LPTH - NASDAQ

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, November 11, 2025, and the earnings press release accompanying this conference call was issued after the market close today. I'd 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 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 assurances that the projected results will be realized. 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 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 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 yours.

Thank you, operator. Good afternoon to everyone, and welcome to another exciting quarterly update from LightPath Technology (sic) [ Technologies ] for our fiscal first quarter 2026 financial results. LightPath is entering a clear inflection point. After several years of disciplined execution to transform our business from a component supplier into a vertically integrated provider of high-value infrared optics and camera systems, we are now seeing that strategy translate into measurable commercial success. The progress we have made is reflected in record orders, a growing systems backlog and increased customer adoption of our technologies. Since we likely have a growing base of shareholders and with them likely more new listeners on this call, I will take some time to describe where we have come from, which will help put in context the recent developments. Then I will talk about specific programs that are driving our record backlog, the strategic investment from Ondas and Unusual Machines and upcoming growth drivers. For decades, LightPath was known primarily for its precision optical components. As the photonics industry matured, the dynamics shifted, margins compressed, competition intensified and values migrated up -- and value migrated up the food chain towards engineered subsystems and full systems, particularly in infrared imaging. Recognizing this, we realigned our strategy beginning in late 2020 to move up the value chain, integrating our proprietary materials and design expertise into complete imaging systems where we could capture more of the value we create. At the center of this strategy is our proprietary BlackDiamond chalcogenide glass, which we licensed exclusively from the U.S. Naval Research Laboratory as a domestic alternative for germanium for use in infrared imaging. BlackDiamond enables us to produce infrared optics that are lighter, more affordable and important -- and most importantly, secure from supply chain disruptions following China's restrictions on germanium export earlier this year. By pairing this material leadership with the advanced infrared camera technologies gained through acquisitions of G5 Infrared and Visimid Technologies, LightPath has become the only pure-play company offering fully integrated infrared systems designed and manufactured in the West. LightPath has a sweet spot of going into subsystems or small systems, which we often call engineered solutions. Those do not require a large infrastructure of service and support as full systems do, but still allow us to capture much more value. The combination of LightPath's materials and optics with our recently acquired subsidiary of G5 Infrared is an -- which is an industry-leading in cameras is a case in point. G5 is known as the industry leader for long-range infrared cameras. That was the case before we acquired them, not something we created. But like all of their competitors, G5 was facing supply chain challenges due to global geopolitics and primarily germanium and gallium, which are critical materials in their systems. After acquiring G5 in conjunction with their team, we begun an effort to redesign those systems to use our proprietary BlackDiamond materials. By doing so, we are positioning ourselves now not only as offering the best cameras, but as the most reliable provider of cameras with supply chain resiliency that no one else can offer. And in August, we introduced the first germanium-free G5 camera variant, utilizing our BlackDiamond glass. These redesigned systems represent the first wave of a broader transition across our G5 camera portfolio and addresses a critical need among defense and industrial customers to eliminate reliance on Chinese controlled materials. Around the same time, we announced 2 significant orders from our -- for our advanced infrared cameras, an $18.2 million order for deliveries in calendar 2026 and shortly after a follow-on order for $22.1 million for deliveries in calendar 2027. Combined, these represent more than $40 million in contracted revenue, reflecting both the strength of the underlying demand and the growing confidence in our ability to deliver. G5 is a prime example of the value that we can derive from thoughtful acquisitions being on track to double in size since the acquisition with several strategic benefits such as the implementation of BlackDiamond and their cameras. Visimid was another fantastic example, bringing us the NGSRI missile program with Lockheed. I continue to believe that leveraging our strong industry knowledge and expertise for strategic M&A will continue to be an important tool in our arsenal going forward. And when we acquire a company, the resulting value is often far, far more than the sum of the past. Last quarter, we also announced a strategic $8 million equity investment from Ondas Holdings and Unusual Machines during the quarter, 2 key partners driving the domestic drone ecosystem. Their investments are intended to help accelerate our commercialization road map, particularly