Dorothy Cipolla - CFO Jim Gaynor - President and CEO.

Joe Maxa - Dougherty & Company John Nobile - Taglich Brothers.

Good afternoon, and welcome to the LightPath Fiscal 2017 First Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Dorothy Cipolla, Chief Financial Officer. Please go ahead..

Thank you, and good afternoon. Welcome to LightPath Technologies' fiscal 2017 first quarter financial results conference call. The call today will be hosted by Mr. Jim Gaynor, President and Chief Executive Officer. Following management's discussion, there will be a formal Q&A session open to participants on the call.

Before we get started, I would like to remind you that during the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings.

Although we believe that the assumptions underlying these statements are reasonable, any of them can prove to be inaccurate and there can be no assurance that the results will be realized.

In addition, we will also make reference to certain Non-Generally Accepted Accounting Principles or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in our SEC filings and press releases. With that out of the way, it's now my pleasure to introduce Mr. Jim Gaynor, President and CEO of LightPath..

Thank you, Dorothy, and welcome to everyone who has joined us on the call today. We appreciate your interest in LightPath. I will open with an overview of operational results, highlights, and recent developments and then will turn the call over to Dorothy for a more in-depth review of our financials.

After some closing remarks, we'll open the call to your questions. Now onto my remarks, in the first quarter of fiscal 2017 we continued our streak of really strong performance. With this being our seventh consecutive quarter of improvement since we implemented a series of new growth initiatives in early 2015.

Here are some of the highlights from our first quarter. Revenue for the first quarter of fiscal 2017 increased 19% to $5 million, as compared to $4.2 million for the first quarter of fiscal 2016.

Gross margin as a percent of revenue in the first quarter of fiscal 2017 improved to 57%, which compares to 54% in the first quarter of fiscal 2016 and 54% for all of last year. We've done a really good job of diversifying and growing our revenues, while keeping our cost aligned to drive improvements in gross margin.

Our effective expense management below the cost of goods sold line was distorted in the first quarter as we prepared for the impending previous announced acquisition of ISP Optics Corporation. Professional services and related acquisition expenses of $484,000 were incurred in the first quarter.

LightPath's financial performance metrics for the first quarter were impacted by, one, the non-cash income of 43,000 related to the change in fair value of the company's warrant liability, and two, M&A expense for professional services of $484,000. The net of these costs lowered the net income by 441,000.

Our 12-month backlog decreased by 12% in Q1, and this is due to some orders we expected in Q1 that have been delayed and are now expected in the second quarter, and because we also increased our capacity, our time to turn orders has been reduced. So, more orders that we book in the quarter are now shipped in the quarter.

Finally, our operating cash flow has been strong, resulting in our cash balance of September 30, increasing 23% to 3.6 million from 2.9 million at June 30. Also, our ongoing organic growth and profitability enhancing initiatives resulted in very strong financial performance and cash flow generation in the first quarter of fiscal 2017.

The ISP acquisition will significantly add to our global scale and scope with financial benefits in the long and short-terms, and be accretive to EBITDA in its first year under our ownership.

The EBITDA from our base business along with the incremental EBITDA to be derived from ISP particularly when spread over our base business and our overhead and public company costs should be well in excess of what is needed to cover the debt service associated with the acquisition as well as enabling us to re-invest for future growth.

As I know, some investors are concerned about dilution given the capital raise we are undertaking, let me elaborate on this point. Using the pro forma we have published, using the June 30, 2016 actual numbers for both companies, the combined EBITDA on the 29.5 million of revenue is $5.7 million.

This equates to about $0.25 EBITDA per share if we assume we raise $10 million. That compares to 17% EBITDA per share by LightPath alone if we did not have this deal.

If we assume 1.5 million of CapEx and another 1.1 million of additional working capital, and estimate 500,000 for interest payments, that we have 2.6 million of free cash to use to pay back principal or more than enough to cover the cost of this deal while continuing to invest in our growth.

It also assumes a static condition, in other words, no growth. If you assume by way of example, only a moderate growth of 10%, then you generate over $7 million of EBITDA or $0.30 of EBITDA per share, the deal is even better.

To review, we announced on August 8, a definitive agreement to acquire ISP for $18 million, of which 12 million will be payable in cash with the balance in the form of the note issued to the sellers.

A portion of the cash component will be raised through an equity issuance with the numbers of shares to be offered possibility in excess of what we could do without shareholder approval. For this reason we are going to hold a special shareholder vote to approve the issuance of the shares.

A registration statement on a Form-S1 has been filed with the SEC, and we have mailed the proxy to shareholders and we will conduct that special meeting for vote on December 6.

LightPath's management team and Board of Directors [indiscernible] support this acquisition, and believe it to be an incredibly important opportunity which brings tremendous value to us.

