LightPath Technologies Q2 2025 Earnings Call Transcript

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Provided by Quartr
February 13, 2025

Key Takeaways

  • LightPath closed a transformative acquisition of G5 Infrared for $27 million, adding approximately $15 million in preliminary 2024 revenue and positioning the combined business to exceed $55 million in revenue over the next 12 months.
  • G5 brings a significant pipeline of defense and security programs— including Border Patrol towers and naval counter-UAS systems— with earn-out targets of $21 million–$27 million in the first year and potential multi-year, high-margin revenues.
  • China’s export restrictions on germanium and related optical materials delayed about $3.4 million of Q2 shipments, but management expects no lost orders and growing customer activity around redesigns to alternative materials.
  • In Q2 LightPath reported revenue up 1.5% year-over-year to $7.4 million, while gross margin fell to 26% and net loss widened to $2.6 million, driven by a shift in product mix, yield issues and higher SG&A and R&D costs.
  • The G5 acquisition is financed by $25.5 million of 6.5% convertible preferred equity, $1.5 million of private placements and $5.4 million of senior secured notes, with a strategic investor taking a board seat to support growth.
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Earnings Conference Call
LightPath Technologies Q2 2025
00:00 / 00:00

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Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies' Second Quarter Fiscal 2025 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, February 13, 2025, and the earnings press release accompanying this conference call was issued before the market opened today. I'd just like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations, involve various risks, and uncertainties, as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurance that the projected results would be realized.

Operator

In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO Sam Rubin will begin today's call with an overview of today's acquisition of G5 Infrared, a strategic overview of the business and recent developments for the company, while CFO Al Miranda will then review financial results for the quarter. Following the prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to CEO Sam Rubin. Sam, the floor is all yours.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thank you, Operator. Good afternoon to everyone, and welcome to LightPath Technologies' Second Quarter Fiscal 2025 Financial Results Conference Call. Given the important news we announced this morning regarding the acquisition of G5 Infrared, I will be dedicating most of my remarks today to this topic. The acquisition of G5 Infrared is a key and transformative event for LightPath and is a natural continuum of the strategic transition the company has been undertaking for the last few years. As a reminder, up until about four years ago, LightPath was a pure-play optical component manufacturer. The core technology for LightPath up until that point, precision glass molding, was an innovative technology in the early 2000s, which gradually became commercialized and constantly commoditized over the last 20 years.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

What was a leading differentiator for the company years ago has become, by 2020, a widely deployed technology with aggressive and ample competition, pushing LightPath out of the market. In late 2020, shortly after I joined and consequently built a new leadership team, we outlined a new strategy that leverages our differentiators into a more value-added position, with the goal to eventually become a solutions and subsystem provider, all of which is still in the optics space, where we have strong domain expertise with the ultimate goal of becoming a systems supplier. We started the journey by first offering optical assemblies based on our optical components, then began to offer compact thermal cameras such as our MANTIS Multispectral Camera. Later on, through the acquisition of Visament Technologies in the summer of 2023, we added advanced capabilities in video engine and camera cores for uncooled infrared cameras.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

The acquisition of Visament also came at a critical pivotal point for the Visament team, as shortly after the acquisition, Visament and LightPath were awarded a large development contract with Lockheed Martin for a new missile program, a contract that has the potential to translate to between $50 million-$100 million a year in revenue from that one program alone. Similarly, though not as large, Visament and LightPath have several other large programs in various stages, many of which have the potential of bringing more than $10 million a year in new revenue from each one of those programs. The addition of G5 Infrared, as you will see, fits in naturally into what we have been building, and is a logical next step in our journey.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Not only do G5 Infrared's products complement LightPath's products perfectly, but G5 Infrared is also at a pivoting point, about to be awarded some large lucrative defense programs that will be moving into LRIP. LRIP is Low-Rate Initial Production. We'll be moving into LRIP very soon, and from there, shortly into full-scale production. With this background, now framing where we have come from and where we are, let's dive into the acquisition itself. G5 Infrared was established in 2011 by a seasoned team that this was their second or even third time around. Their first time around, DIOP, D-I-O-P, was a household name in our industry, establishing a big part of what was AXIS back in the mid-2000s, and later sold to General Dynamics for $643 million in 2009.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

This highly accomplished team, led by Louis Fantozzi, are well known in the industry as the ones that always deliver the highest quality, effectively gold-standard cameras in long-range imaging. These infrared cooled camera systems are used in places where extreme sensitivity of detection is needed, such as detecting people from miles away, or vehicles, or drones from tens of miles away. I will talk more about that later. As is often the case in optics, just like LightPath leverages its Black Diamond glass to make best-in-class optical systems and uncooled cameras, G5 Infrared also has its own optical coating services group, another element in the secret sauce of these high-end camera systems. These coatings are part of what makes their cameras perform the way they do.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

