LightPath Technologies

Transcription

1 Fiscal 2015 Third Quarter Financial Results CORPORATE PARTICIPANTS - President, CEO Dorothy Cipolla - Corporate Vice President, CFO

2 1 PRESENTATION Operator Good afternoon and welcome to the Fiscal 2015 Third Quarter Financial Results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star (*) key followed by zero (0). After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star (*) then one (1) on your telephone keypad; to withdraw your question, please press star (*) then two (2). Please note that this event is being recorded. I would now like to turn the conference over to Ms. Dorothy Cipolla, Chief Financial Officer and Corporate Vice President. Please go ahead. Dorothy Cipolla Thank you and good afternoon. Welcome to the ' Fiscal 2015 Third Quarter Financial Results conference call. Our call today will be hosted by Mr., 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 a 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's now my pleasure to introduce Mr., President and CEO of LightPath. Thank you, Dorothy, and welcome to everyone who has joined us on the call today. We appreciate your interest in LightPath. I will open with an overview of the operational results, highlights and recent developments and then I will turn the call over to Dorothy for a more indepth review of our financials. We will then open the call to your questions. As you may have seen from our financial results press release issued this afternoon, we had an excellent fiscal 2015 third quarter that reflects the actions taken in the first half of the year to accelerate sales and improve our operating efficiency. Momentum in bookings from the first half of the year has accelerated in the third quarter, which bodes well for revenue growth in forward periods. We reported a 100% increase in the sequential quarter rate of backlog growth, as our global sales of optical and infrared products gained traction. Order bookings continued to improve from the second quarter, which reflects broadly across our business line. As a result, our twelve month backlog increased approximately 10% to $6.15 million as of March 31, Driven by the growth in our backlog that has been increasing through the course of the year, it is not surprising that revenue for the third quarter of fiscal 2015 increased 6% as compared to the prior year and we are only in the very early stages of the implementation of our strategic growth initiatives that we discussed on the second quarter conference call. Our order intake remains strong in the third quarter with solid bookings across all six of the major markets we serve. We booked significant orders in our specialty product segment and saw continued improvement in our infrared business. The key component of this growth strategy was our focus on our new line of infrared products. Infrared revenues increased by more than 193% in the third quarter of fiscal 2015, compared to the third quarter of fiscal 2014.

3 2 Albeit off a small base, we are pleased with a 170% increase in sales of infrared products in the first nine months of fiscal 2015 versus An acceleration of the rate of growth of 158% from the first six months of the current fiscal year as compared to the same period of fiscal Somewhat offsetting our growth has been the weakness experienced in China. Particularly for our high volume precision molded optics business, due to the declining economic growth that is now in its sixth year. Despite this regional trend, our global diversification strategies have resulted in revenue growth and increased shipments across all other business segments in major markets. Another component of our strategic growth plan as discussed in the second quarter conference call goes beyond top line improvement and moves down to profitability. To start with, our gross margin improved to 50% for the quarter, reflecting the initiatives taken in the first half of the year and the strong revenue level. This is the highest gross margin as a percentage of revenue we have reported in over four years. As a result of the continued strength in booking and the improvement in workforce productivity, we expect further improvement in profitability. As noted in prior calls, the start up and ramp up of our second manufacturing facility in China temporarily increased our cost basis. In turn, this led to prior period losses, as we invested in both our new manufacturing facility and concurrently expanding our product line and improving our marketing processes. Beginning in the first quarter, we felt the impact of newly added manufacturing personnel and other redundant costs as we transitioned work to the new facility. I am pleased to report that we are now essentially complete with the transfer, which is ahead of our original schedule. Based on our streamlined and enhanced global marketing processes, customers are increasingly recognizing the advantages of our molded optics and proactively bringing LightPath into their product development. We are benefiting from growth in both the visible precision molded optics and infrared optics product lines, and operational efficiencies to drive improved profitability. Selling, general and administrative expenses as a percent of sales improved by 80 basis points in the third quarter versus the prior year period, and by 370 basis points as compared to second quarter of 15, which we had a substantial amount of redundant costs and other one-time items. The higher revenues, improved gross margin, and ongoing management of expenses drove a significant increase in operating income. EBITDA was $210, in the third quarter of fiscal 2015, compared to an EBITDA loss of about $1, in the third quarter last year. While the Company s net loss per share in the nine month period was reduced by 33% in the third quarter of 2015 alone. We return to profitability with a net income of approximately $90,000.00, or $0.01 per share, compared to a net loss of $133,000.00, or $0.01 per share, negative, for the third quarter of fiscal When we announced the implementation of the strategic growth initiative in an organizational optimization plan, the intent was to better position to accelerate revenue growth beyond what we ve already achieved and elevate our profitability. Principally, by the transition to the technical sales process, as leverage is the success of our existing demand creation model. Our order backlog and revenue growth reflect the initial success of these efforts. Another benefit of these plans is an estimated annual reduction of operating expenses of 5% to 10%, or savings of approximately $200, to $375, per year upon complete implementation. We are on track to realize those savings, as SG&A expenses declined by approximately $47,000.00, or 4% in the third quarter, as compared with the prior year. But we did this with a larger base of revenues, infrared production line began to reach production levels, and