With infrared technologies as an integral component of our long-term growth plan, prior to ISP coming along, the inclusion of ISP will accelerate our progress and materially strengthen our global presence on multiple fronts. ISP brings leading diamond turning and polishing capabilities for custom optics, which we do not presently possess.

Through its infrared technologies platform, which is far more comprehensive and developed than what LightPath currently has, we will be able to build upon the growth of our strategy in our strategic product segment, which is what essentially has been our infrared product sales.

ISP effectively expands LightPath's served available market to $1.7 billion from $800 million today. In effect, we are combing two financially strong companies with complementary businesses, which have the potential for meaningful sales, marketing, and product development synergies.

LightPath's leadership recognizes the diligent focus of our team in preparing for the ISP acquisition, while not losing sight of our fundamental objectives. Revenues have been sitting [ph] higher levels from our historic range, which is a testament to our demand creation and the strengthening of our global brand for high value molded optics.

Beyond reaching a quarterly revenue of $5 million, our revenue growth was very encouraging in the first quarter since we did not have meaningful contributions from specialty products and non-recurring engineering projects.

These business lines are substantial components of our consolidated annual revenues, but are less recurring in nature, while represent newer product platforms, so their quarterly contributions may vary.

From a broader perspective, we believe we are leading beneficiary of longer-term growth drivers and have successfully executed on our strategy to diverse [ph], supply our product lines in end markets. In return, we believe we have increased the market size and have taken market share from other manufacturers.

We remain committed to investing in our products and processes, which enable us to deliver industry-leading quality lenses and high volumes at comparatively low costs. Beyond our revenue growth and marketing progress, we continue to deliver improvements in profitability, yet still investing in future growth.

Our gross margins have been trending higher and reached 57% in the first quarter. So we have been able to manage our cost inputs to a more profitable level against market pressures on prices, enabling us to open new markets and products towards a generation of additional revenue streams.

Our investments in R&D in the first quarter were over 80% higher than in the year earlier period. We are committed to maintaining our innovation leadership design to open up new avenues of growth. An example of these new growth areas can be found in our announcement earlier this month.

Our engineering team collaborated with France's ULIS, one of the world's leading manufacturers of the innovative thermal sensors for surveillance, thermography, firefighting, outdoor leisure and automotive markets to develop a thermal imaging lens assembly for use with the new ULIS Micro80 Gen2 thermal sensor.

We then were selected as a recommended supplier of optics for this product, which puts us in place participate in a global market for advanced sensors for smart buildings, that according to Navigant Research will reach nearly 3.7 billion by 2020.

The products we developed with ULIS provides the optimal balance [ph] and performance in cost for wide field-of-view lenses. Using [indiscernible] eyeglass, the lenses are lightweight, possibly athermal [ph] over a broad range of temperature, and economically practical.

LightPath's advanced precision glass molding expertise and proprietary tooling techniques enable a highly repeatable process that is scalable to high volume production, which is what is needed for this particular opportunity.

The on-thermal imaging and its related industrial application, which includes building management and safety concerns, there are other catalysts that are driving our business. The telecom sector has long been upon target market for our products.

This sector is doing quite well now, and given the so-called optical super-cycle should be fertile for some time to come. Three factors we think will continue for the foreseeable future include infrastructure investments in China, datacenter interconnection, and metro core upgrades and expansion.

On other fronts, while China's growth overall has slowed, there continue to be largest pockets of government and private business lead economic development driving the need for industrial tools which use our lenses for line of sight and other capabilities.

Areas such as autonomous car, lidar and other sensor systems, firefighting and safety equipment are all driving the need for our products. We see no end in sight for this increasing demand. We are fine and ready for continued growth both organically and through acquisitions.

I'll now turn the call over to our CFO, Dorothy Cipolla to provide additional detail on our first quarter results..

Thank you, Jim. First, I would like to mention that much of the information we are discussing during this call is also included in the press release and Form 10-Q which we released earlier today. I encourage you to visit our Web site at lightpath.com and specifically the section inside our Investor Relations.

I'll now review financial performance and operational details from our fiscal 2017 first quarter, which ended on September 30. Revenue for the first quarter was 5 million, an increase of 19% from 4.2 million last year, and up by 6% from 4.7 million in the fourth quarter of last year.

The increase from the first quarter of last year is attributable to an 80% increase in sales of our high-volume precision molded optics HVPMO lenses, a 16% increase in sales of low volume precision molded optics at our LVPMO, and an increase of 41% in sales of infrared lenses.

This is partially offset by a 32% decrease in specialty products and a 5% decrease in non-recurring engineering in our lead projects.

The decrease is revenue generated by our specialty products group was due to the absence of approximately 335,000 of revenues generated in the first quarter of last year due to fiber assembly sold to a customer pursuant to a license agreement.

