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© transcript Emily Beynon . . . . . . Shmuel Rubin

Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero and a member of our team will be happy to help. Music

© BF-WATCH TV 2021 and others. Shmuel Rubin

Please stand by. Your meeting is about to begin. Music Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Fiscal First Quarter 2027 Earnings Conference Call. During today's presentation, all parties will be in the listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, November 10, 2026, and the earnings press release accompanying the conference call was issued after the market closed today. 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 underlining 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 the generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO Sam Rubin will begin today's call with a strategic overview of business and recent developments for the company. while CFO Al Miranda will then review financial results for the quarter. Following the prepared remarks, there will be a formal question and answer session. I would now like to turn our conference over to CEO Sam Rubin. Sam, the floor is yours.

Thank you, operator. Good afternoon to everyone and welcome to LightPath Technologies' fiscal first quarter 2027 financial results conference call. Results of the first quarter are starting to show the outcome of the improvements to the operations we have been working on in the form of improved growth margins, as well as a continued positive momentum in the market in the form of growing backlog, and our focus on getting ready for the next stage of growth in the top line, as evident in the growing 12-month backlog. Backlog at the end of September was a record 132.9 million, up 22 million, or 20% in a single quarter, and up 54% from a year ago. That also represents a book-to-bill ratio of approximately 2.0 times. In putting it another way, we booked roughly $2 of new orders for every dollar of product we shipped. About 110.8 million of that backlog is requested by customers for delivery within the next 12 months, which is a 30% growth over the same measure last quarter. The 12-month backlog provides, of course, a strong indication of near-term revenue. The rest of the quarter followed the same pattern. Revenue grew 38% year-over-year to 20.8 million. adjusted EBITDA was positive for the fifth quarter in a row at 1.3 million, and gross margin came in at 41.4%. The margin trajectory is consistent with what we have described previously, and we are further along. Assemblies and modules, our cameras and optical assemblies, a central part of our strategy, were 51% of revenue this quarter. compared to 40% a year ago. These products incorporate more of our proprietary technology and therefore capture more value, earning us higher margins as a result. MIX has been the biggest driver of our margin expansion, and we expect this trend to continue. We also chose to reinvest. New product development spending more than doubled from a year ago to $2 million in the first quarter. as we continue to invest in new product development of cameras, infrared assemblies, and black diamond glass. The latter is also funded through different government contracts to support development of glass, the latest of which was the Navy CLEAR program through the NST Excel Consortium. These investments are critical to our next phase of growth. These R&D investments include, of course, the conversion of G5 cameras into Black Diamond, but extend also beyond that. Last quarter, we began shipping beta units of our new product line of long-wave infrared zoom lenses and cameras. As noted in our last call, this is a significant development, and I want to revisit it. G5 cameras to date have focused only on a certain segment of the overall infrared camera market. That is, G5 cameras are designed for long-range imaging from ground-based, mostly stationary installations. Those are larger, heavier systems and achieve the best overall performance in terms of detection range, but with the trade-off of being larger and heavier. That is not a problem for stationary systems like counter UAS or border towers, but it is not suitable for anything mobile such as airborne or even vehicle-mounted cameras. To that end, we have been investing in products to support those parts of the market too. For customers needing the performance of cooled cameras, we have been developing the Kestrel line of compact cooled cameras. Those cameras, competing with the likes of FLIR's Neutrino product line, are designed to fit into gimbals and payloads that have space and weight constraint. Additionally, we have been designing a line of long-wave zoom lenses and zoom cameras, which we expect to sell at a fairly high volume because of the attractive price point of long-wave versus mid-wave systems. and for being likely the only company in the market able to deliver both of those type of cameras without using germanium. Leveraging our unique black diamond formulation to produce those type of cameras without the use of germanium optics is a key part of our strategy that is now starting to roll out in the form of new products. This, we expect, will soon translate into another growth area in addition to G5's traditional longwave cameras that were driving much of the growth in the last few quarters. Now, let me turn to the orders behind the continued growth of our backlog, driving additional growth in the next few quarters, including some orders we received after quarter end. Most of them map directly to the two of the three pillars we laid out at our investor day in February. Optical