments in the very short-term, but we’re still confident that this technology is going to be implemented in the automotive space and that we’re one of the leaders in this technology and use cases. Therefore, we will still see this as something that would lead to the same volumes we spoke about before, which are over 1 million assemblies a year for each one of the car companies with ASPs up to $50 per vehicle for LightPath. Last thing, I will update on infrared materials and replacing Germanium. To recap, LightPath has developed over the years and mainly over the last two years some exclusive unique materials that can be used instead of Germanium in infrared imaging systems. China announced on July 4th export restrictions on Germanium and with China being the largest exporter of this material, this has become a big deal. Since then, and even prior to that, actually, we’ve been working diligently with customers to have their systems redesigned to use our materials instead of Germanium. We even took the step a few months ago of proactively canceling some customer orders for Germanium optics to free up our capacity for making optics from these new materials. This has paid off well, with customers now fully engaged in the process and focused on redesign of their systems, testing our prototypes and starting to order systems with new optics. Two specific examples I’d like to share. One includes our largest customer, which makes imaging devices for sporting. This customer began by evaluating the use of our material in only one of their products and has recently let us know that they would like to now work with us on all their products. Another customer, who is in the defense business, has announced in the recent SHOT Show a new gun sight product that is using only our BlackDiamond glass in it with no Germanium. And they have even gone as far as saying publicly that going forward, all new products are going to be designed only with BlackDiamond material. A major win for our directions. All of this -- all of these have so far been using mainly our existing BD6 material. In December, we finally took delivery of a piece of equipment called a refractometer, a measurement system for optical glass. This will now enable us to speed up the manufacturing readiness of some of the new materials we licensed from NRL. We expect the first material, BDNL-4 to be formally released later this month. BDNL-4 is an example of a material that not only replaces Germanium, but actually offers advantages versus Germanium. By having a negative thermo-optic coefficient, that is the change of the optical index as a function of temperature, BDNL-4 enables optical designers to design optical systems that are optically and passively compensated for changes in temperature. This is a big deal for airborne systems, for example, where today changes in ambient temperature at different altitudes require refocusing the cameras to compensate for this. BDNL-4 is expected to become an important material for thermal cameras in drones and other airborne systems. Experience a large range of temperatures. To conclude, our shift in strategic direction is beginning to show the results we were looking for, both in winning some major programs and in revenue growth in that area. At the same time, our three separate areas of growth, solutions, defense and automotive continue to generate multiple independent opportunities, that many of them have the potential for tens of millions of dollars of new revenue per opportunity, resulting in a healthy pipeline of large-scale opportunities that any of them alone can be transformative to our business. Last, I would like to welcome Kim Crider, who joined our Board of Directors last week as an independent director, replacing Lou Leeburg, that had retired after 25 years with the company. I would like to thank Mr. Leeburg for his diligent work over the years and welcome Ms. Crider. Kim was formerly the Chief Technology Officer for the U.S. Space Force and has retired as a two-star general. Having a person as Ms. Crider on our Board of Directors is important as we continue to move forward with our focus on becoming a systems company with a strong focus on defense. And as always, I would like to focus our employees -- to thank our employees and stakeholders who have continued to work diligently through the various transitions and hurdles we have endured. We see a bright future and a growing company because of their dedication, patience and hard work. Now, I will return the call to our CFO, Al Miranda, to review second quarter financial results. Al?
Al Miranda: Thank you, Sam. You can rest your voice for a little bit.
Sam Rubin: Thank you.