focusing around uncooled infrared solutions for drone applications. Beyond the financial contribution, this partnership also underscores LightPath's strategic relevance in the reshoring of advanced optical and imaging technologies to the U.S. and Europe. Altogether, these developments have driven our backlog to approximately $90 million, more than 4x the levels of just a few short quarters ago. Importantly, more than 2/3 of this backlog is now in systems and subsystems, validating the success of our move up the value chain. Mix shift towards systems not only expands our margins, but also deepens our relationship with customers who rely on LightPath for critical capabilities and supply assurance. With this background behind us, I would like to dive into some of the most recent wins and add some color on -- and background on the announcements we have recently made. Several programs continue to anchor our short term -- our near-term growth. Border surveillance and counter-UAS applications, our long-range zoom cameras are being deployed -- where our long-range zoom cameras are being deployed across a wide variety of platforms, including mobile and stationary systems, and stationary systems designed to detect, classify and track threats. In fact, more than $15 million of our current backlog is for counter-UAS applications. Turning to border surveillance. We now expect that there will be over 1,000 new border surveillance towers installed, and we ultimately expect to win placement in the majority of those. With prices of $150,000 to $250,000 per camera, one camera goes on each border tower and LightPath servicing 2 of the 3 border tower vendors, this could be an extremely material business for us in the coming 2 to 3 years. In the naval domain, the U.S. Navy's SPEIR program for which we supply key infrared cameras to L3Harris is advancing towards low rate initial production, positioning us for long-term revenue streams as the system is installed across surface vessels. Also, our collaboration with Lockheed Martin on the next-generation Stinger replacement initiative also remains an important future opportunity, and I'll talk a bit more about this in a second. That program is currently in testing and if selected, could represent as much as $50 million to $100 million of annual revenue while in full rate production. Beyond those specific programs, we have a number of additional programs with potential for over $10 million in annual revenue from each. And we, of course, continue to see growing demand for our engineered lens assemblies designed to replace legacy germanium optics in thermal cameras and drone payloads. While that part of the business cannot point to one specific program like we have with the long-range cameras, there are a multitude of customers and programs that are continuing to drive very strong growth for the assemblies and optics part of the business, also based on our BlackDiamond glass technology. With this rapidly scaling backlog and prospective customer list, scaling production will prove to be paramount. To that end, we're taking several strategic measures to position ourselves better for the robust growth that we believe our future holds. Looking at our Texas facility, just next week, we'll be moving our team into a much larger facility, intended to support the immense production volumes needed for the Lockheed NGSRI program, which we continue to be very bullish about. In parallel, in Orlando, we are adding capacity for additional BlackDiamond glass manufacturing as well as for the first time, building, integrating and testing complete G5 cameras in Orlando, supporting the robust demand growth G5 is realizing. To oversee this, we've appointed Israel Piergiovanni as Vice President of Manufacturing, a former Luminar manufacturing veteran, who will oversee the production scale-up across our global footprint. We also recently strengthened our corporate governance with the appointment of Mark Caylor to the Board of Directors. Mark is a veteran defense industry executive with over 35 years of experience driving profitable growth and leading large organizations. He recently retired as President of Northrop Grumman Mission Systems sector, a supplier of advanced sensing, processing and communication technologies for defense and intelligent customers with operations in U.S. and Europe. His guidance, leveraging an extensive background across government, military, private and public sectors and the relationships on the side of the defense primes will help guide our vision forward. In summary, the transformation of LightPath is now well underway. We are moving from components to systems and from commoditized supply to strategic technology leadership. We are replacing constrained China-linked materials with domestic scalable and proprietary alternatives. And we are converting that differentiation into multiyear contracts, strategic investments and long-term relationships with some of the most sophisticated defense and industrial customers in the world. With a record backlog, growing portfolio of germanium-free systems and a recent strategic investment to help scale production, we believe LightPath is positioned to sustain growth and expanding profitability. The strategic work over the past several years is now delivering tangible assets, and we expect it to continue momentum through fiscal 2026 and beyond. Now I'd like to turn the call over to our CFO, Al Miranda, to talk about our first quarter fiscal 2026 financial results. Al, please go ahead.