Assemblies, and Infrared Camera Systems. I'll start with Counter UAS. Since July 1st, a leading Counter UAS and Defense Systems supplier has placed more than $19 million of follow-on assembly orders with us. The $13 million we announced in July and another $6.3 million in October. Altogether, that is twice what that customer ordered from us in the whole of physical 2026. and is part of a program we expect to keep growing. We expect to continue expanding our business with this customer, often described as a neo-prime, and it could become one of the largest customers in the next fiscal year. On the camera side, a global tech company placed a $11 million follow-on order for infrared cameras used in counter-UAS applications. What is most significant about this order is not its size, but the fact that the program includes a planned transition from germanium-based optics to black diamond over its life. That is exactly the type of conversation path we have been describing to you. Turning to drones. Two weeks ago, after the quarter closed, we announced an order from a key defense customer for more than 50,000 optical assemblies for drone camera systems. The Department of War $1.1 billion drone dominance program is working to field hundreds of thousands of low-cost drones, and our allies are scaling as well. In addition to this initial 50,000-unit order, we expect to see more orders for optical assemblies for drones coming soon. And to that end, we're investing in the production capacity. Our current capacity for those assemblies is just under 10,000 units a month. But we are working to increase that to several tens of thousands a month over the next 12 months. And we see potential demand could require capacity of as much as 100,000 assemblies a month down the road. The automation project we mentioned last time is a key part of that and is progressing well, as well as our investment in production. Those orders and all orders in our backlog are fully funded orders, meaning none of them depend on a defense budget or any other budget to be passed. Recently, we are often asked about this, so I will emphasize again that all orders on the backlog are firm funded orders with their signed delivery date. All of this is in addition to our existing programs of record and new product development that are all progressing to plan. While we often talk about these new programs, such as our new confidential airborne system, our different interceptor missiles, and such, it is important to note that for the most part, all of those new programs represent only a small part of our current revenue and backlog. and do not represent yet the upside of revenue to come. The majority of our current revenue is by far existing recurring programs. Turning to industry, the policy environment continues to tighten. The 2026 NDAA added germanium to the defense covered materials restrictions. With germanium restriction sourcing, Sourcing on Restrictions, beginning in December 2027. Separately, the 2026 NDAA directed the Department to develop and implement a strategy to eliminate its reliance on covered nations for optical glass and optical systems by 2030, the latest. Meanwhile, the suspension of China's U.S.-specific export ban, which has been widely discussed in the media, does not, to our knowledge, apply to germanium. Based on China's published export data, it has not exported germanium to the United States and is now directing most of its germanium exports to Russia. This is probably a good point to segue to discussion on China. Last week, we announced that we have completed our divestiture of all operations in China. This includes sales, manufacturing, and any other part of our operation. As of now, we can say LightPath has no facilities, no sales, and no operations in China. And because the buyer will stay a supplier to us for commercial products, we do not expect any disruption for our commercial customers. Divesting of our China operation was a key step in completing our strategic transition to where we are today. However, in addition to the alignment strategy, this is also a requirement by the U.S. government in order to be able to participate in certain programs. This milestone is now complete and we are beginning to see the impact of that in some of our interactions with the government. Operational execution remains the theme of the year. Whether capacity or supply chain, growing at this rate, while the defense industry as a whole is also growing, and many other companies are shifting the supply chain away from China, makes this even more challenging. First quarter revenue, as you can see, has come slightly short below our expectations, mainly attributable to supply chain delays. We have been putting significant effort into both our supply chain and growing our capacity and feel very confident in our ability to deliver on the $110 million backlog expected to deliver in the next 12 months, which will result, of course, in continued top-line growth and continued margin improvement and bottom-line profitability. To that end, our investment in our future and in our expected next stage of growth do not pertain only to capacity and product development. Last quarter, we also welcomed two new executives to our leadership team. Micah Morelli, an internal promotion from the G5 team, took on the responsibilities of imaging system engineering, and Scott Pagliatti, formerly from our key customer, Andoril, joined us to head the G5 business. I am pleased to welcome both of them on board. With that said, I will turn the call over to our CFO, Al Miranda, to walk through the first quarter financial results in more detail. Al, please go ahead.