This coating service offered to external customers also accounts for a highly profitable service revenue that makes up to 20% of G5 Infrared's revenue. These coating capabilities also fit very well with LightPath's infrared component business, and will be a critical capacity that will add a critical capacity to that of the LightPath business. Clearly, G5 Infrared is a successful and well-aligned business to LightPath in and by itself. This is also evident from their growth rates, winning businesses, and solid financial performance, delivering strong margins and EBITDAs of around or higher than 20% consistently. While the financial profile is important, growth is too. I'd like to dive in a bit into the product and technology and how this translates to revenue.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

LightPath's transition to move from a pure-play component to a subsystem or solution provider, and from there to a system supplier, can be characterized in many ways. Probably one of the best indicators to where a company fits in the food chain are ASPs, or average sales price of its product. When I joined LightPath in 2020, the company was, as we mentioned, a component company, and its products, individual lenses, had ASPs ranging from $1 for the really commoditized telecom lenses to up to, say, $100 for the more complex diamond-turned lenses. In 2021 to 2022, we gradually transitioned into offering assemblies, a more complex engineered optical product. That resulted in assemblies, in ASPs going from $100-$500, already a more complex by itself.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

While ASPs in and by themselves are not the goal per se, they're a good leading indicator to the complexity of the product and the offering, and hence to the value created by that product. As many strategy books will tell you, creating value, followed by capturing value, is how one creates a strategy that leads to sustainable profits and growth. We went from single-digit ASPs to three-digit ASPs. Next came our uncooled cameras, such as our MANTIS, innovative multispectral uncooled camera, which was our ticket into the world of cameras. Those products of cameras had ASPs of $10,000 to begin with. Through more complex cameras for oil and gas industries, we're now selling cameras with ASPs of $30,000, which is really a leap into five-digit ASPs, if you would. Again, not the goal by itself, but an indicator.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Now comes G5 Infrared with cooled mid-infrared cameras. ASPs of their product start from $50,000 for their entry-level cameras, short-range detection cameras, up to $500,000 for the high-end long-range detection cameras. When we say long-range, we're talking about cameras that can detect the presence of a vehicle from as far as 68 km away, 42 mi, that is. Very, very impressive products. In the span of four years, we've gone from selling lenses at single-dollar lenses and declining, unfortunately, to assemblies at hundreds of dollars, to uncooled cameras at thousands of dollars, and now to adding cooled cameras at tens or hundreds of thousands of dollars per device. G5 Infrared is also a fast-growing business with a significant pipeline of new business opportunities, with multiple programs of records expected to begin production in the next two years, driving strong growth far beyond their existing revenue base.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Their long-range cameras are used for detecting objects at, well, long-ranges, if you would. The two main applications are around detection of drones, also known as counter-UAS or C-UAS, and detection of people and vehicles. The former, counter-UAS, is a fast-growing application in which G5 Infrared's cameras, with their proprietary image stabilization software, ATCOM, are considered the best performer in terms of detection range. One of the programs of record G5 Infrared is designed into includes placing those cameras on hundreds of naval vessels with passive detection for passive detection of incoming threats, such as drones, missiles, and more. The word passive is actually pretty important in this. As we've all seen in the Ukraine conflict battlefield, if one uses an active system such as a radar to detect incoming drones and missiles, the radar's emission immediately turns you into a target.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Passive detection of incoming threats is one of the fastest-growing technologies today, and one that G5 Infrared systems are by far the leader in. In this application, G5 Infrared sells cameras to integrators that place them into larger systems with pan-tilt and motion control and build a complete system for detection and tracking of such threats. A second leading application is perimeter and border security. Here, the same camera technology is used on towers along the border and for perimeter security in critical infrastructure like stadiums, power plants, and more. G5 Infrared has a long history with cameras for border security and has already hundreds of cameras installed along the border. With the limited lifetime of cryogenic coolers in such systems, G5 Infrared also provides an ongoing service for repair of those hundreds of cameras, which is a great revenue stream that we expect to grow significantly more in the incoming years.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

More specifically, G5 Infrared provides now cameras that are used in the Customs and Border Patrol CTSE towers, and just last month received their first award and order for the new surveillance towers of Customs and Border Patrol. That is part of Homeland Security Department. We expect to be able to announce soon more detail about those programs, both the naval and the border patrol one. A highly accretive acquisition brings over $15 million in preliminary unaudited revenue in 2024 and brings us to a point where we expect our combined revenue in the next 12 months to exceed $55 million, taking us a completely new place altogether.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

While we don't provide guidance for future quarters specifically, I would encourage everyone to study the future earnouts that are part of this acquisition, as it gives a very clear picture of what G5 Infrared management expects the business to look like in the next 24 months. I will give you a hint that the earnout for the first year includes projections of revenue between $21 million-$27 million from G5 Infrared alone, compared to $15 million last year. That gives, I think, a pretty good taste into the kind of growth rates we're looking at. I'd like now, with the time left, to switch gears a minute and to talk about the previous quarter. The previous quarter was impacted in two ways by one major event.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