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 10-Q for the period. I encourage you to visit our Investor Relations web page to access these documents. Revenue for the first quarter of fiscal 2026 increased 79% to $15.1 million as compared to $8.4 million in the same year ago quarter. Sales of Infrared Components were $4.3 million or 28% of the company consolidated revenue. Revenue from Visible Components was $3.8 million or 25% of consolidated revenue. Revenue from Assemblies & Modules were $5.9 million or 39% of consolidated revenue. Revenue from Engineering Services was $1.1 million or 7% of consolidated revenue. Gross profit increased 58% to $4.5 million or 30% of total revenues in the first quarter of 2026 as compared to $2.8 million or 34% of total revenues in the same year ago quarter. The difference in the gross margin as a percentage of revenue was primarily due to certain nonrecurring or end-of-life orders in the prior year period that had higher margins. Operating expenses increased 66% to $7 million for the first quarter of fiscal 2026 as compared to $4.2 million in the same quarter of the prior fiscal year. The increase was primarily due to the integration of G5 following its acquisition earlier this year as well as increased sales and marketing spending to promote new products. Net loss in the first quarter of fiscal 2026 totaled $2.9 million or $0.07 per basic and diluted share as compared to $1.6 million or $0.04 per basic and diluted share in the same quarter of the prior fiscal year. Adjusted EBITDA for the first quarter of fiscal 2026 was $0.4 million positive compared to an adjusted EBITDA loss of $0.2 million for the same period of the prior fiscal year. Although not perfect, we believe that adjusted EBITDA is a better indicator of core operating performance by excluding noncore noncash items. Cash and cash equivalents as of September 30, 2025, totaled $11.5 million as compared to $4.9 million as of June 30, 2025. As of September 30, 2025, total debt stood at $5.6 million and backlog totaled $86 million. Looking forward, our focus for fiscal year 2026 supports the business opportunities that Sam described. We have a detailed go-to-market strategy that we are funding to target key high-growth areas. Our prior year investments in manufacturing are bearing fruit in terms of quality and on-time delivery. And in the coming quarters, I expect we'll see margin expansion as a result. With all of the interesting accounting around acquisitions, we will continue to report adjusted EBITDA in fiscal year 2026 as a helpful measure of financial success. Also, as Sam noted, we recently secured an $8 million strategic investment from Ondas Holdings and Unusual Machines at $5 per share. We are truly fortunate with the quality of investors in the company and Ondas and Unusual Machines are not only a continuation of quality investors, but in addition, they are a great strategic fit. With that, I will turn the call back to Sam.

Thank you. Thank you, everyone, for joining us today. Before we move on to Q&A, just some closing remarks. We're entering the next phase of execution and growth. The G5 integration is progressing. Our record backlog provides visibility, and we're scaling production to meet demand across defense, public safety and industrial end markets. Our BlackDiamond glass strategy is moving customers off germanium, improving supply assurance and total system value. The strategic investment we received from Ondas and Unusual Machines supports increased capacity, focused hiring and the tools we need to deliver reliability at scale. We see a real inflection point ahead as our mix continues to shift from components to higher-value systems and subsystems. The priorities are clear for the coming quarters, ship on time at quality, expand germanium-free product variants, harden the supply chain and convert the backlog into revenue at a healthy margin profile. With the team additions we have made in various manufacturing and engineering, we're set up to execute against a robust multiyear opportunity set. With a differentiated technology position and strong customer engagement, we're confident in our path to durable growth and increased profitability. With that, I'll now hand the call over to the operator to begin the Q&A questions -- session. Operator?

[Operator Instructions] Our first question is from Richard Shannon with Craig-Hallum.

Congrats on a very nice quarter. Audio on my end here is a little tight or a little dicey. So hopefully, it's okay for you there. With that said, I'll start with my first question here. I wanted to ask about germanium and BlackDiamond glass. It seems some reports that maybe China is opening up the window for acquisition of germanium outside the country. I wanted to see if you're seeing that and whether there's any different reaction or approach to germanium given that? And then also maybe as a follow-on here, maybe you can talk to us about how fast you're converting your portfolio of cameras and subassemblies to BlackDiamond and how fast you expect the customers to transition there?