Thank you, Sam. I'll keep my remarks brief and focused on key year-over-year financial highlights. Our earnings release issued this afternoon contains the full details of as well as our 10Q for the quarter, and both will be available on our investor relations website. For the first quarter of fiscal 2027, revenue increased 38% to $20.8 million compared to $15.1 million in the first quarter of fiscal 2026. Assemblies and modules were $10.5 million, or 51% of consolidated revenue, up 76%. Infrared components were 4.7 million, or 23% of revenue, up 15%, including approximately 1.1 million from AML. Visible components were 4.6 million, or 22% of revenue, up 19%. Engineering services were 0.9 million, or 4% of revenue. Gross profit increased 92% to 8.6 million, gross margin was 41.4% compared to 29.8% in the prior year quarter, driven primarily by the higher mix of assemblies and modules. Sam elaborated on gross margins. All I can do is reiterate. We capture more value in assemblies and cameras through in-house glass and lens manufacturing, and that bears out in higher margins. Last point. 8.6 million in gross margin is a new milestone for us. Operating expenses were 10.8 million compared to 7 million a year ago. Two non-cash items are worth separating out. First, the change in fair value of acquisition and earn-out liabilities was 0.2 million down from 1.3 million last year. This quarter's amount relates to AML. which achieved its final earn-out milestones during the quarter, so no AML earn-out remains. The G5 earn-out was fixed at $9 million in April and will be paid in January. As a result, we expect earn-out remeasurements to have a minimal impact on our results going forward. Second, stock-based compensation, which is included in SG&A, was $1.8 million compared to $0.4 million a year ago, primarily reflecting equity awards granted over the past year, including performance-based stock options granted to the senior management team in March. These are non-cash expenses, and their fair values are estimated in accordance with GAAP. Beyond those items, the increase in operating expense reflects investments we chose to make, New product development was $2 million, up from $0.9 million, as we added engineering staff for cameras, infrared assemblies, and new black diamond glass types. The remaining SG&A growth reflects the addition of AML, sales and marketing investment, IT spend driven by defense customers' cybersecurity standards, and new leadership hires. As a side note, Operating expenses for Q4 fiscal year 2026, last quarter, were $12.6 million. We believe the Q1 fiscal 2027 operating expense of $10.8 million is more indicative of our spending plan going forward. Net loss for the quarter improved to $1.7 million, or two cents per basic and diluted share, from $2.9 million loss, or seven cents per share, lost a year ago. Adjusted EBITDA was $1.3 million, or 6% of revenue, compared to $0.4 million, or 2% of revenue, in the prior year quarter. This is, as Sam said, our fifth consecutive quarter of positive adjusted EBITDA. Turning to the balance sheet, we entered the quarter with $82.9 million in cash. We ended the quarter with $82.9 million in cash and cash equivalents compared to $93.2 million at June 30th. Cash used in operations was $8.3 million, driven by $10.2 million investment in working capital. The largest component was inventory, which increased $13.5 million to $31.5 million. primarily in raw materials and work in process. We also made advanced purchases of critical materials to support the backlog. Those purchases also protect our delivery schedules against delays and thinly stretched global supply chains. Accounts receivable was neutral for the quarter and a higher accounts payable partially offset the inventory build. Our fiscal 2027 plan anticipated working capital growth and we are executing to that plan. In a growth phase, building inventory ahead of a record backlog is a leading indicator of revenue to come. Capital expenditures were $1.9 million in cash plus approximately $0.6 million of equipment acquired through financed leases directed primarily at manufacturing capacity, including glass fabrication, and Metrology. As we discussed last quarter, we expect fiscal 2027 capital spending to continue to grow as we add capacity against the backlog. The last piece of the cash position is a reminder that the final G5 earn-out payment of $9 million, $6.3 million in cash and $2.7 million in shares is scheduled for the first half of January 2027. At this point in time, we are comfortable with our liquidity position and its ability to drive the next stage of our growth. Our cash position and lack of significant debt puts us in a good position to actively pursue M&A opportunities in the marketplace. We seek organizations that are pre-inflection point, are strategic, accretive, and have a realistic valuation. This enables us to develop and capitalize on the target's growth plans. Backlog at September 30th was a record $132.9 million, up 20% from $110 million at June 30th and up 54% from $86 million a year ago. Approximately $110.8 million of that is requested by customers for delivery within the next 12 months. Short-term backlog is driving short-term and mid-term capacity requirements. This fiscal year, we are investing to get ahead of the backlog and anticipated demand is still to come. As we kick off fiscal year 2027, we are again facing a substantial year-over-year growth spurt, similar if not more than last year. The LightPath team is well aware of what's ahead of us and the effort needed to succeed. We have a talented and dedicated team. Our priorities are straightforward. One, deliver against the backlog on time. Two, keep margins where they are as volumes rise. And three, spend on capacity where the order book justifies it. With that, I'll turn the call back to Sam for closing remarks.