That event was on December 5th, China announced further restrictions on germanium export, now completely banning sale of any germanium to any U.S. company and to the U.S., and to any dual-use applications. While we have prepared for this moment by significantly reducing our germanium business and by preparing our Black Diamond substitutes, we did not escape completely unharmed out of that. Once China announced those restrictions, practically all shipments out of China suffered one way or another. This means materials that are not related even to this ban, like zinc selenide and zinc sulfide, were also completely stopped for a while. To us, this means that more than $750,000 of revenue from last quarter could not ship in the last few weeks of the quarter and had to move into this quarter we are in now.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

I will emphasize that we haven't lost a single dollar of revenue. There wasn't any cancellation, and we don't expect to lose any of that. It is simply a matter of timing. When all shipments out of China came to a halt, that impacted also non-germanium business of ours for a short period of time. We expect this to recover very soon, although what we're seeing is that Chinese companies like Vital are completely stopping shipping any optics altogether, not only germanium. We have many other suppliers, and we're building into that and are recovering from that small hiccup. It's unfortunate because we report our numbers, of course, on a quarterly basis, and something that happens in the last two or three weeks in a quarter is really just, for us, a matter of timing of revenue and not a business issue.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

When reporting on quarterly numbers, it appears that way. At the same time, we also saw the new restrictions finally leading our customers to make the move to our alternative materials. We are seeing an influx of interest in those materials, and I'm extremely encouraged by this. As a reminder, systems need to be redesigned to replace germanium with our materials. What we're seeing now is a very significant effort to start the redesign process by pretty much all customers related to this. With some systems, such as our customer for FPV drone optics that we announced last quarter, the redesign is fairly straightforward and allows us to get it done within weeks. In other more complex systems, this takes months. We're seeing quite a bit of this happening now.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

We're not only working with customers to help those redesigns, we're also taking a look at our manufacturing capacity to prepare the needed capacity to make the glass needed for these programs once the redesign and qualification is done. As a reminder, we spent nearly $6 million in our Orlando facility over the last few years preparing the infrastructure needed for growth. We do not expect to need to outlay any significant additional capital for this increase in capacity. We expect to be increasing our glass capacity significantly in coming months, but with fairly modest investment in that. Okay.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Since we're running out of time and I can't really cover everything that happened last quarter, I will encourage everyone to review some of the recent press releases on new products such as gas detection camera, on new contracts such as our FPV drone optics, and many other things that we reported over the last few months. I will be also available, as always, to answer questions on those. Now I'd like to turn the call over to our CFO, Al Miranda, to talk about our second quarter fiscal 2025 financial results. Al, please go ahead.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Thank you, Sam. I'll keep my review to a succinct highlight of the financials this quarter. As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the Form 10-Q for the period.

Al Miranda
Al Miranda
CFO at LightPath Technologies

I encourage you to visit our investor relations webpage to access these documents. Revenue for the second quarter of fiscal 2025 increased 1.5% to $7.4 million as compared to $7.3 million the same year-ago quarter. Sales of infrared components were $3.1 million, or 42%. Revenue from visible components was $2.8 million, or 37%. Revenue from assemblies and modules was $0.9 million, or 12%. Revenue from engineering services was $0.7 million, or 9%. Gross profit decreased 11% to $1.9 million, or 26% of total revenues in the second quarter of 2025, as compared to $2.2 million, or 30% of total revenues in the same year-ago quarter.

Al Miranda
Al Miranda
CFO at LightPath Technologies

The decrease in gross margin as a percentage of revenue was primarily driven by differences in the product mix, coupled with minor and typical manufacturing yield issues exacerbated by a slowdown in supply chain, which Sam discussed, mostly attributable to China exports and impacting visible and infrared components. Operating expenses increased 12% to $4.4 million for the second quarter of fiscal 2025, as compared to $4 million in the same quarter of the prior fiscal year. The increase was primarily due to higher legal and consulting fees related to business development initiatives, including $174,000 in expenses associated with G5 Infrared acquisition announced today, product development costs of about $200,000 higher than the comparative quarter, as well as increased sales and marketing spend to promote new products.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Net loss in the second quarter of fiscal 2025 totaled $2.6 million, or $0.07 per basic and diluted share, as compared to $1.7 million, or $0.05 per basic and diluted share in the same quarter of the prior fiscal year. The increase in net loss was primarily attributed to lower gross profit, coupled with the increased SG&A and new product development costs, as well as higher interest expense. EBITDA loss for the second quarter of fiscal 2025 was $1.5 million, compared to a loss of $0.5 million for the same period of the prior fiscal year. The decrease in EBITDA in the second quarter of fiscal 2025 was primarily attributable to lower gross profit, coupled with increased SG&A, including legal and consulting expenses related to business development initiatives, including acquisition costs and higher new product development costs.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Cash and cash equivalents as of December 31st, 2024, totaled $3.2 million, as compared to $3.5 million as of June 30th, 2024. As of December 31st, 2024, total debt stood at $3.9 million, and backlog totaled $19.8 million. As Sam noted, today we announced the acquisition of G5 Infrared, which had preliminary unaudited revenue of $15 million in calendar year 2024. The expectation is for the combined companies to generate $55 million in revenue in the 12 months following today's acquisition. Subsequent to quarter end and to finance the G5 Infrared acquisition for $27 million of total consideration, we issued $25.5 million of 6.5% fixed convertible preferred equity, as well as private placements totaling $1.5 million, and two senior secured promissory notes totaling $5.4 million. Following the close of the transaction, the August 2024 bridge promissory note of $3 million will be fully converted and no longer outstanding.

