LIGHTPATH TECHNOLOGIES INC quarterly report, Q3 FY2022

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LightPath Technologies, Inc. — Form 10-Q Summary

Reporting period: The filing covers the quarter and nine months ended March 31, 2022 (the third quarter of fiscal 2022), not 2021 as stated in the request metadata. Financial statements are unaudited.

Business context

LightPath designs, manufactures, and sells optical components and assemblies, including precision molded optics (PMO), infrared products, and specialty products. Its operations span the United States, China, and Latvia. Management’s strategy emphasizes partnering with customers on optical design and supplying higher-value optical solutions and assemblies.

Financial performance and position

  • Revenue: Q3 revenue was $8.31 million, down 22% year over year. Nine-month revenue was $26.65 million, down 12%.
  • Product mix: Q3 PMO revenue increased 3% to $4.03 million; infrared revenue fell 42% to $3.73 million; specialty revenue rose 64% to $547,000. For nine months, PMO declined 10% to $11.61 million, infrared declined 14% to $13.69 million, and specialty increased 13% to $1.35 million.
  • Gross margin: Q3 gross profit was $3.03 million, with a 37% margin versus 36% a year earlier. Nine-month gross profit was $9.01 million, with a 34% margin versus 38%. Management attributed the quarterly margin improvement to product mix, and the year-to-date decline to lower revenue and underused capacity, as well as costs of qualifying the Riga coating operation.
  • Operating results: Q3 operating loss was $457,000 and net loss was $495,000, or $0.02 per share, compared with net loss of $223,000 a year earlier. Nine-month operating loss was $1.84 million and net loss was $2.18 million, or $0.08 per share, compared with a $272,000 net loss in the prior-year period. Q3 EBITDA, a non-GAAP measure, was $647,000 versus $1.06 million; nine-month EBITDA was $1.06 million versus $3.49 million.
  • Cash flow and capital spending: Nine-month operating cash flow was $352,000, down from $3.08 million. Investing cash use, principally capital expenditures, was $1.49 million versus $2.72 million. Cash declined by $1.53 million during the nine months to $5.24 million.
  • Liquidity: Working capital was approximately $11.0 million. More than half of cash was held by foreign subsidiaries and may not be readily available for U.S. obligations. China subsidiary LPOIZ had approximately $4.8 million available for repatriation, subject to applicable requirements.
  • Debt and leases: Loans payable totaled approximately $4.39 million, including about $4.1 million on the BankUnited term loan and $400,000 on an equipment loan. Operating lease liabilities totaled approximately $10.66 million. No revolver borrowings were outstanding.
  • Backlog and shares: Backlog was approximately $19.7 million at March 31, up 1% year over year but down 8% from fiscal year-end. Approximately 27.0 million Class A shares were outstanding at March 31; 27,046,790 were outstanding May 10, 2022.

Material changes versus the prior-year period

  • Lower infrared demand—especially industrial temperature-sensing applications that had peaked in the prior-year quarter—was the main driver of the Q3 revenue decline. A large annual infrared contract was renewed in fiscal Q2, with shipments beginning in Q3.
  • PMO sales improved sequentially during fiscal 2022, supported by catalog and distribution channels and industrial customers, but remained affected by reduced orders from a major telecommunications customer and weaker domestic China sales.
  • Nine-month SG&A increased 5% to $8.44 million, largely reflecting China-related legal and consulting costs and prior-year Chinese VAT and related taxes. Q3 SG&A declined 7% year over year.
  • Inventory fell to $7.62 million from $8.66 million at June 30, 2021; the inventory obsolescence allowance increased to $1.58 million from $1.19 million.
  • More than 50% of cash remained overseas. The company filed an effective shelf registration statement in March 2022, including an ATM program with capacity of up to $25.2 million; it reported no ATM share sales through the filing.

Outlook, risks, contingencies, and unusual items

  • Management expects China’s rolling COVID-19 lockdowns and customer order-receipt delays to continue affecting revenue, but could not estimate the full effect. Facilities had not been directly disrupted at the time of filing.
  • The company expects fiscal 2022 capital expenditures to be below fiscal 2021, but the amount depends on opportunities and circumstances. No specific revenue or earnings guidance was provided.
  • Management is pursuing refinancing of the BankUnited facility and says there is no assurance it will succeed on reasonable commercial terms. If refinancing or other capital is unavailable, potential responses include equity financing, cost and capital-spending reductions, or strategic alternatives.
  • BankUnited waived compliance with the fixed-charge coverage and total-leverage covenants for the quarter ended March 31, 2022; the company said it complied with other covenants as amended. A May 11, 2022 amendment, subsequent to quarter-end, extended the term-loan maturity to April 15, 2024 and established staged exit fees. The amendment also required a $25,000 fee and reimbursement of BankUnited’s related costs.
  • Legal and transition issues involving former China subsidiary employees continued. The company incurred $526,000 of related expenses in the nine months. It reversed a previously accrued $210,000 potential liability in Q3 after determining the subsidiary would not be responsible; approximately $485,000 of disputed severance remained accrued. Management anticipated further, but lower, legal and consulting costs.
  • The Russia-Ukraine conflict creates uncertainty around customers, suppliers, currency, freight, and raw materials. LightPath historically sourced germanium from Russia and China and intended to source it from China if the conflict continued; it gave no assurance that future supply, timing, or costs would be acceptable. Management also cited customer impacts from China lockdowns and ongoing supply-chain constraints.
  • The filing reports effective disclosure controls as of March 31, 2022 and no significant quarterly change in internal control over financial reporting. It reports no material change to previously disclosed risk factors other than the Russia-Ukraine-related discussion.

Important facts for investors to verify

  • Whether backlog converts to revenue on expected timing, particularly following annual contract renewals and China customer delays.
  • Progress in restoring China domestic sales after management changes, and the outcome and cost of the employee-related legal disputes.
  • Availability and terms of refinancing before the amended April 2024 maturity, including the applicable exit fees and covenant requirements.
  • Cash generation, inventory conversion, capacity utilization, and the margin contribution from the Riga coating operation as it qualifies for production.
  • Actual exposure to germanium sourcing constraints, China lockdowns, and Russia-Ukraine-related customer or supply disruptions.
  • Whether the company uses its shelf or ATM registration to raise capital, and the resulting dilution and liquidity effects.