4 3 additional manufacturing. As an integral component to our new plan, LightPath has aligned its sales and marketing efforts to elevate its demand creation model to an even more technically based approach, as its addressable markets have proven to be increasingly receptive to the Company s product lines. It is with this plan in mind that we doubled our lens manufacturing capacity through the opening earlier in the year of the manufacturing facility in Zhenjiang. During fiscal 2015 third quarter, as previously disclosed, the Company received gross proceeds of approximately $1.3 million from the sale of common stock to Pudong Science & Technology Investment Company. Pudong then officially owns 14.9% of the Company s outstanding shares of common stock, which includes about 931,000 shares, pursuant to the private placement and the balance of the stock acquired through the open market purchases. We are pleased that Pudong has lead successive investments to become one of our largest shareholders. In turn, we have used the proceeds from the direct investment in our own capital to deliver returns on our investment as revenues, margins, and profits have all grown. We are committed to further improving upon this progress and firmly believe that it is achievable. I will now turn the call over to our CFO, Dorothy Cipolla, to provide additional detail on our third quarter results. 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 issued earlier today and on Form 10-Q, which was filed today. I encourage you to visit our website at lightpath.com, and specifically the section entitled Investor Relations. I ll now review financial performance and operational details for our fiscal 2015 third quarter, which ended March 31. Revenue for the third quarter was approximately $3.2 million, an increase of 6% as compared to last year. The growth was attributable to an increase in sales of our specialty products and increase in sales of infrared products. This marks the second consecutive quarter where we have experienced year-over-year increases in sales of both of these product lines. The gross margin as a percentage of revenue in the third quarter was 50%, compared to 49% in the third quarter last year, and an increase from 38% on a sequential basis from the second quarter of The improvement in gross margin as a percentage of sales was driven by higher sales volume, production efficiency, and, most significantly, the elimination of certain costs associated with the transition to the Company s newest manufacturing facility in China, which had been a drag on our prior period. We expect that our margin to improve from these prior levels as we return to a normalized cost base, which, for manufacturing, at a lower cost base in Zhenjiang as compared with Shanghai and take advantage of the overall leverage in our model with increased revenues. Specifically, in prior periods, we had incurred higher wages associated with the overlapping manufacturing workforces during the transition of production between our two facilities in China, including severance to Shanghai staff as production was moved to Zhenjiang. Over the course of the last three quarters, we have reduced our headcount in Shanghai from 121 to 25. Remaining in Shanghai will be our sales, development engineering and some administrative functions, including purchasing and customer support. Essentially, all manufacturing operations are now moved to Zhenjiang.

