LightPath Technologies, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2019, compared with the same periods ended December 31, 2018. The filing was signed February 6, 2020. LightPath manufactures optical components and assemblies, including precision molded and infrared optics. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended Dec. 31, 2019 | Prior-year quarter | Six months ended Dec. 31, 2019 | Prior-year half |
|---|---|---|---|---|
| Revenue | $9.60 million | $8.55 million | $17.15 million | $17.10 million |
| Gross margin | $3.93 million; 40.9% of revenue | $3.54 million; 41.4% | $6.32 million; 36.9% | $6.58 million; 38.5% |
| Operating income (loss) | $1.06 million | $195,000 | $445,000 | $(84,000) |
| Net income (loss) | $769,000; $0.03 per diluted share | $16,000; $0.00 per diluted share | $(606,000); $(0.02) per share | $(567,000); $(0.02) per share |
| Operating cash flow | Not presented for the quarter alone | $938,000 | $(398,000) |
- Cash and liquidity: Cash and cash equivalents were $4.28 million at December 31, 2019, down from $4.60 million at June 30, 2019. Working capital was approximately $12.5 million. Current assets were $19.64 million and current liabilities $7.14 million.
- Debt and leases: BankUnited term-loan carrying value was approximately $5.30 million, including unamortized debt costs; no amounts were drawn on the $2 million revolving line or $10 million guidance line. Finance-lease liabilities totaled approximately $834,000, and operating-lease liabilities approximately $2.01 million. The company reported compliance with loan covenants at period-end.
- Other balance-sheet measures: Total assets were $46.83 million, total liabilities $13.58 million, and stockholders’ equity $33.26 million. More than half of cash was held by foreign subsidiaries.
- Cash uses: First-half investing cash outflow was $974,000, including $1.15 million of property and equipment purchases; financing cash outflow was $489,000, mainly loan and finance-lease principal payments.
Material changes versus comparable periods
- Second-quarter revenue rose 12%, led by infrared products (+34%) and specialty products (+28%); PMO revenue declined 10%. Infrared shipments benefited in part from accelerated orders under a large annual diamond-turned products contract.
- Second-quarter gross margin dollars increased 11%, while margin as a percentage of sales was approximately flat year over year. Management attributed performance to improved cost structure and operating performance after the Irvington facility relocation.
- Second-quarter SG&A fell 13%, partly reflecting the absence of prior-year relocation costs and lower personnel and overhead costs. Operating income rose to $1.06 million from $195,000.
- First-half revenue was essentially unchanged. Lower PMO sales were offset by growth in infrared and specialty products. First-half gross margin percentage declined to 36.9% from 38.5%; management cited higher tariff and freight costs and BD6 yield issues in the first quarter, substantially mitigated in the second quarter.
- First-half net loss widened modestly despite improved operating income and lower interest expense, principally because income-tax expense was $470,000 versus a $202,000 tax benefit a year earlier.
- Operating cash flow improved from a $398,000 use to $938,000 provided, primarily reflecting lower inventory and collections of other receivables.
Outlook, commentary, and risks
- Management reported a 12-month sales backlog of approximately $19.1 million, up 7% year over year and 12% from fiscal year-end. It cited backlog and quote activity as supporting expected revenue increases in molded and turned infrared products for the remainder of fiscal 2020. The filing gives no quantified revenue or earnings guidance.
- The large annual infrared contract’s remaining orders were required to ship by March 31, 2020; shipment timing can affect quarterly revenue and backlog. Annual contract renewals may also cause substantial backlog fluctuations.
- Management expects lower fiscal 2020 capital expenditures than in fiscal 2019, but the amount depends on opportunities and circumstances. It anticipates improved operating cash flow over time from forecast sales growth and production efficiencies, partly offset by planned sales, marketing, and product-development spending.
- Key execution risks include sales growth and customer demand, production yields and efficiency, material and labor costs, tariff exposure, and the need for capital to expand capacity. Management stated that if cash generation and profitability efforts fail, additional capital or strategic alternatives may be needed.
- Cash availability is affected by foreign location and repatriation restrictions. A $2 million intercompany dividend from China was declared; $1 million had been paid by period-end. Related Chinese withholding taxes were $200,000, including $100,000 accrued for the unpaid portion.
- The Irvington, New York facility relocation was completed in June 2019. Approximately $283,000 remained accrued for its lease obligation at December 31, 2019, with the lease expiring in September 2020.
- Adoption of the lease accounting standard on July 1, 2019 recognized operating lease right-of-use assets and liabilities; the company reported no effect on income or cash flows from adoption. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting. No legal proceedings or defaults upon senior securities were reported.
Important facts for investors to verify
- Whether the remaining annual infrared contract orders shipped by March 31, 2020, and whether revenue and backlog trends persisted after the reporting date.
- Whether BD6 yields, tariff mitigation, and product mix translated into sustained gross-margin improvement.
- Cash generation, working-capital trends, and the availability and location of cash, including completion of the declared dividend transfer.
- BankUnited loan covenant compliance, repayment capacity, interest-rate exposure, and total debt and lease obligations.
- Actual capital spending and whether projected sales growth and production efficiencies were achieved; the filing provides no formal quantified guidance.