Yes. Thank you. So the germanium situation changes by the day. It's definitely very interesting, and we're following it. As far as we can tell, China is making it very clear that they will put a lot of effort to make sure it will not end up in defense applications. And so we don't think it will be very freely available. I can say this, pretty much every customer that has switched over from germanium to our BlackDiamond or is in the process too, including a key customer that was just visiting here yesterday, mentioned that from their point of view, the disruption in supply chain was so big that they will not take a chance to gain with that. And so we believe that people burnt once, so obviously, far more careful. And even if China makes the material available now, everyone understands that the faucet could close at any point in time, at any moment, notice. And so people are already very, very careful. Additionally, I'll just emphasize again that our materials perform far better than germanium in many, many use cases. And so our struggle has always been convincing customers, getting them to the point of redesigning to use our materials instead of germanium because once they did, the performance is much better, lighter, smaller systems, better throughput, you name it, lots of different reasons. So absolutely, germanium is still needed in many places. And there's a room for both materials to coexist. But from what we can tell, most customers that have been switching over to BlackDiamond will remain in BlackDiamond even if the material is freely available [ there ]. In terms of our transition of our own cameras, it is more a question of resources. So we have many, many projects going on. And as you can imagine, with the $90-something million backlogs we have comes also some engineering work and some modifications and so on, which oftentimes happen to overlap with the same resources that would redesign cameras. So I think our team is nearly done with one more redesign and working on some others. But until we hire more people for that, and we have quite a number of open positions that we're planning to fill for those kind of areas, until we fill those positions, the priority is, first of all, on the short-term revenue delivering what we have now here and now before we put more resources into converting the cameras over.

Okay. That is helpful to hear. Maybe just addressing the supply chain resiliency and capacity. You mentioned a couple of dynamics specifically regarding Visimid. If you can describe where else you're having to work to improve capacity either from an internal capability or equipment point of view or with external suppliers? And over what time frame do you expect that to be improved or resolved?

Yes, pretty much across the board. I mean, the growth we're seeing is in almost every aspect other than the old technology of molded optics that we have a lot of capacity for and was sort of what LightPath used to do until a few years ago. Everywhere else, we need to add capacity. So we need to add capacity of fabrication in our Latvia operation and in Orlando. We're putting an enormous investment into glass capacity. And even the investment we're making, I feel sometimes is not enough. We're already getting booked as soon as we add capacity. We have seen some constraints on some of our vendors, primarily the detector companies are making the focal plane arrays that go into cameras. Some of them depend on germanium. And we work towards them to either replace the germanium or solve some of their problems. And some of them are just seeing a very high growth in some of their new products, which are what we're using oftentimes. So we work with our vendors for the focal plane array when needed. But other than the focal plane array, pretty much everything else is vertically integrated and we control internally [ for every key element ].

Okay. Perfect. Good to hear. Maybe 1 or 2 quick numbers questions, and I'll jump out of line here. I guess September quarter results your sales are very nice, well above what we had in our model. Obviously, you didn't give any guidance there. But any thoughts as to how you'd like us to think about the sales progression in the December quarter would be a great help here. And then how do we think about the EBITDA follow-through on that as well?

So Richard, obviously, we're not going to give any guidance. We're happy to see where we came in this quarter. We would like to see that number again. So that's what we're shooting for in Q2. But I think from an EBITDA perspective, we were positive this quarter. It's a good sign, and that will continue.

Okay, perfect. Guys, I will jump out of line. Congratulations. Keep up the good work.

Our next question is from Glenn Mattson with Ladenburg Thalmann.

Sam, I think in the past, you said that NGSRI would be like potentially a fall of 2025 award or maybe first Q calendar '26. Is that still your expectation? And I guess in the second quarter that you talked about the upgraded Texas facility that services that contract. So I don't know if you're trying to signal high confidence there? Or if you can clarify that, that would be helpful as well.