5 4 On an adjusted basis, to reflect the normalized non-redundant cost basis without severance charges and other related expenses, the gross margin in the second quarter would have been 41% as compared with 50% in the third quarter. During the third quarter, total cost and expenses decreased by approximately $29, compared to the same period last year. The decrease was due to lower cost for materials and outside consultants, partially offset by increased wages. Total operating income for the third quarter was approximately $206,000.00, compared to approximately $43, last year. Net income for the third quarter was approximately $90,000.00, which included a $106, of a non-cash expense for the change in the fair value of the warrant liability, or $0.01 per basic and diluted share. This compares to a net loss of $133,000.00, which included a $131, of a non-cash expense for the change in the fair value of the warrant liability, or $0.01 per basic and diluted share last year. Excluding the non-cash effect from the change in the fair value of the warrant liability, net income in the third quarter would have been $196,000.00, a significant improvement from the net loss of $394, in the second quarter of 2015, where we had a lot of overlapping costs and a net loss of $2, in the third quarter of last year. Adjusted earnings before interest, taxes, depreciation, and amortization and change in the fair value of the warrant liability, which we call adjusted EBITDA, for the third quarter was approximately $315,000.00, compared to approximately $130, in the third question last year. The difference in this adjusted EBITDA between periods was principally caused by higher net income recognized in the three months this year. Please refer to our SEC filings in our website for EBITDA reconciliation. Now I would like to talk about the results for the nine months ended March 31. Revenue for the first nine months of 2015 totaled approximately $9.2 million, an increase of 5% as compared to last year. The increase was attributable to an increase of sales of precision-molded lenses and 170% increase in sales of infrared products. The gross margin percentage for the first nine months was 42%, compared to 46% in the same period last year. The higher level of revenues in the current fiscal year drove total manufacturing cost of $5.3 million for the first three quarters, an increase of approximately $680,000.00, compared to last year. We incurred additional costs due to the higher direct wages associated with the ramp up in infrared production, the overlapping manufacturing workforces during the transition of production between the two China facilities, and severance for terminated Shanghai staff as production was moved to the new facility. During the first nine months, total cost and expenses increased by approximately $327, compared to last year. The increase is primarily due to an increase in professional service fees in support of strategic growth initiatives and wages, partially offset by lower stock compensation expense. With an operating loss in this first half of the year partially offset by a return to profitability in the fiscal third quarter, total operating loss for the first three quarters was approximately $709,000.00, compared to an operating loss of approximately $205, for the same period last year. Once again, with the losses from the first half of the year, partially offset by net income in the third quarter, net loss for the first nine months was approximately $348,000.00, which included $375, of a non-cash income for the change in the fair value of the warrant liability, or $0.02 per basic and diluted common share. This compares with a net loss of $416,000.00,

6 5 which included $185, non-cash expense for the change in the fair value of the warrant, or $0.03 per basic and diluted share, for the same period last year. Cash and cash equivalents totaled approximately $1 million as of March 31, an increase of about 20% from December 31. The Company received gross proceeds of approximately $1.3 million from the sale of common stock to Pudong Science and Technology Investment, Cayman Company Limited, in January A portion of the proceeds from this funding was used to pay down the Company s balance of accounts payable, which was reduced by over 23% as of March 31 from December 31 balance. As of March 31, the Company's twelve month backlog was $6.2 million, a 10% increase from December and 44% improvement from the beginning of the fiscal year. With this review of our financial highlights concluded, I ll turn the call back to the operator, so we may begin the question and answer session. QUESTIONS AND ANSWERS Operator Thank you, Ms. Cipolla. We will now begin the question and answer session. To ask a question, you may press star (*) then one (1) on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you d like to withdraw your question, please press star (*) then two (2). At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Dyett. It s a private investor. Michael Dyett Hello, Jim and Dorothy, this is really sounds great and following up on my past questions over the years, I have three. First, maybe you could talk a bit about Europe, the LASER World of PHOTONICS show upcoming in Munich, and what AMS has been doing and what the prospects are in contrast to the weakness in China? Well, I think Europe has started to improve a little bit. AMS continues to be a very significant, I ll call them a customer of ours and they seem to be doing a very good job. We see some of the established customers we have over there increasing their business. We ve had one particular large customer who we did a custom job for has doubled his run rate there just recently. So we see some signs of strength in Europe and some of those types of products are offsetting what some of the weakness that we see in China, and it s a nice mix change, as well, Mike, because some of these products that are coming in, even though the volumes are lower, the prices are much higher than the business that is weak in China. So if one of our segments has to be down a little bit, the right one is down, if you want to look at it that way. Michael Dyett Okay. Are you pitching the new molding and lower cost for IR and seen much interest? Actually, we are. The guys were over there just a few weeks ago, made a pretty good circuit with AMS and there is significant, some of our larger infrared customers that we have now are currently, are from the European theater and there s quite bit of interest in what we re able to do. And I think we ll have some very good success and strength in that business and some very