Thank you, Al. First quarter is beginning to show the impact of our strategy. not only on top line but also on gross margin while continuing to grow the backlog of future deliveries. While we continue to grow, we are also starting to see operational improvements translate into margins and financial results that we expect will continue to improve as we grow further. What remains is execution, bringing new capacity online, delivering on schedule, and turning a record backlog into revenue. We have the orders, the balance sheet, and with the addition to our imaging system leadership, we have a strong team in place to get it done. I want to thank our employees for their work this quarter and for delivering the results that allow us to grow and become a trusted partner in the world of infrared imaging. With that, I'll turn the call over to the operator to begin Q&A session. Operator?

Thank you, Sam. At this time, if you would like to ask a question, please press star one on your telephone keypad. To remove yourself from the queue at any time, please press star two. Once again, that is star one to ask a question. And we will take our first question from Richard Shannon with Craig Hallam. Please go ahead.

Great. Thanks, Sam and Al, for letting me ask a couple questions here. My first one is on one of the most interesting parts of your income statement just reported here, that being gross margins here. I've had a nice track the last few quarters here, but first time you've reached 40-plus percent here. I think in Alice's repair to Mark's store then, you talked about keeping margins the same here. I'm not sure if you're referring to gross margins or not, but I'd love to hear how we should think about gross margins going forward here in the context of what I expect is going to be in the greater mix of sub-assemblies and modules going forward here.

So, hey, Richard, how are you? We're thinking margins going forward, start with the number four. We anticipated that if we had the mix, like we did this quarter, assemblies, modules, and cameras greater than 50%, that that would put us over the top, and that's what happened this quarter.

Okay, perfect. The second question is on kind of the broader supply chain capacity increases you're going through. I think you, Samuel, alluded to a little bit, revenue's a little bit shorter than what you wanted because of supply chain. Can you delineate what that was for? And then as you look forward to the next, say, two to four quarters here, to what degree do you see supply chain indoor capacity as a risk to executing on the back line?

Yeah, supply chain is very much across the board, to be honest. But there were some specifics. Motors were definitely a sore point, which is improving significantly. Some of the optics for G5 is not yet produced in-house, and so depends on external vendors, which, just like us and like many other vendors, are at capacity many times. And therefore, any small slip there can impact it. We also have different electronics and detectors, which we pretty much have been shipping as they come in. So we're also seeing that we are stressing some of our vendors to sort of their limit. But we've been working pretty hard on that. About three months ago, four months ago, we added a director of supply chain that hit the ground running and has been developing alternative sources for places we have single sources. We've been stocking up places where we can, which is, you can see that in the increased inventory of about 13 million. So I can't guarantee it will not be a problem, but definitely in Q2, the quarter we're in now, I think we're much, much more on top of it than we were last quarter.

Okay, good. That's good to hear. My last question, I'll jump on the line here, is hitting on a topic that you touched on briefly last quarter, and then just Sammy decided to emphasize that a little bit more, specifically the long-range infrared products, including the zoom lenses here. I guess a few questions I'd love to ask here. Kind of put this in the context of your mid-range cooled products here. maybe applications. It sounds like some of this will be drones, but I'd love for you to kind of lay out where all you're seeing this and to what degree do we have products that are ready and are already building in a backlog? Thank you.