Sure. So nothing has changed other than the government shutdown continues. So any time line related to anything government is up into the air. There was hopes that early fall or in fall 2025, there will be a down selection. However, quoting just what is said publicly in different publications, Lockheed has been ready for flight tests and Raytheon was saying that it would be in late November or December that their units will be ready for flight tests. So this was said publicly and by both companies. So clearly, a down selection cannot happen if both units aren't ready for full testing yet. We are making that investment in conjunction with our customer with Lockheed Martin for a few reasons. One, they're very, very bullish about this and so are we. Secondly, these systems or what we'll be building there can be and is used in more programs other than just NGSRI. And actually, in Lockheed, we're already in a few -- a couple of other programs that are needed. And thirdly, most importantly, if or hopefully, when Lockheed Martin wins, everyone is going to want to scale up as quickly as possible. So making a small bet now, and the bet is both by Lockheed and us, shared costs there, making a small bet now could pay off big time later on if we're awarded. If we don't do that, then we'll be at a pretty stressful point comes the award.

Yes. Makes sense. On the gross margin, Al, you talked about it being impacted year-over-year. But also just given the growth in systems and modules and that being a higher-margin business, can you say just perhaps maybe it could have been even stronger this quarter or with the 2/3 backlog in systems and modules, maybe just directionally, can you remind us of where you think that's going medium and long term?

Yes. So I mean, we want to step up from here, Glenn, to [ 35% ] by the end of the fiscal year, March up that ladder. This quarter, we sold a lot of IR Components. It was a high sales number, which is typically lower margin. So we had a sales mix that sort of brought down what would have been a higher than 30% gross profit. When that kind of event happens, I'm not terribly worried in terms of the percentage. I flip back and I look at the dollar and I think, okay, we did well because we exceeded where we thought we were going to be from a revenue perspective on the IR side. So I'm like, all right, that works for us. We budget sort of a mix and then the mix changed a little bit compared to budget, but pretty satisfied where we are at Q1.

Okay. And the last thing for me is a couple of times in the call, you mentioned scaling operations and I just wonder what that means in terms of OpEx. If you're trying to signal some increased investment there.

No, I don't think we're going to have a major impact to OpEx. We'll continue more or less like we thought for fiscal year '26. The OpEx is basically for moving things around. The capacity in some areas, like Sam mentioned in glass, for example, that's more CapEx, right? We already have the space. So it's not -- we don't have to do a build-out or anything like that. So we have the room, but we just have to buy more furnaces, for example, to produce more glass. We already have molding capacity, so we don't have to spend a tremendous amount there. And then when we talk about cameras, systems, subsystems, those workstations and work lines are to expand them are relatively inexpensive. It doesn't cost millions of dollars for capital equipment. It's tens of thousands of dollars for assembly stations. And we are going to rationalize the footprint in the United States. We're going to move things around a little bit to maximize the entire footprint on the assembly modules and systems.

[Operator Instructions] Our next question is from Jaeson Schmidt with Lake Street Capital Markets.

Sam, I just want to follow up on your comment on these $10 million-plus annual revenue opportunities. Curious how many of these sort of 8-figure deals you have in the pipeline?

That's a great question. I need my fingers now to count them. But I'd say probably about 7 now. We've been at a steady 6 for a while, but I think we have 1 or 2 being added, maybe a bit early stage on some of them. The counter-UAS, I expect that to grow quite a bit. And we are at least in 2 different counter-UAS programs. Only one of them is currently in the backlog. So I'd say 7 or 8 programs like that.

Okay. That's helpful. And then just going back to gross margin, I mean would we expect any sort of noise in the gross margin line with these capacity expansion plans here in the December quarter?

I don't think so. I don't think so. The way we modeled it out, it should not be. We should still see -- we should see improvement in margins.

And then just the last one for me, and I'll jump back into queue. Looking at that backlog number, obviously, really impressive. I think at one point, G5 was about 2/3 of that backlog. Is that still the case?