7 6 interesting things happening in the future. Michael Dyett Great. A couple of conferences call, you were very excited about projectors and what you ve seen and some of the capabilities and I know there were some issues there and dropped orders and things. I wonder if you could give us some up--date prospects on where you see the lens business going with projectors? Well, in those commercial projectors, I think we still see it as the nice new application for us. It hasn t turned out to be as strong as we originally thought it would be. But it is still progressing. Again, it has been impacted by some of the weakness in China because a couple of the major guys that we were doing business with in that particular application were Chinese OEM customers and they ve been a little weak, but we do see some renewed activities starting to happen with them. So I think it s still a nice piece of business for us, going forward. I don t think it s quite as strong as we originally thought it might have been when we started it, but still a worthwhile venture for us. Michael Dyett Great, and the last question is really that one I often ask you about Thailand and the businesses there recovering from the disasters and I wondered if they re still back there and starting to order from you. The answer is yes, and actually that s another business that is showing quite a bit of strength. The main customer we had there, we have several customers that we deal through a rep in Thailand and it goes, and most of that business goes through a contract manufacturer, which happens to be Fibernet and we see quite a bit of strength coming out of that. One of the main customers we had where we re designed into their products sold that business to another photonics company and that photonics company has actually become much more active than they were. And we see the opportunity for that business to double and maybe even triple from the volume side that we were originally projecting there. So I think that is showing signs of strength and I think from the flood and disaster that they had, they pretty much fully recovered. Michael Dyett Great, last quick question is, I appreciate Dorothy s information on the headcount in Shanghai. What s the overall headcount these days and how is it changed from the last conference call? Let me think here. Just doing a little math, Mike, I ve got to go through different facilities. We re about 165 in total. We ve got about, we re in that 78 range in Zhenjiang now, which is, we may continue to increase the direct labor there a little bit. But we re pretty fully staffed now. And then we ve grown a little bit in Orlando with the ramp up of the infrared business, so we ve got about 60 people here. Michael Dyett And you ve moved into the new space? You were [multiple voices] Yes, the new office is in Orlando. We ve moved in, it s very nice. They re still working on the renovations to the existing space, but we re working around that, but I think within another week

8 7 or two that will be completed. So the employees seem to appreciate the sprucing up of the space that we did, as well as it added, it expanded. We took advantage of the lease terms and expanded our clean room to make some more high tech testing areas in the clean room and we expanded our pre-form polishing area for the infrared process as part of that renovation. And those processors are, well, the clean room will be done in another week or so and pre-form room is already back into production. Michael Dyett Terrific, terrific, I look forward to seeing it at, maybe one at the next annual meetings. Thank you again. Glad to talk to you, Mike. Michael Dyett Thanks for the great report. Thank you for your support. Operator Our next question comes from the location of with Taglich Brothers. Please go ahead. Hi, good afternoon, Jim and Dorothy, thanks for taking my questions. Hey, John. Dorothy Cipolla Hi, John. A very nice gross margin, by the way, in Q3. I just wanted to know if that included any negative impact by the transition in China or if this is a totally done deal that didn t affect your gross margins, whatsoever, in the third quarter. I think all the negative impact from the transition was in the first two quarters and this quarter is pretty clean from the perspective. Okay, so this is an actually a clean quarter. I'm looking and I said, okay, 50% and last year was about 49%. But both last year and this year, it seems to be the high point in gross margins, as far as quarterly basis is concerned. Q3 for some reason seems to be higher than the other three quarters. Is there any reason for that or is that just an anomaly that I should be looking at, this is maybe something to consider going forward at this level? I think the gross margins at this level are about right, and as the volumes continue to increase,