Al Miranda
Al Miranda
CFO at LightPath Technologies

The $25.5 million in preferred is mostly held by a fundamental investor that takes a concentrated position with a long-term perspective in a few investments. Terms and conditions are not toxic and are clean as possible. The investor will also become a board member for a five-year term to assist in our growth plans. We consider this new investor as a partner to our business. In closing, I view the acquisition of G5 Infrared as a robust tool to supercharge the near-term potential of LightPath, particularly in the defense space, with the introduction of high-margin, high-ASP, and incremental products. We see this as providing an expedited path to achieving our long-term goal of 15% EBITDA margins. Defining LightPath as a platform company focused on disciplining strategy and delivering value to our shareholders as we scale and grow.

Al Miranda
Al Miranda
CFO at LightPath Technologies

With that, I'll turn the call back to Sam for some closing remarks.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thank you, everyone, for taking the time today to attend our call. Looking ahead, we will continue to drive the future of imaging as seen through our proprietary Black Diamond optics, leveraging our clear advantage in our capabilities and supply chain security as compared to legacy germanium-based solutions. With defined catalysts in industrial defense and camera solution markets taken in tandem with our acquisition of G5 Infrared providing an entrance into the cooled infrared camera space, we believe calendar 2025 will build additional momentum towards our LightPath 3.0 vision of becoming a leading next-generation optics and imaging solutions provider. With that, I will now turn the call over to the operator to begin the question and answer session. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin with the question and answer session.

Operator

If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Jaeson Schmidt from Lake Street Capital Markets. Please go ahead.

Jaeson Schmidt
Senior Research Analyst at Lake Street Capital Markets

Hey, guys. Thanks for taking my questions. Just want to start on the gross margin in December. You noted some kind of manufacturing yield issues. Just curious if those have been fully resolved?

Al Miranda
Al Miranda
CFO at LightPath Technologies

Sorry, Jaeson. Sam and I are sitting together, so we usually need eye contact. Yeah.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Al, do you want to take this?

Al Miranda
Al Miranda
CFO at LightPath Technologies

Our yield issues in this quarter were not particularly bad. I would say it was normal. You do not get 100% yield, particularly with coatings. They were minor. The problem was sort of exacerbated by the fact that we usually have more material. We can get extra materials. We plan for it. We have it. When we have yield issues and not a fast and quick source to some of the materials coming out of China, it sort of delays our ability to deliver. A normal yield issue becomes a not-normal yield issue, if you will.

Jaeson Schmidt
Senior Research Analyst at Lake Street Capital Markets

Okay. That makes sense. Obviously, it sounds like you guys are very familiar with G5 Infrared. Just curious, sort of the customer overlap between the two companies and, relatedly, the cross-selling opportunities you guys are envisioning.

Jaeson Schmidt
Senior Research Analyst at Lake Street Capital Markets

If there are cross-selling opportunities, are those sort of baked into the growth expectations reflected in the earnouts?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. I'll take that one. There's definitely some great opportunities there, and we're seeing a lot of excitement from the customers. To begin with, just on the optics part, which is the easiest to answer, since G5 Infrared has very good and robust optical coating services, they naturally service many of our customers already in that aspect. That part is sort of an easy, very natural part. When it comes to the camera part, which is really where a lot of our growth we expect will come from, most times when you see today a system that has those cooled infrared cameras, it will very, very often have an uncooled camera that goes with it.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

If you look at some of the companies like Silent Sentinel, which is today part of Motorola, and you look at their product offering, those same pan-tilt systems or gimbal will have a short-range camera, uncooled camera like our uncooled cameras, and a long-range camera from G5 Infrared next to it. The selling opportunity there is tremendous. The same is also in optical gas imaging. Oftentimes, in a gas field, there will be many small uncooled cameras like our gas camera, and then one large cooled camera, which obviously, naturally, is much more expensive and over $100,000. That one is able to actually quantify exactly how much gas is leaking. It gets pointed at the places where the smaller cameras identify the leak to begin with, and so on. There are some great opportunities there, we feel. As of now, those are not baked into the numbers.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

The revenue numbers for G5 Infrared and their earnout is based on their projections and their own expectations of revenue without any synergies in that.

Jaeson Schmidt
Senior Research Analyst at Lake Street Capital Markets

Okay. That's helpful. And then just the last one for me, and then I'll jump back into queue. How should we think about the gross margin profile for the G5 Infrared business?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Al, do you want to take that?

Al Miranda
Al Miranda
CFO at LightPath Technologies

The camera business has higher margins than the LightPath visible or infrared component business. In terms of expectations, the margin will blend upwards with the portfolio being added.

Jaeson Schmidt
Senior Research Analyst at Lake Street Capital Markets

Perfect. Thanks a lot, guys.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Thank you.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thank you.