Yes, we do have some that are ready. They're not yet really very significant in the backlog, meaning might be a million or two, but not big numbers. applications beyond the obvious ones, which are sort of airborne systems like gimbals and pan tilts that go on drones, on large drones, on planes and such. These cameras get integrated into remote weapon systems, into active counter UAS systems, such as lasers for shooting down the drones, the same remote weapon systems for the same purpose. Also in Some international use cases, the customer prefers the long-wave cameras because of export control restrictions. So long-wave tend to be far less restricted in export control. And therefore, even though in a cost point of view, you can maybe buy a short-range or a mid-range mid-wave camera for a similar price, that camera would be would have some export restrictions that the long wave doesn't have on it. Also, the mid-wave cameras, because they have a cryogenic cooler, have on them a lifetime usually of two to three years, which isn't a big deal here in the U.S., but if we're selling a camera to a Mideast country or someone in Africa that is installing it out in the field, they don't want to need to take it apart every two, three years, send it all the way back to the U.S. for repair and so on. So these products are really addressing not only the trade-off of weight and size, but also some simplified export and simplified maintenance.

Okay, perfect. That's a great perspective. That is all from me, guys. Thank you. Thank you, Richard.

Thank you for your question. Once again, if you would like to ask a question, please press star 1 on your telephone keypad now. And we will take our next question from Clark Jeffries with Piper Sandler. Please go ahead.

Thank you for taking the question. Just curious, you know, big 50,000 optical assembly order here in October, you know, you mentioned some sort of line of sight down the road to 100,000 assemblies per month in that industry. Just any kind of comments on when you'd expect additional waves of these drone dominance orders, or what's the connecting kind of line between one-off tens of thousands of assemblies to a pretty reliable cadence of six figures per month?

Yes, right now the orders are coming in in chunks, and we expect them to continue like that for a short term, meaning we probably will soon see more orders of that size, 30,000, 40,000, 50,000 assemblies, maybe more. Every time at a cadence of 10,000 a month, which is roughly what we can produce now, we're talking about orders that basically we fulfill them within a few months, let's say half a year. So from that specific customer, I'd expect a similar cadence. So maybe every six months, such an order or so. What we're looking at and starting to discuss with our customers is more long-term strategic supply agreements. So we're not asking for necessarily give us a three-year order for 500,000 assemblies, but rather instead give us some forecasts, give us some frameworks that we can work towards and we will then build the capacity accordingly. The number of 100,000 sounded very high when it was first mentioned to us a few months ago, but if you look now at some of the investments Office of Strategic Capital made very recently in PDW and a couple of other companies, many of those investments are talking about capacity of a million drones a year. So while not all of them were equipped with thermal imaging, especially in the low-cost one-way drones or FPV drones, not all of them have thermal imaging, I'd say the majority are. So 100,000 is the real number, and we have very concrete plans towards getting there.

Perfect. And then I just wanted to follow up on that, the funded prototype agreement. under CLEAR, you know, what are the kind of outcomes that we should be watching for? You know, what kind of timeline would be reasonable for that program? Just sort of what is the output that we would expect from that germanium?

Yes, that program is a bit complicated in a sense. It has two parts to it. One is a technology development, so further advancing our methods of making some of those materials, whether to reduce the cost of them or improve certain aspects of the materials that the Navy wants to see improved. The other part of it is specific programs of record. And I can't go into too much details, but I would say that throughout the programs are embedded a few deliveries of prototypes from us that and others who have retained two existing programs of record inside DOW that DOW would like to see switched over to Black Diamond. So as we start delivering those prototypes, and we will not be able to share anything about this publicly, but as we start delivering it, which will be a cadence over the next two years, we expect to see them evaluated and possibly awarded as a program of record. There's a two element to it. One is technology development and addition of that. Second is a way of accelerating a redesign of some existing programs of record that are currently suffering from the shortage in Germanium. And it's sort of, I guess, this is a way of achieving it faster than normal. Perfect.

Thank you very much.

Thank you for your question. At this time, there are no further questions in the queue. I would like to turn the call back to CEO Sam Rubin.

Okay, thank you very much. I appreciate everyone's time. We look forward to seeing everyone that will join us on our annual call, sorry, shareholder meeting next month and to report the progress on our implementation of the strategy. Thank you and good night.

Thank you for joining Light Path Technologies Fiscal First Quarter 2027 Earnings Conference Call. You may now disconnect your lines.