9 8 we ve still got a little bit of leverage left in it so they could actually improve from this point. In the first half, we took some actions around reducing the overheads and the stuff we had, particularly associated with the infrared process, as we had made that a separate organization in an effort to get it established. And now that it is, its folded back in and we were able reduce some overhead. The other big chunk that made the improvement was the change from Shanghai to Zhenjiang, where we have a much lower cost structure than what Shanghai was. So even if there wasn t the redundancy that we had during the transition, which is done now, we would still see an improvement in gross margin just from the lower operating cost base that we have in Zhenjiang. So I think 50 plus is where we should be expecting gross margins to be, going forward, particularly at the kind of revenue levels that we re obtaining. No, that s a nice improvement, definitely. I didn t know if I should expect that much being the transition into Zhenjiang, if I pronounced that correctly, but apparently Well, you murder it just the way I did just now. So apparently there was much to be gained across the sales wise, in that that regard. Yes, well, the labor costs are significantly lower in Zhenjiang than they were in Shanghai, as well as some of the facility services and those kinds of things. Even electricity is less expensive there than it is in Shanghai. So we re now going to take full advantage of all of those things. And in regards to China, again, the sales you had mentioned, obviously weak in the quarter. I was wondering if you can break out the third quarter sales in China and just give your outlook for that region in Q4. I think what we see is some slow recovery in our business, even though the economy still remains weak. I expect it to start to improve and pick up a little improvement pace in 2016, our fiscal, which starts in July, because the Chinese government has started to inject stimulus into the economy again, and that generally translates into some improvement in construction. And when the construction market picks up over there, then we ll see some advantage in our industrial tool type segment. So I think, going forward, we expect to see some improvement there. The other thing that has happened with respect to the Chinese business is the laser tool business, which happens to be one of the higher volume but lower margins for us, has been picked up by some strength in the telecom and fiber laser markets, which are lower volume but much higher prices. So our average ASP out of the stuff we re selling in China currently has almost doubled. And I think that business will continue and then, if we can layer on the improvement in the industrial tools, it ll be that much better. So we see some improvement from the type of product that we re selling in general in China, with those additional market segments picking up and I think we ll see and we re starting to see some of the volume come back in the laser tool business.

10 9 So it s trying to break the total revenues out from that segment is not the way we typically look at it, John, because some of the, what we call that high volume/lower price PMO product that we sell into other segments and our other geographies and it goes through Orlando, so it gets mixed up. Okay, and on the last call, you mentioned that there were minimal sales in the second quarter from the $1 million aspheric lens order that was in the latter half of But I remember you said you expected it to ramp up in the third quarter. So I just wanted to see how much did this order actually contribute to your third quarter sales and It didn t, it didn t ramp up in the third quarter. That s one of those things that still remains weak. Really? Okay and what about in Q4? Do you have any indication that we could see this maybe, that was a significant size order, so that s why I was just asking about it. Yes, I think, I mean, we still expect it to take off. There has been some small activity with it, but it is taking longer than that customer had expected. That goes through one of the larger customers that we have in the China direct market. And in the third quarter, his business was very weak, but we have seen some improvement towards the end of the quarter and he s starting to buy some volume again, which he had pushed off as he was working on adjusting his inventories. Okay. [multiple voices] So I think we will see some improvement going forward in the fourth quarter and into the first quarter. Okay, but being, obviously, it s just contributing a small amount in each quarter, it could be going on for several more quarters. Hopefully, there ll be a significant ramp where you can satisfy this order in a couple of quarters. But, as far as you see right now in Q4, it could be a little pick up, but nothing very significant? That s the way I would characterize it, yes. Okay, and just to be on the same side, I ll look at it that way. And just one more question, in regards to infrared sales, obviously, you throw out some pretty strong growth rates, it s off a small base. But I was curious if you can actually break out what percentage of the total sales were related to infrared sales and how that compares to a year ago. What percentage infrared in this quarter and then, looking back of last year s third quarter, what was the percentage? Just to see what we re looking at as far as [multiple voices]

11 10 Infrared sales in the third quarter were about 9% of revenue. And I think that s So it must have been very small. [multiple voices] talk about it, in terms of what it was last year, right? Okay, so last year, it must have been very small. So 9% of total revenue and, obviously, that s a very strong growing market and you anticipate the level you are at now, I can do the math to figure out what that was in revenue, that s still going to show some pretty significant growth going forward? Yes, we believe that that rate of growth may not hit those probable numbers that we ve had here because of the base growth, but we expect very strong in the market and what s happening is a couple of things, John. One of the phenomenas that s happening, finally, in the marketplace is, it took a long time for the engineers and designers to really get comfortable and accept chalcogenide material over germanium material that they were used to using, and so now it has been accepted and they are willing to look at the material system that we use to mold as an accepted process. So where we use to have to spend a lot of time educating people on what we were doing and why it worked and all its advantages, we don t spend as much as time with that, people are now familiar enough with the system and the process and, in fact, now they are coming and seeking us out as a lower priced alternative for their optics. So we re not having to work, we still have to work pretty hard, but we re not having to work quite as hard to get all the opportunities because some of them coming to us, as opposed us having to dig them out of the marketplace. So that s a nice change in the trend we see that. The other thing that we see is, as the commercial applications begin to take hold and the other elements, particularly the sensors and those kinds of things, come down in cost, the commercial applications are expanding and that s where we see tremendous growth opportunity for this product line. And now people are talking significant quantities of optics. We used to talk to guys and get excited when they would talk to us about 100 lenses. Now they re talking to us about 50,000 or 100,000 lenses. So things are changing in that marketplace and with the kinds of things that are going on, particularly in the home security, or not just home security, but in security type applications, in sensing type applications, and in these commercial, consumer type applications such as you see with the smartphone conversion cameras that plug into your smartphone and convert that camera into an infrared scanner. Okay, and have you mentioned that the backlog for infrared was up strongly or did I confuse that with total backlog? Infrared backlog, at this point, is up significantly? Well, it s up. We didn t really break it out and we talked about total backlog, I think.