Pretty much, I think. I mean there's ebbs and flows and it comes up and down. And I think G5 [ partners ] pushing product out much more aggressively now. So -- but still about 2/3, yes.

Our next question is from Orin Hirschman with AIGH Investment.

Congratulations on another quarter of tremendous progress.

Thank you.

[ Let's see ]. Going back to the question on those other potential awards of decent size awards. Can you just go back and just what's -- go through what's really driving it? Is it the long-range infrared cameras? What are behind most of those deals if there is -- if there are 1 or 2 trends that are noticeable?

Yes. Most of them are around the BlackDiamond glass. So whether it's [ patchy ] program or whether it's additional defense airborne program that we recently talked about, all of them are around the uniqueness of the BlackDiamond glass, not even replacing germanium, but just improving -- drastically improving the performance of existing systems. So this is sort of the -- has always been the major selling point of those materials is you can improve performance even of existing systems. So we're seeing that come to fruition now. Others that are a bit earlier stage -- sorry, the counter-UAS is also at a fairly advanced stage. And those are pretty big ones. They come in big numbers because they are the long-range cameras most times, mid- and long-range cameras. And then earlier stage ones are much bigger system programs like related to Golden Dome or satellite programs or things like that, that will take a long time, but have very, very large numbers tied to them.

In terms of the long-range cameras for spotting drones and UAS, is there any other technology that's crept up that could spot them from the same distance or without -- without using -- without having to use frequency -- radio frequency?

So even if you can use radio frequency, you still need the visual part for validation. So the key here is you're about to shoot something down, you have to be a million percent sure that you're shooting the right thing down and not just something because it's flying there. So a visual validation has -- is becoming a must for any system that needs to kinetically or otherwise take down something. And so even when you can use the radar and you would have no problem turning it on because you're in your own territory or whatever, you still have to have that visual validation. Visible cameras are very limited in range, but also, of course, can't work at night, can't work in certain weather conditions and so on. So I don't know of anything other than the thermal cameras that can give you that absolute validation when you see something using any other system, whether it's radar, acoustic, electronic signals and so on to validate that you're going to shoot down the right thing.

The question I never asked you as a company, the systems that are being shipped, are they primarily just to the military directly? Or are they actually to customers that are integrating them into systems that actually do the defense and try and take it down?

Always to integrate it. So I don't think we've shipped systems directly to military, definitely not on the long-range cameras. We have some direct military programs on optical assembly side, but not on cameras. Cameras currently all go to integrators. They could be defense primes like Lockheed Martin, Raytheon, Booz and Co -- Booz Allen. They could be much smaller companies that are integrating. It could be remote weapon systems where it's sort of automated systems to shoot drones down, but there's always some level of integration after us.

Just 2 more questions, if I may. Those systems that do the integration, do they actually integrate in such a way that the drone is kept under surveillance from your system and it actually has to do the calculations and help in terms of the countermeasure that's being done?

Yes, absolutely. Systems are integrated into pan-tilts or moving controls that are then tracking the drone. And oftentimes, from the data you collect from the camera, there's quite a bit of calculations you can do. Simplest is the azimuth and even distance. In other extremes, you can calculate some atmospheric conditions, including even wind speed in some cases using the information from the camera. And our customers, the integrators do exactly that.

Okay. And the last question is on the missile program. Are there other missile programs that need the same level of sophistication that are in any stage of discussion or anything moving along through the pipeline?

Yes. We have 2 more missile programs that our technology is being integrated into.

Are those actually clear that those programs are going to go into production? Have you talked about those programs?

No, it's a bit -- they're much earlier on than the NGSRI program. But on the other hand, we don't -- the last 2 years in which we spent developing a product that passes all environmental and [ G-Force ] acceleration and all of that, that's behind us. So now we come to every -- every new program like that with the credibility already of having developed something that passes all of that. So the earlier stage, but our time in those programs will be much faster.

One last question, if I may, just a housekeeping question. Is there -- do you happen to have handy a non-GAAP OpEx number pulling out the acquisition-related charges?

No, we don't. We don't.