Operator

The next question comes from the line of Glenn Mattson from Ladenburg Thalman. Please go ahead.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

Hi, guys. Sam, congrats on the acquisition.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

I couldn't help but notice your comment when you were talking about G5 Infrared a little bit about you mentioned something about about to be awarded several large programs and that you should be moving into LRIP. I'm just trying to understand that language because normally, I guess you wouldn't say about to be awarded unless you had the business pretty secure, or can you just give us a color on that?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

One of them is a matter of date, literally. I mean, it's in very final negotiations. And when I say LRIP, I mean, just to put it into perspective, the naval program, for example, for the prototypes that we expect to order any day now, it could be several millions, let's say, $2 million-$3 million for the prototypes.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

When it goes into production, LRIP is just the beginning of low-rate initial production and scaling. We're expecting this could be $10 million-$20 million a year.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

Okay. You said the time frame on that. Remind me. You mentioned moving to LRIP.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

So prototypes now in the next six to eight months, and then we expect LRIP towards the end of this calendar year.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

Okay. Thanks. That's helpful. Just on the synergies, I missed part of your answer on the last question, but one thing that struck me was in the press release, you talked about multiple programs of record for G5 Infrared. Is there an opportunity to use those as a funding vehicle whereby you can cross-sell better your uncooled cameras and things? Is those funding?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. Exactly that. Exactly that.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

When you look at many of those systems that are deployed, they would very often have a mix of both uncooled and cooled cameras together. The uncooled cameras, of course, cannot detect the range of those cameras, so you use them for short-range detection. Because they're so, so much cheaper than the long-range ones and the cooled ones, you would sometimes deploy a few of them and have them look in different angles. You will use sort of the big cooled long-range camera on a pan tilt where you would point it to where one of the uncooled cameras saw something, maybe. Oftentimes, a combination of both. I know our sales team is extremely excited and can't wait to start cross-selling on both sides.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

Right. Right. I guess that really makes it sound like a strategic bit, like you mentioned.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

Just lastly, the exposure to some of the issues with the Chinese, can you remind us how much of your business is still exposed to that as you move towards and drifts towards the? Thanks.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. Al, do you have a number on that? How much do we still have sort of?

Al Miranda
Al Miranda
CFO at LightPath Technologies

We have $2 million of sales in germanium in the U.S. that I would say is at risk because of the restrictions, right, to bring germanium in. We are sourcing that locally, switching to local sourcing, which is a project that's been going on for several weeks. We have also a couple of million of germanium sales in Europe, but at much less risk because Latvia and the end users for those products are not on the Chinese no-sell list.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Nonetheless, we'd like to move all of that product out of germanium as well in Europe. We have similar plans to migrate, but the urgency isn't there yet like it is now in the United States.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Right. Just to add on that $2 million in the U.S,, Al, so first of all, we're going to supply those by sourcing locally, but the local sources of germanium, as everyone knows, are very, very limited. It's not really a long-term strategy. Once we supply those $2 million of germanium orders in the U.S., we will no longer be doing any germanium business in the U.S.

Glenn Mattson
Glenn Mattson
Managing Director and Senior Technology Analyst at Ladenburg Thalmann

Okay. Okay. Great. That's it for me. Thanks, guys. Congrats again.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thank you.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Thanks.

Operator

Thank you. The next question comes from the line of Orin Hirschman from AIGH Investment. Please go ahead.

Orin Hirschman
Managing Member and CEO at AIGH Investment

Hi. Congratulations on the acquisition.

Orin Hirschman
Managing Member and CEO at AIGH Investment

Just going back to some of the earlier comments, you mentioned on the acquisition, these are just random questions, you mentioned Motorola as being an example. Is that a current customer? Are you using that as an actual customer example?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yes. Motorola is a very large customer of G5 Infrared, yes. Isn't the Motorola? For those that don't know, Motorola is one of the leading companies in perimeter security and safety equipment. It is a very major part of the business for us.

Orin Hirschman
Managing Member and CEO at AIGH Investment

Okay. I'm not an expert in this space. My impression is they'll be very long-range infrared cameras or a newer type of security way of doing things. Is that true? Is this early on in the use of infrared, particularly long-range infrared for security where there's a big runway?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. Definitely for counter-UAS.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Counter-UAS and perimeter security, they have not been really used too much until now. In border patrol, G5 Infrared actually has quite an install base there. In the past, systems were not as long-range because the technology advanced, and especially the ATCOM capabilities that G5 Infrared has now with image stabilization significantly improved that. Also, in border patrol, the cameras were not as widely spread as they are now. Now, they're talking about putting these towers every couple of miles. It is a much, much larger install base going to be. In perimeter security, I mean, this is now really growing. Every data center, when you look at it now, the data centers are like Fort Knox. They're secured with radars and with the most advanced systems. We expect that market to really take off considerably.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

The relationship G5 Infrared has with Motorola is very significant for that. And our sales team of former FLIR people are also going to be pivotal at getting us into that. Then the whole world of counter-UAS and detecting drones, and as we all know from the news, that is only getting started. I mean, so it's going to be huge.