12 11 Okay, but as we stand now, infrared backlog is higher than it was, say, a quarter ago? Yes. Okay, all right, that s about all I had, thank you for taking my questions. You re welcome. Operator Again, if you have a question, please press star (*) then one (1). Our next question comes from with LightPath. Please go ahead. Hi, Jim and Dorothy. Hey, Steven, how are you? Dorothy Cipolla Hi, Steve. I m good. Thank you for all of your good progress. You re welcome. I just have one question; can you talk about the backlog and what the guidelines are for inclusion in the backlog and whether or not the signing of the non-disclosure agreement has an effect on whether something gets put into backlog? And if the backlog is the same, are the principles for the backlog applied the same for orders from Europe, China and the U.S.? Just talk about the backlog. Okay, I think the backlog that we talk about is what we call our disclosure backlog and what that really means is is that is product that is shippable within the next twelve months and at a rolling number, it s always twelve months in its scope. I don t think there are any differences in what we put in the backlog as to where it s booked from. I mean, if it s an order from Europe or an order from China or North America, it s all put in the backlog in the same manner. The other part of it is I don t think there are any restrictions from a NDA point of view on what s in the backlog or not in the backlog. I don t think that applies at all. So if you signed a non-disclosure agreement and you get an order, that order would be in the backlog?

13 12 Correct. Dorothy Cipolla Correct, and it s an official purchase order as received and it s a firm order, it s placed in our system and its part of the backlog. And does the purchase order require a deposit or anything, or is it just a purchase order? Mostly, those are just purchase orders. Now, there can be an order that we would get for a nonrecurring engineering charge, where we might get paid a portion of it up front to cover tooling cost or something like that, and then we wouldn t be able to recognize, we would recognize it is an order, but not as revenue until we completed the work. So I think from that standpoint, Steven, it s pretty clean. The backlog that we re talking about is business that we have. There is other backlog that s beyond twelve months. So we may get, for example, a blanket order that has an extended period on it, but the only portion that we would be talking about is the portion that falls within twelve months, being shippable within twelve months. Okay. So there could be some backlog that s beyond that that s, for example, a multi-year type deal or something like that. So, it s a pretty straightforward number. Yes, it s very straightforward. And then, I thought you d be announcing more orders and I ve been disappointed that there haven t been any announcements on any of the orders and then I thought that might be because you signed non-disclosure agreements. What s the situation with non-disclosure and announcements? Well, I think a lot of our orders are pretty routine purchase orders. We could announce more of them than we do. It sets a precedent in terms of when you start talking about the size of these orders and how much you have to disclose and then, if something happens, you have to take it all back - those kinds of things. So we try, from that perspective, Steven, just to announce things that we feel are very significant and material to the Company. And it s a subjective decision as to what size order falls into that category. The other thing is a lot of customers, we could talk about some of these things and they re more powerful, obviously, if you can associate the end customer with them, but most of the time, the end customer doesn t want to be associated with that kind of announcement. And from our perspective, we don t always want to

14 13 put it out there so our competitors know where we are dealing and where we are having success. Yeah, so generally, it s a secret. Right. It s a secret from the standpoint that we are trying to protect our business and whether the customer is willing to share a joint announcement or not. Yes, that s makes sense. Okay, well, thanks and I ll talk to you next time. Okay, Steve, thank you. Operator Our next question comes from Mr. Brett Moyer, private investor. Please go ahead. Brett Moyer Hi, Jim and Dorothy. Hi, Brett, how are you? Brett Moyer Good. So we heard a lot about growth initiative and stuff like that, what s your forward-looking guidance on Q4 and full year 2016? Well, as you know, when we had this discussion before, we don t really give that kind of guidance. I do expect that the trends that we ve been, we ve reported, I see no reason why they won t continue. We re in a period, right now, where we are seeing very strong quarter intake and resulting revenues are starting to flow through the system. So I don t see reason [technical difficulty] the momentum that s been demonstrated is not going to continue in the foreseeable forward-looking period. Brett Moyer So when you mean now, are you are talking about the 100% growth rate and increase in the growth rate of the back orders as continuing to increasing at 100% or do you? Well, I don t know if the rate of growth will, from quarter-to-quarter, will continue at a 100%, but I do think our business has grown historically, the base business has grown around 10%. I think we will beat that, and then, as the infrared business continues to grow, it should increase that number, because that s a developing product for us. Brett Moyer So revenue growth greater than 10%. Okay, thank you.