Al Miranda: 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 of fiscal 2024 was approximately $2.2 million, a decrease of $1.1 million or 33% as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $5.1 million for the second quarter of fiscal 2024, compared to approximately $5.2 million for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 30% for the second quarter of fiscal 2024, compared to 38% for the same quarter of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to the decrease in visible component sales, which typically have higher margins than our IR components product group, which comprised a greater portion of our sales for the second quarter of fiscal 2024. Selling, general and administrative costs were approximately $2.9 million for the second quarter of fiscal 2024, a decrease of approximately $172,000 or 6% as compared to approximately $3 million in the same quarter of the fiscal year. The decrease in SG&A costs is primarily due to a decrease in stock-based compensation, partially offset by an increase in wages. Net loss for the second quarter of fiscal 2024 was approximately $1.7 million or $0.05 basic and diluted loss per share, compared to $0.7 million or $0.03 basic and diluted loss per share for the same quarter of the prior fiscal year. The increase in net loss of approximately $1 million for the second quarter of fiscal 2024 as compared to the same quarter of the prior fiscal year was primarily due to the decrease in revenue and gross margin, partially offset by other income of approximately $190,000 from our Chinese subsidiary for the return of funds previously misappropriated by our former Chinese management team as a result of the ongoing legal proceedings. This is the last bit of activity that we expect to have related to that situation. Our EBITDA for the quarter ended December 31, 2023 was a loss of approximately $454,000, compared to an income of $207,000 for the same quarter of the prior fiscal year. The decrease in EBITDA in the second quarter of fiscal 2024 was primarily due to lower sales and gross margin, again partially offset by the mentioned Chinese subsidiary. Turning to the results for the first half of fiscal 2024, revenue was $15.4 million, only a 3% decrease from $15.8 million in the same period of the prior fiscal year. Sales of infrared components were $7.4 million or 48% of the company’s consolidated revenue for the first half of fiscal 2024. Revenue from visible components was $5.4 million or 35% of consolidated revenue. Revenue from assemblies and solutions were $2.2 million or 15% of the total company revenue. And revenue from engineering services was $0.4 million or 2% of total company revenue. In the first half of the fiscal year, infrared component sales increased almost $1 million or 14%. That’s primarily due to an increase in shipments against an annual contract for an international military program. Visible component revenue decreased approximately $1.8 million or 25%. Again, this is primarily due to the ongoing trend in China and the telecom industry in general. However, we also experienced declines in Europe due to recessionary conditions and in the U.S. due to timing of defense contract shipments. Assembly solutions revenue increased approximately $150,000 or 7%, primarily due to the addition of Visimid revenue, which was partially offset by a decrease in shipments against the multiyear contract that I mentioned regarding the quarter. If I take a step back and look at revenue, our visible components are declining. However, in the first half, revenue increased in infrared components, assemblies and solutions, and engineering services, which aligns well with our strategic plans. As of December 31, 2023, we had working capital of approximately $9.1 million and total cash, cash equivalents and restricted cash of approximately $5.9 million, of which greater than 25% of our cash and cash equivalents was held by our former subsidiaries. Cash provided by operations was approximately $851,000 for the first half of fiscal 2024, compared to cash used in operations of approximately $751,000 for the same period of the prior fiscal year. Cash provided by operations for the first half of fiscal 2024 was largely driven by a decrease in accounts receivable as sales were higher in the fourth quarter of fiscal 2023 than each of the first two quarters of fiscal 2024. Cash used in operations in the first half of fiscal 2023 reflected a decrease in accounts payable and accrued liabilities during that period resulting from the payment of certain expenses related to previously disclosed events that occurred at our Chinese subsidiaries. Capital expenditures were approximately $1.5 million for the first half of fiscal 2024, compared to approximately $412,000 in the same period of the prior fiscal year. The spending in the first half of fiscal 2024 is largely driven by the Orlando facility expansion, excuse me, where we constructed additional tenant improvements in our Orlando facility subject to our continuing lease, of which the landlord agreed to provide $2.4 million in tenant improvement allowances. The balance of the tenant improvement cost is estimated to be $3.7 million. During the first half of fiscal 2024, we expended $994,000 towards this project, with the remaining estimated $380,000 expected to be expended during the second half of fiscal 2024, pending the final construction invoices. We also expended approximately $722,000 net of cash acquired to acquire Visimid during the first half of fiscal 2024. Our total backlog at December 31, 2023 was approximately $21.2 million, a decrease of 28%, as compared to $29.4 million as of December 31, 2022. Compared to the end of fiscal 2023, our total backlog decreased by 2% during the first half of fiscal 2024. The decrease in backlog during the first half of fiscal 2024 is primarily due to shipments of several annual and multiyear contract renewals, which orders were added to the backlog in prior periods. In the second quarter of previous years, we have typically received a contract renewal from our largest customer for infrared products made of Germanium. However, as previously discussed, we’ve 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 own BlackDiamond materials. As such, in the second quarter of fiscal 2024, we did not book our typical annual renewal order for Germanium optics for this customer. Instead, we continue to work with this customer, as well as other customers, to convert their systems to use BlackDiamond optics. With this review of our financial highlights and recent developments concluded, I’ll now turn the call over to the Operator to begin the question-and-answer session.