Orin Hirschman
Managing Member and CEO at AIGH Investment

Just finally, just in terms of those shipments that pushed out being in this quarter and just in general, are we seeing that coming through and how do you have any comments on the current quarter shaping up?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. Al, do you want to talk about that?

Al Miranda
Al Miranda
CFO at LightPath Technologies

So we shipped most of that already Orin in the first six weeks of this quarter, the stuff that pushed out. My concern is that the supply chain is not speeding up out of China. So we did get some good indications.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Product is being released, but the releases that come are still small, really too small, to be honest. On the one hand, we can close the gap so there's no rollover from this quarter, or we could end up at the end of Q3 coming up a bit short again because of this same sort of roll-forward problem. I mean, it really comes down to sort of every day checking with customs to see what comes through and what's approved and licensed. It's a day-by-day thing, really.

Orin Hirschman
Managing Member and CEO at AIGH Investment

How's the rest of the business doing in terms of some of the newer programs ramping?

Al Miranda
Al Miranda
CFO at LightPath Technologies

The new business that we're ramping, and particularly in the assemblies and cores, I like this business. It doesn't take up as much space. It doesn't use as much capital equipment.

Al Miranda
Al Miranda
CFO at LightPath Technologies

With the ASPs the way they are and the margins high, historically high for anything else we do, I like it. I keep encouraging Sam and the sales team to bring in more of the assemblies and core business, for sure.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

I think we have not also given any update on the Lockheed Martin project. Just shortly, it is going very well on track. We are shipping flight-worthy units for actual flight tests of the missiles, which are extremely exciting for us, personally. We are moving along very well with Lockheed both from this program and the two other derivative programs in which Lockheed is already integrating our camera systems into two more programs.

Orin Hirschman
Managing Member and CEO at AIGH Investment

Thanks so much. That is what I wanted to hear.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thank you.

Operator

The next question comes from the line of Scott Buck from HC Wainwright. Please go ahead.

Scott Buck
Scott Buck
Managing Director and Senior Technology Analyst at HC Wainwright

Hi. Good afternoon, guys.

Scott Buck
Scott Buck
Managing Director and Senior Technology Analyst at HC Wainwright

Thanks for taking my questions and congrats on the transaction. I guess the first thing, guys, hopefully I didn't miss it, but could you give just a little bit of background on how the deal came together? Were they actively out looking for a suitor, or was this more, I guess, organic in the way it came about?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Like many of the acquisitions we contemplate, G5 Infrared is a company we've had an ongoing relationship with. In this case, it goes back nearly 30 years, well before I even joined LightPath. ISP Optics has been a supplier and partner for G5 Infrared back when they were DIOP and later AXIS and General Dynamics, and so was LightPath. We've known each other already pretty well.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

We got the feeling that they're about to go out and possibly start shopping around, and we did a bit of a preemptive strike, if you would, and just essentially picked it up before they went and formally engaged a bank. To that extent, we've always been very clear that we are on the lookout for acquisitions. I think we've been very clear that we could see acquisitions in two forms. One could be like Visament, a small technical group that adds specific technologies, and others would be larger like G5 Infrared, which would be in the $15 million-$20 million of revenue, profitable with strong margins. Those are the type of acquisitions. We have, at any given point in time, multiple acquisition opportunities or ideas that we keep in touch with or keep an eye out for.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

We always, always make sure that any acquisition we do are people that we know. If we do not know them, then we proactively engage in some joint projects to get to know each other. Because anyone that has done M&A would know the number one reason for failure of acquisitions is culture. A culture fit and getting to know each other if we do not know yet is very important for us. In this case, we have simply known each other for a very long time, so it was very easy.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Right. If I could add on to that, Glenn, we mentioned that this is not the first time for this group to come together and create a company. They did not have a good experience with the last time. The last time they sold, it was General Dynamics.

Al Miranda
Al Miranda
CFO at LightPath Technologies

They basically picked it apart, used the technology, moved it around planet Earth, and the current owners' sellers did not really like the outcome that came with that for the people that were working there and had been loyal to them. Sam is 100% right in terms of cultural fit, but also strategic fit and our plans for them is to grow that location in the way the original founders imagined it and continue along that path. That went a long way towards them feeling warm and fuzzy about the situation with us and not going to investment bankers to try and sell it outside. They believe they left money on the table by not doing that. We could argue that all day long, but that is their belief. Yet another reason why the culture fit and everything else about LightPath was attractive to them.

Scott Buck
Scott Buck
Managing Director and Senior Technology Analyst at HC Wainwright

Great. I appreciate that, Sam and Al. That was helpful. The second one, just a quick modeling question. Is there any seasonality in their business that we should be thinking about as we model the out quarters here?

Al Miranda
Al Miranda
CFO at LightPath Technologies

Yeah. There is seasonality. I'm not 100% confident yet in how it looks, but typically, using our fiscal year, their Q3 and Q4 is light on revenue, and then Q1 and Q2 is heavy on revenue. I do not have the exact mix. It is really something I want to confirm with the management team next week when we start going through the more detailed forecast versus the ones we use currently and get a better handle on it. I will help you guys try to understand what that looks like.

