LightPath Technologies, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2019 (fiscal 2020 Q1); comparative period ended September 30, 2018. Filed November 7, 2019. The filing describes a global manufacturer of optical components and assemblies, including precision molded optics and infrared products.
Financial performance and liquidity
- Revenue: $7.55 million, down 12% from $8.55 million. Precision molded optics (PMO) revenue rose 2% to $3.18 million; infrared revenue fell 20% to $3.96 million; specialty products fell 14% to $408,000.
- Gross profit and margin: Gross margin dollars were $2.39 million, down 21%. Gross margin as a share of revenue declined to 32% from 36%, reflecting lower infrared shipments and yields, plus higher tariffs and freight costs affecting PMO.
- Operating and net results: Operating loss was $613,000 versus $279,000. Net loss was $1.38 million, or $0.05 per share, compared with $583,000, or $0.02 per share. Other expense was $515,000, primarily due to foreign-exchange transaction losses; income tax expense was $148,000 versus a $179,000 benefit.
- Cash flow: Operating activities provided $450,000, compared with $299,000 used in the prior-year quarter, primarily due to receivable collections. Investing activities used $207,000; financing activities used $237,000. Cash and cash equivalents ended at $4.67 million, versus $4.60 million at June 30, 2019.
- Liquidity and debt: Working capital was approximately $11.8 million. BankUnited term-loan carrying value was approximately $5.44 million (principal payments due totaled $5.52 million before unamortized debt costs); no revolving-line or guidance-line borrowings were outstanding. The company reported compliance with its loan covenants. More than half of cash was held by foreign subsidiaries; $3.5 million at the Chinese subsidiary LPOIZ was identified as available for repatriation.
- Other metrics: Non-GAAP EBITDA was a loss of $236,000 versus income of $245,000. Total assets were $46.1 million and total liabilities were $13.9 million at quarter-end.
Changes versus the prior comparable quarter
- Revenue declined mainly because of delayed orders under a large annual infrared contract. The customer’s supply-chain delays shifted shipments; under the contract, the orders could not be delayed beyond March 31, 2020.
- PMO units increased 32%, but average selling prices fell 22%, partly because of greater telecommunications sales at higher volumes and lower prices. Infrared units rose 33%, while average selling prices declined 40%, reflecting a mix shift toward higher-volume, lower-priced molded products.
- SG&A fell about 5%, partly because the prior-year quarter included $91,000 of nonrecurring costs associated with the Irvington facility relocation. New product development costs declined 9%. Interest expense fell to $99,000 from $145,000, attributed to more favorable BankUnited loan terms.
- The company recognized $497,000 in net foreign-currency transaction losses, compared with $338,000 in the prior-year quarter. The filing’s MD&A contains an apparent period-label inconsistency in its discussion of these figures; investors should verify against the financial statements and notes.
Outlook, commentary, risks and unusual items
- Management expected revenue from molded and turned infrared products to increase during the remainder of fiscal 2020, based on backlog and quote activity. It said delayed annual-contract orders were expected to ship over the next two quarters.
- 12-month backlog was $15.39 million, up 10% year over year but down 10% from fiscal 2019 year-end. Management noted annual contracts may lift backlog when renewed, followed by drawdown as orders ship.
- Management expected fiscal 2020 capital expenditures to be lower than in fiscal 2019, while noting actual spending would depend on opportunities. It anticipated continued savings from facility consolidation and potential margin gains from production efficiencies and tariff mitigation; results were not assured.
- Risks include continued revenue weakness, material or labor cost increases, failure to achieve production efficiencies or sales growth, foreign-exchange volatility, and limited cash resources. Management stated that if efforts to improve cash flow and profitability fail, additional capital may be needed; if financing is unavailable on reasonable terms, strategic alternatives could be considered.
- In July 2019, the company introduced a COO role combining operations, engineering, sales and marketing, and established product management roles. The planned Senior Vice President, Strategic Business Assessment position had not been filled.
- Adoption of lease accounting guidance on July 1, 2019 resulted in recognition of operating lease right-of-use assets and liabilities; the company said adoption did not affect reported income or cash flows. The Irvington facility closure also left approximately $375,000 of lease obligations and $93,000 of termination benefits accrued at quarter-end.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no legal proceedings or defaults upon senior securities.
Important facts for investors to verify
- Timing and shipment of the delayed infrared annual-contract orders, including whether they shipped by the stated March 31, 2020 deadline.
- Subsequent revenue, backlog renewal and conversion, and whether infrared demand and PMO growth offset lower average selling prices.
- Progress on tariff mitigation, BD6 production yields, and the claimed efficiency and margin improvements.
- Operating cash generation, funding needs, foreign cash accessibility and any borrowing under the BankUnited credit facilities; confirm ongoing covenant compliance.
- The period-label inconsistency in the MD&A foreign-exchange discussion and the treatment of foreign-currency losses in reported results.