LightPath Technologies, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended June 30, 2019. Although the request identifies “2018 Q4,” this filing reports FY2019 and includes fourth-quarter results through June 30, 2019. LightPath designs and manufactures precision molded optics, infrared optics, and specialty optical products and assemblies, with operations in the United States, China, and Latvia.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $33.75 million | $32.53 million |
| Gross margin | $12.52 million; 37% of revenue | $12.53 million; 39% of revenue |
| Operating income (loss) | $(1.14) million | $0.37 million |
| Net income (loss) | $(2.68) million; $(0.10) per share | $1.06 million; $0.04 per share |
| Operating cash flow | $0.41 million | $2.62 million |
| Capital expenditures | $1.93 million | $2.52 million |
| Adjusted EBITDA, non-GAAP | $1.94 million | $4.02 million |
- FY2019 revenue grew 4%. Infrared revenue increased 8% to $17.27 million, PMO revenue rose 4% to $14.10 million, and specialty revenue fell 21% to $2.38 million.
- Fourth-quarter revenue increased 8% year over year to $8.75 million. Fourth-quarter net loss was $1.76 million, versus a $0.81 million loss in Q4 FY2018.
- Cash and cash equivalents were $4.60 million at year-end; working capital was approximately $13.3 million. About $3.3 million of cash was held by foreign subsidiaries, and Chinese funds face repatriation restrictions.
- Loans payable totaled approximately $5.58 million net of unamortized debt costs, including $0.58 million current. Capital lease obligations were approximately $1.04 million. The BankUnited term loan balance was about $5.7 million; no revolving-line borrowings were outstanding. The company reported compliance with loan covenants at June 30, 2019.
Material changes and notable items
- Despite higher revenue, gross margin declined from 39% to 37%, and the company swung from net income to a net loss. Management attributed the deterioration mainly to approximately $1.2 million in facility-relocation costs, tariffs and freight costs, lower specialty-product sales, increased product-development spending, higher income-tax expense versus FY2018, and unfavorable foreign-exchange results.
- Operating cash flow fell to $0.41 million, partly reflecting the net loss and increases in inventory and receivables. Inventory rose to $7.68 million from $6.40 million; receivables increased to $6.21 million from $5.37 million.
- LightPath completed the relocation of ISP’s Irvington, New York manufacturing operations to Orlando and Riga by June 30, 2019, anticipating future cost savings. Fiscal 2019 included relocation-related charges and an accrued remaining lease obligation of approximately $467,000.
- The company refinanced its Avidbank debt with BankUnited in February 2019. The new facility includes a $2 million revolving line, a $5.81 million term loan, and a discretionary, non-revolving guidance line of up to $10 million for eligible capital expenditures and acquisitions.
- Revenue concentration increased: three customers represented approximately 32% of FY2019 sales, versus 28% in FY2018; those customers also represented 40% of year-end receivables. International sales were 62% of revenue, up from 58%.
Outlook, risks, and contingencies
- Management expects growth primarily from infrared products and anticipated benefits from the completed facility consolidation. It cited strong infrared demand and a 12-month backlog of approximately $17.1 million, up 33% year over year, while cautioning that backlog may not convert fully into sales.
- Management expected FY2020 capital expenditures to be similar to FY2019, subject to opportunities and circumstances, and planned new-product development spending of approximately 5%–6% of revenue.
- Key risks include continued losses and cash generation, dependence on a small number of customers, international and foreign-exchange exposure, volatile germanium costs, reliance on some limited-source suppliers, pricing pressure, product qualification and execution risks, and uncertainty over whether BD6 infrared products will scale and improve margins as expected.
- Tariffs had begun to raise cost of sales late in FY2019, and management said their future effect was uncertain. More than half of cash was held abroad; China’s repatriation rules may limit access to funds for U.S. needs.
- On July 15, 2019, Nasdaq notified the company that its share price had been below the $1.00 minimum bid requirement for 30 consecutive business days. It had until January 13, 2020 to regain compliance; otherwise, delisting risk remained.
- The company reported no material pending legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective; the independent auditor did not attest to internal-control effectiveness.
Investor verification priorities
- Check subsequent filings for revenue and margin trends, cash flow, and whether the anticipated consolidation savings and BD6 product growth materialized.
- Monitor customer concentration, receivable collection, inventory levels, and backlog conversion into shipments and cash.
- Review debt balances, variable-rate exposure, covenant compliance, and the availability and terms of the discretionary BankUnited guidance line.
- Verify the effect of tariffs, foreign-exchange movements, and restrictions on repatriating foreign cash.
- Check Nasdaq listing status and any later updates on the minimum bid-price requirement.