Scott Buck
Scott Buck
Managing Director and Senior Technology Analyst at HC Wainwright

Great. I appreciate it, guys. That is all I had. Thank you.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thanks.

Operator

Thank you.

Operator

The next question comes from the line of Brian Kinstlinger from Alliance Global Partners. Please go ahead.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Great. Thanks so much. With the $55 million revenue target, it implies significant growth from G5 Infrared from the $15 million. I joined late, so hopefully I'm not repeating. I just joined when Glenn was asking questions. The few programs that you expect to drive this growth with G5 Infrared, are those awarded? Have you started shipping against these contracts or subcontracts? At what point do you expect these shipments to meaningfully ramp in order to achieve this growth?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. One of the programs, the border patrol, they received the first order last month and already began shipping towards that. That one is already, I'd say, in the pocket and confirmed. The second one, the naval shipments, we expect any day now to purchase order for that.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Those would be for the initial seven units. I'm not sure. Something like that or something around that. Where towards the end of the year, that will scale into low-rate initial production. Other than that, the rest, there are many other programs all in different security and defense. Some of them confirmed and some of them fairly confident. I'd say that in this case, the founders and the owners of G5 Infrared literally put their money where the mouth is by putting a significant bet onto their earnout that is for the next 12 months designed around them hitting revenues of between $21 million-$27 million.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Yep. Given the commentary on seasonality, at least the modest, knowing that the March and the June quarter are their weakest, will LightPath as a combined company be profitable assuming you close as expected and you have a full June quarter?

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Will that be a profitable quarter from an EBITDA perspective?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Al?

Al Miranda
Al Miranda
CFO at LightPath Technologies

From an EBITDA perspective, we should be positive.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Great. Again, sorry, I missed the prepared remarks. Can you comment on whether you're beginning to see a ramp in the MANTIS orders? I know last quarter you commented you expected several customers would begin ordering in the second half, and here we are. I'm curious, has that ramped as you've expected?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yes. We've already been taking orders and shipping more and more of the furnace camera orders. The gas detection ones are not ramping as fast as we thought they would. I think for the gas detection, we still need to go through some quantification test of measuring or giving an actual performance number of how much gas it can detect in parts per million.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

That's something that we didn't realize. We really can't begin significant sales before we have that. That's ongoing right now at a customer site in Salt Lake City. I'm hoping that the optical gas imaging cameras are going to start scaling up very soon.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Great. The last question I have, I don't know if you addressed this, is there anything that keeps you up at night about tariffs, whether it's for your customers, whether it's for your suppliers, anything that you're carefully watching?

Al Miranda
Al Miranda
CFO at LightPath Technologies

We started almost immediately, yeah. We started almost immediately line iteming tariffs to our customers, and we're passing it through. It's transparent. The customers see it. They know it. This includes purchase orders already in-house. For the U.S. market, our customer base seems to have accepted the fact that this is happening.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. I would add that, Al, I don't stay up at night because of the tariffs. I don't think that will be that impactful to us. I do worry about the supply chain of materials. I mean, the side effect of when China announced the ban on germanium and suddenly companies like Vital Materials stopped exporting any materials, period, that took us completely by surprise. It isn't over yet. Companies like Vital still aren't selling materials altogether, not only germanium. I'd worry a bit more about that part. There are many people. LightPath is one of them. There are many players working day and night to recreate the industrial base in the U.S., thankfully. I'm very confident about that longer term, but I think we do still have a few months of transitory effects related to material supply.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

I think I have one follow-up.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

I mean, you clearly have been preparing for this for many years. There's no doubt about it. My question would be, what percentage of your business relies on imports from China?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Al, what's the, I mean, when we say imports from China, it could be also our regular glass lenses made in our China operation.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Yeah. From an overall perspective.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Sorry. Maybe I'm just thinking about the material. I mean, you're talking about,

Al Miranda
Al Miranda
CFO at LightPath Technologies

oh, the materials.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Getting germanium that's having trouble.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Yeah. Sorry. I'm guessing you're talking about germanium on the exports that we're having trouble on the supply chain. Material called, no, no.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

That's the funny thing. Material called zinc selenide and zinc sulfide, that's available from other countries as well, but we were just buying it from a Chinese vendor, even supply of that material out of China.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Yeah. About. Which goes there.

Al Miranda
Al Miranda
CFO at LightPath Technologies

From a revenue perspective, Brian, it's $8 million. Let's call it $8 million into Europe and the U.S. coming out of China. The germanium risks are the ones that I mentioned earlier, $2 million in the U.S. and $2 million in Europe. Obviously, the U.S. is high risk. Europe is, I would say, moderate risk at this point. That's kind of rough numbers, rough high-level numbers. Sam's right. We knew what the germanium was, and we knew what the risk was and have known for a while. We've been trying to get out of it for a while, right? Switch customers. The surprise that came in the quarter back in December is companies like Vital who just shut everything down. Nobody could have predicted that.