Operator: [Operator Instructions] Our first question is from Jaeson Schmidt with Lake Street. Please go ahead.
Jaeson Schmidt: 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?
Sam Rubin: 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.
Jaeson Schmidt: 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?
Sam Rubin: 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.
Al Miranda: Yeah. I think we could do $60 million to $70 million.
Sam Rubin: Okay.
Al Miranda: Yeah.
Sam Rubin: 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.
Al Miranda: And the molder machine that we have…
Jaeson Schmidt: Got you.
Sam Rubin: Yeah.
Jaeson Schmidt: 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.
Sam Rubin: 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.
Jaeson Schmidt: Okay. Understood. Thanks a lot, guys.
Sam Rubin: Thank you, Jaeson.
Operator: The next question comes from Scott Buck with H.C. Wainwright. Please go ahead.
Scott Buck: 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.
Sam Rubin: 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.
Scott Buck: 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?
Sam Rubin: 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.
Scott Buck: 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…
Al Miranda: 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.
Scott Buck: All right. Perfect. That’s it for me, guys. Thanks a lot, sorry.
Sam Rubin: Thank you. Scott.
Operator: The next question is from Brian Kinstlinger with Alliance Global. Please go ahead.
Shervin Z: 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?
Sam Rubin: 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.
Shervin Z: 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?
Sam Rubin: 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.
Shervin Z: 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.
Sam Rubin: 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.
Al Miranda: 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.
Shervin Z: All right. Great. Makes sense. Thanks guys.
Sam Rubin: Thanks.
Operator: The next question is from Glenn Mattson with Ladenburg. Please go ahead.
Glenn Mattson: 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.
Sam Rubin: 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.
Al Miranda: 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…
Sam Rubin: Yeah. Absolutely.
Al Miranda: … payment of that announcement and start the scramble looking for a solution.
Sam Rubin: Yeah.
Al Miranda: 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…
Sam Rubin: Yeah.
Al Miranda: … a good six months before they realized it was real.
Sam Rubin: Yeah.
Al Miranda: 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.
Glenn Mattson: 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…
Sam Rubin: 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 (NASDAQ:GOOGL) it, the Europeans are like, we were a year ago. Nobody wants to say the recession word, but their economies are contracting.
Glenn Mattson: 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.
Sam Rubin: 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.
Glenn Mattson: Okay. Great. Thanks.
Operator: [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?
Gene Inger: Yeah. You hear me now?
Operator: Yes. We do. Thank you.
Gene Inger: 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?
Sam Rubin: 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.
Gene Inger: 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?
Sam Rubin: 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.
Gene Inger: 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?
Sam Rubin: 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.
Gene Inger: Do these relate to the U.S. Navy licenses we haven’t heard much more about?
Sam Rubin: 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.
Gene Inger: 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?
Sam Rubin: This fiscal year. Pretty much on track for that, I think.
Gene Inger: 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?
Sam Rubin: 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.
Gene Inger: 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.
Sam Rubin: Thank you, Gene.
Al Miranda: Thank you, Gene.
Sam Rubin: Very well.
Gene Inger: You too.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Sam Rubin for any closing remarks.
Sam Rubin: 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.
Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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