15 14 All right. Operator Our next question comes from Robert Ainbinder with Newport Company Securities. Please go ahead, sir. Robert Ainbinder Hi, Jim, hi, Dorothy. Can you hear me? Yes, Bob, we got you. Dorothy Cipolla Hi, Bob. Robert Ainbinder Okay. How are you? Very good, thank you. Robert Ainbinder Good, good. So I think what we re all obviously looking forward to here is seeing this infrared business really start to take hold and see a significant increase in top line revenue. With where you have the margins of the business right now, obviously, that happens and we start to see a lot of money flow to the bottom line and, obviously, that leads to higher stock price. So with that, earlier in the call you talked about the fact that you re, when you re in discussions with some potential customers with the infrared line, you re talking in the 50,000 s and the 100,000 s instead of 100 s. So people can understand and I can understand exactly what an order like that could mean to top line and bottom line numbers, what are the average selling prices for infrared lenses for those type of orders? Thank you, Bob. There s an interesting phenomena going on in infrared. Now, let me say that there is a price range that s not too dissimilar to our standard precision molded optics type frames, which is based on size and volume of the lenses themselves. So typically, we re expecting, on average, ASPs for our infrared line in total, which includes the subsystems that we do, which are assemblies where you have multiple lenses in a housing and mounted type stuff, and then you d have just a single lenses, you get that range and you put all those things together, I think our average pricing is going to be between $40.00 and $ Then that means you were selling some stuff in the $5.00 and $10.00 range and then we re selling some stuff in the $ and $ range, and you mix all that together. So it s really a wide variety. As you get into the higher volumes, small lens type stuff, then those individual prices tend to be lower and what you see, mostly because of the market pricing that s required for the end product, as well as there is increasing competition, particularly coming out of Asia, you re seeing some price pressure on this product line much faster than you would expect to see on a product line of this new variety. It s not really getting its full day in the sun where you get to enjoy that

16 15 initial product life cycle we make pretty decent margin and gain back some of your investment. What we re seeing is some real price compression and some price competition. Now having said that, the good news is, given our manufacturing capabilities and our low cost operating platforms, both in Orlando and in China, we can maintain pretty decent margins and compete even at very low prices in this segment. And we re taking those steps to make sure that we stay that way. So I think we ve seen prices they are going to range in very high volumes in that $5.00 to $10.00 range all the way up to $ to $ for these lenses. I don t know if I [multiple voices] answer but there s a quite a range. It s hard to pin it down. Robert Ainbinder Okay, still, when we re looking at these types of orders, we re talking in the millions of dollars instead of hundreds of thousands? Yes. Robert Ainbinder Okay, so I got to believe that then those type of orders have yet to be factored into your growth rate of the 10% to 15%, right? They have not. Robert Ainbinder Okay, all right, very good. So, when we start to see those type of orders, that growth rate could certainly accelerate. Yes. And I ll tell you, when we land one of those, we will probably make some kind of an announcement about it. Robert Ainbinder Very good. Okay, great, that was my question, thank you so much. All righty. Operator With no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mr. Gaynor for any closing remarks. CONCLUSION Thank you. In conclusion, we appreciate the support our shareholders and the dedication of our global team at LightPath. We remain focused on our efforts to drive revenues for our two major product lines and to continue to drive benefits from the leverage in our business as we improve our profitability in generation of cash flow. With the progress that has been made and our plans for continued execution, we look forward

17 16 to delivering long-term profitable growth, which may deliver meaningful returns for the benefits of our shareholders. Thanks again, and we look forward to speaking to you with our next quarterly report. Operator The conference has now concluded. Thank you for attending today s presentation. You may now disconnect.