Al Miranda
Al Miranda
CFO at LightPath Technologies

We know nobody could have predicted it because our competitors and our customers are all in the same place as we are.

Brian Kinstlinger
Brian Kinstlinger
Managing Director and Senior Technology Analyst at Alliance Global Partners

Great. Okay. Thanks for taking all my questions. Congrats.

Al Miranda
Al Miranda
CFO at LightPath Technologies

Thank you, Glenn.

Operator

Thank you. The next question comes from the line of Richard Shannon from Craig-Hallum Capital Group. Please go ahead.

Richard Shannon
Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group

Hi Sam and Al. Thanks for taking my questions and congratulations on what looks like a really nice deal. Let me ask a quick high-level question following Sam, your comments and your prepared remarks about G5 Infrared. You said they had a really big pipeline. Can you quantify or characterize that in any way by itself or relative to the pipeline that LightPath has itself?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yes. I think the programs of record that we're seeing, the border patrol, the naval, those vary in what we expect them to be in full production from typically those programs are anywhere from $5 million-$20 million a year in what the potential during production will be. Since those are all military or defense-related programs of record, and program of record means it's a line item in the defense budget and congress budget. You can actually go and look it up in the formal congressional budget. Those programs are typically eight years of rollout followed by many years afterwards of spare parts and repairs, which are very, very lucrative. We're looking at the business that could easily be alone in the $50 million-$60 million in a matter of two, three years.

Richard Shannon
Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group

Okay. Perfect. That's a helpful way to think about it.

Richard Shannon
Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group

You mentioned a number of applications for the products from G5 Infrared here, and all of them sound interesting. Border control, obviously a key thing for the current U.S. administration. Data centers obviously resonate with everybody tracking AI, but the one that's really stood out to me, I'm really interested in, is in drones or I think you said C-UAS or some acronym I don't really understand. Maybe you can talk about what's going on there. It sounds like a particularly useful and extremely important near-term application for the defense community. Maybe you can talk about what's going on there and how big of the pipeline are you expecting from that?

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Yeah. Yeah. Definitely. That's the largest program to begin with, the naval program. That's also the largest customer, Motorola. I think a lot of their systems go into that.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Essentially, this is how do you detect drones or other small objects like that in movement in the best way without active measures necessarily. Of course, a lot of those could be detected with radar or active systems, but those oftentimes give out too much information about your location and where those systems are, as we've all seen in Ukraine. You end up needing to have a passive system to be able to detect drones and objects like that. A few technologies being looked at is acoustic technologies of trying to detect the noise of the drone. There is different microwave trying to detect the transmission of the drone if it is transmitting and so on. By far, the best technology known there right now is those infrared cameras.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

It has to be an infrared camera and not a visible camera because, of course, you need to be able to see it at night without the lights flashing and all of that. You need to be able to see it in many different conditions. Right now, those are mainly mid-wave cameras, and that's what G5 Infrared is offering. They'll also be expanding into short-wave cameras or even multispectral, both short-wave and mid-wave together, because short-wave cameras can see through clouds, for example, or could see through different adverse environmental conditions. This is where our Black Diamond materials, really designed for multispectral imaging, will play a major role together with the G5 Infrared technology. What we're seeing is these cameras getting installed now, multiple of them in important locations that are very sensitive, on pan-tilt systems that are rotating and looking around.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

You're talking about cameras that can zoom 20 times as much. They can start from a very wide field of view and zoom into small objects. Again, they can do, I mean, the performance is just insane. To be able to detect a tiny drone from 10 mi away optically is just very, very impressive technology.

Richard Shannon
Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group

Okay. There's some great detail there, Sam. I think in the interest of time, I'll get back in the queue, but thank you very much.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Thank you, Richard.

Operator

Thank you. As there are no further questions, I will now hand the conference over to Sam Rubin for his closing comments.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

Okay. Thank you all for attending. Very, very exciting times for us. If it wasn't apparent from our remarks, we're extremely excited and happy to be able to be here at this point with this deal.

Sam Rubin
Sam Rubin
CEO at LightPath Technologies

I look forward to meeting some of you in person in our investor day at February 25th. I would also like to end the call by welcoming the G5 Infrared team to the LightPath family. We very much look forward to working together and seeing what great things we can be doing together soon. Thank you, everyone, and good night.

Operator

Thank you. Ladies and gentlemen, the conference of LightPath Technologies has now concluded. Thank you for your participation. You may now disconnect your line.

Executives
    • Sam Rubin
      Sam Rubin
      CEO
    • Al Miranda
      Al Miranda
      CFO
Analysts
    • Jaeson Schmidt
      Senior Research Analyst at Lake Street Capital Markets
    • Glenn Mattson
      Managing Director and Senior Technology Analyst at Ladenburg Thalmann
    • Orin Hirschman
      Managing Member and CEO at AIGH Investment
    • Scott Buck
      Managing Director and Senior Technology Analyst at HC Wainwright
    • Brian Kinstlinger
      Managing Director and Senior Technology Analyst at Alliance Global Partners
    • Richard Shannon
      Senior Research Analyst at Craig-Hallum Capital Group
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