LightPath Technologies, Inc. — Form 10-Q
Reporting period: Quarter ended December 31, 2020, the second quarter of fiscal 2021, with six-month results compared with the period ended December 31, 2019. The filing date is February 3, 2021. This is not fiscal 2020 Q2.
Business context
LightPath designs and manufactures optical components and assemblies, including precision molded optics (PMO), infrared products, and specialty products. It serves markets including telecommunications, industrial, defense and security, and life sciences, with operations in the United States, China, and Latvia.
Key financial results
| Metric | Three months ended Dec. 31, 2020 | Prior-year quarter | Six months ended Dec. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $9.92 million | $9.60 million | $19.43 million | $17.15 million |
| Gross margin | $3.63 million; 37% of revenue | $3.93 million; 41% | $7.48 million; 38% | $6.32 million; 37% |
| Operating income | $56,000 | $1.06 million | $734,000 | $445,000 |
| Net income (loss) | $(147,000) | $769,000 | $(49,000) | $(606,000) |
| Operating cash flow | Not separately stated | Not separately stated | $1.54 million | $938,000 |
- Quarterly revenue rose 3%, but gross margin fell 8% and operating income declined substantially. The quarter’s net loss followed positive net income in the prior-year quarter.
- First-half revenue increased 13%; first-half gross margin increased 18%. The six-month net loss narrowed from $606,000 to $49,000.
- For the first half, capital expenditures were $2.16 million, investing cash outflow was $2.16 million, financing cash outflow was $116,000, and cash decreased by $81,000 to $5.31 million.
Liquidity, debt, and material changes
- At December 31, 2020, cash was $5.31 million, working capital was approximately $14.1 million, and current assets and current liabilities were $22.19 million and $8.13 million, respectively. More than half of cash was held by foreign subsidiaries.
- Loans payable totaled approximately $5.31 million, including about $4.8 million on the BankUnited term loan, $300,000 on its revolver, and $272,000 on a new subordinated equipment loan. No funds were drawn on the $10 million BankUnited Guidance Line. The company reported compliance with loan covenants.
- PMO revenue increased 28% in the quarter and 31% in the first half, supported by telecommunications, commercial, and defense demand. Infrared revenue declined 4% in the quarter but rose 6% for the half. Specialty revenue fell 58% in the quarter and 33% for the half, largely because prior-year non-recurring engineering project revenue did not recur.
- Quarterly margin pressure reflected product mix, start-up inefficiencies on newly scaled products, and yield issues involving BD6 coatings. Management said it was working to resolve these issues and improve yields. First-half margin improved year over year, partly as earlier tariff impacts were mitigated.
- Quarterly SG&A rose 26%; approximately $400,000 was non-recurring additional compensation to the former CEO. Higher personnel and operational-improvement consulting costs also contributed. Income tax expense was $241,000 for the quarter and $676,000 for the half; the first-half amount included $300,000 of Chinese withholding tax on a declared intercompany dividend.
Outlook, commentary, and risks
- Total backlog was approximately $23.8 million at December 31, up 6% year over year and 9% from fiscal year-end. A renewed large annual infrared contract contributed to the quarter-over-quarter increase; shipments against it were expected to begin in the third quarter.
- Management expected revenue growth in both molded and turned infrared products and visible PMO products for the rest of fiscal 2021, based on backlog and quote activity. It anticipated higher fiscal 2021 capital expenditures than in fiscal 2020, but gave no specific amount or formal earnings guidance.
- Management reported no significant direct COVID-19 impact to date and noted elevated, though moderated, demand for fever-detection applications. It could not estimate future pandemic effects; economic demand, travel restrictions, and supplier availability remain risks.
- The company expects continued operating cash-flow improvement based on forecast sales growth and margin gains, but cautioned that weaker sales, cost increases, or unrealized efficiency improvements could require additional capital. It stated that lack of reasonably priced capital could prompt consideration of strategic alternatives.
- Other items to monitor include execution of the BD6 production ramp, foreign-currency exposure, repatriation restrictions and related taxes, and possible dilution from outstanding options and restricted stock units. No legal proceedings were reported as material; management believed any losses from ordinary-course matters would not materially affect results.
Important facts for investors to verify
- Whether the $23.8 million backlog converts to shipments and revenue on the expected schedule, particularly the renewed infrared contract.
- Whether BD6 coating and production-yield issues are resolved and margins improve as new programs mature.
- Whether revenue growth and operating cash flow continue while inventory and capital spending remain elevated.
- Cash accessibility: more than half of cash was held abroad, and Chinese repatriation is subject to statutory restrictions and withholding taxes.
- Loan maturity, covenant compliance, availability of the revolver and Guidance Line, and the effect of the equipment loan from a significant customer.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter; verify subsequent filings for updates.