LightPath Technologies, Inc. — Q2 FY2022 Form 10-Q
Business context and reporting period. LightPath manufactures optical components and assemblies, including precision molded optics, infrared products, and specialty products. This unaudited quarterly report covers the three and six months ended December 31, 2021; the comparable periods ended December 31, 2020.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | $9.24 million, down 7% | $18.35 million, down 6% |
| Gross margin | $2.80 million; 30% of revenue | $5.97 million; 33% of revenue |
| Operating income (loss) | $(0.98) million | $(1.39) million |
| Net income (loss) | $(1.06) million; $(0.04) per share | $(1.69) million; $(0.06) per share |
| EBITDA (non-GAAP) | $(0.04) million | $0.41 million |
| Operating cash flow | Not provided for the quarter | $(0.16) million |
| Capital expenditures | Not provided for the quarter | $1.32 million |
At December 31, 2021, cash and cash equivalents were $5.05 million, down from $6.77 million at June 30, 2021. Working capital was approximately $11.0 million. Current assets were $18.01 million and current liabilities $7.05 million. Loans payable were approximately $4.55 million net of unamortized debt costs; operating and finance lease liabilities totaled approximately $9.91 million.
Material changes versus comparable periods
- Quarterly revenue fell by about $679,000. Precision molded optics (PMO) revenue declined 21% to $3.76 million, while infrared revenue increased 6% to $5.08 million and specialty products increased 9% to $406,000. For the six-month period, PMO declined 16%, infrared increased 5%, and specialty products declined 6%.
- Gross margin percentage fell to 30% from 37% for the quarter and to 33% from 38% for the six-month period. Management cited a greater share of lower-margin infrared sales and, in the quarter, product mix and costs associated with bringing Riga’s coating department into production.
- Net losses widened from $147,000 to $1.06 million for the quarter and from $49,000 to $1.69 million for the six-month period. Lower gross margin and higher SG&A were principal factors. Six-month SG&A included $481,000 of China-related investigation, legal, consulting, and transition expenses, plus $248,000 of previously incurred VAT and related taxes accrued in the quarter.
- Six-month operating cash flow declined from positive $1.54 million in the prior-year period to negative $157,000, reflecting the loss and lower accounts payable and accrued liabilities, partly offset by reduced inventory. Cash used in investing decreased to $1.32 million from $2.16 million.
Outlook, risks, and unusual items
- No quantified revenue or earnings guidance is provided. Management reported growing demand for infrared products in industrial, defense, and first-responder markets and expects moderate growth in visible PMO products, while noting China sales recovery may take several more quarters. Fiscal 2022 capital expenditures were expected to be below fiscal 2021, subject to opportunities and circumstances.
- Backlog was $21.9 million at December 31, 2021, down 8% year over year but up 3% from June 30, 2021. The quarterly increase reflected renewal of a large annual infrared contract; its value was below the prior-year contract. Backlog timing and conversion to revenue may fluctuate.
- BankUnited amended the term-loan agreement in December 2021: term-loan maturity is April 15, 2023; monthly payments increase to $100,000 beginning November 2022; and an exit fee of 4% of principal may apply at maturity if the loan remains outstanding. Financial-covenant compliance was waived for the quarter ended December 31, 2021 and the next two quarters. The company was in compliance with other covenants as amended and had no revolving-line borrowings at quarter-end.
- Management is pursuing refinancing but cannot assure it will succeed. If commercial refinancing is unavailable, the company may seek equity or non-commercial financing, reduce costs and capital spending, or consider strategic alternatives. More than half of cash was held by foreign subsidiaries and may not be readily available for U.S. obligations.
- China subsidiaries are involved in legal proceedings following termination of former managers for alleged misconduct, including suspected technology misappropriation and diversion of sales. Certain severance and other potential liabilities remained accrued; the company expects further legal and consulting costs. Management said China domestic sales and results had been adversely affected and could remain so for several quarters, but did not expect a material effect on production or supply to other subsidiaries.
- COVID-19 had not caused a significant direct financial impact to date, but could affect demand, supply, travel, operations, cash flow, and liquidity; management said future effects could not be estimated. The filing also identifies supplier availability, costs, sales growth, and production-efficiency execution as risks.
- Disclosure controls were assessed as effective at December 31, 2021. The company reported additional internal-control procedures following the China matters. No legal proceedings were listed under Part II, Item 1, and no additional risk factors were listed under Item 1A.
Investor verification priorities
- Track PMO orders and recovery in China, customer diversification, and the effect of reduced telecommunications demand.
- Check whether infrared growth translates into improved margins as coating capacity and production yields mature.
- Monitor operating cash generation, working-capital movements, foreign cash accessibility, and capital spending.
- Verify refinancing progress, covenant terms and waivers, scheduled payment increases, and available alternatives before the April 2023 maturity.
- Follow China-related proceedings, accrued obligations, further costs, and the impact on sales and internal controls.