This marks the seventh consecutive quarter where we have experienced year-over-year increases in sales from both of our precision molded optic appliance of our infrared products. In addition to these product groups, and for full disclosure, we did break our streak of five consecutive quarters in which our revenues showed marked improvements.

Moving to our geographic revenue mix, 38% was from the U.S, 35% from Asia, 17% from Europe, and 10% from rest of the world. Our geographic mix has moved from 58% to 62% international sales from the first quarter of last year.

Adding to the transparency of our financial reporting, I'll provide vertical market sales figures that further demonstrate our diversification.

In the first quarter of fiscal 2017, vertical market sales included 29% from distribution catalog, 17% from telecom and wireless, 8% from medical, 35% from industrial and 11% from defense and government sectors. The gross margin as a percentage of revenue in the first quarter was 57%. This compares to 54% last year.

The improvement in gross margin is due to increased revenues at HVPMO products with a higher average selling price, leverage pulling out of higher sales volumes against our fixed manufacturing overhead expenses, and better yield for our infrared products. Gross profit in the first quarter of 2.8 million was 22% improved from 2.3 million last year.

Total cost of sales was approximately 2.2 million for the first quarter, an increase of approximately 228,000 compared to last year. The 16% increase in cost of sales favorably compares to the 19% increase in revenue to deliver the improved gross margins.

Due to the higher revenues in the first quarter, increased R&D spending and ISP acquisition related expenses primarily through professional services, total cost and expenses increased by approximately 854,000 compared to last year's first quarter.

Bilking out the increase in expenses, included 484,000 for expenses related to the ISP acquisition, 55,000 increase in travel expenses, 49,000 increase in stock compensation expense, which is related to the immediate investing of restricted stock upon a form of directed resignation of Board of Directors, a $49,000 increase in legal and accounting fees, 54% in R&D wages, $55,000 increase in materials used for engineering projects to expand and enhance our cog products, and $89,000 increase in other expenses.

Excluding the impact of COGS related to the acquisition of ISP Optics, we expect future SG&A cost to decrease during the remainder of fiscal 2017 to more normal level. The increase in revenues and improved gross margins were offset by an increase in total cost and expenses.

Total operating income for the first quarter was 393,000, a decrease compared to 655,000 last year. In the first quarter we recognized non-cash income of approximately 44,000 related to the change in the fair value of warrant liability, which were issued in connection with our June 2012 private placement.

The wide liability has an inverted correlation to the change in price of our common shares. During the quarter, LightPath's common stock depreciated by 13% as compared to the prior quarter end. This resulted in a non-cash income prior to the change in the fair value of the warrant liability.

Last year we recognized non-cash income of approximately 368,000 related to the change of these warrants.

Net income for the first quarter was approximately 140,000, and this compares to -- and this includes 44,000 of non-cash income for the change of fair value of the warrant liability, and income tax expense is 257,000 related to profit in our finance subsidiary for which no longer have a shelter.

Fiscal 2017 first quarter earnings per share was $0.01 per basic and diluted common shares. This compares to net income of 825,000, which includes 368,000 of non-cash income for the change in the value of the warrant liability, or earnings per share of $0.06 per basic and $0.05 per diluted share last year.

Adjusted net income was adjusted for the effective of non-cash change in the fair value of the warrant liability decreased in the first quarter, but when you account for the impact of the ISP acquisition expenses, it was 581,000 as compared to 475,000 in the first quarter of last year.

Adjusted EBITDA, which eliminates the non-cash income or expense related to the change in the fair value of the warrant liability was approximately 621,000 in the first quarter, as compared to approximately 671,000 last year.

Weighted average basic shares outstanding was 15.6 million in the first quarter compared to 15.2 million last year, and this was primarily due to the shares issued of common stock under the 2014 employees' purchase plan, and exercise the stock options in warrants.

Cash and cash equivalents as of September 30 totaled approximately 3.6 million, an increase of 22% from 2.9 million at June 30. Cash flow provided as an operation was approximately 922,000 for fiscal 2017 first quarter, compared to 901,000 last year.

Early on the first quarter we expended approximately 387,000 for capital equipment, while growing our cash balance by 700,000. As of September 30, the company's 12 months backlog was 5.8 million compared to 6.6 million as of June 30.

This lower backlog resulted from a delay in anticipated booking forecasted in the first quarter, and an increase in shipments of orders received and shipped within the quarter. With this review of our financial highlights concluded, I will turn the call back to the operator so we may begin the question-and-answer session..

Thank you [Operator Instructions] And your first question will come from Joe Maxa of Dougherty & Company. Please go ahead..

Thank you, and congratulations on a nice quarter..

Thanks, Joe..

I wanted to dig a little bit more on the vertical that you are seeing success in the telecom, and the industrial look like you had some nice quarters, can you give us a little color on what applications and then if you expect that to continue in the near-term and mid-term?.

Yes, I think what we are seeing in telecom is the continuation of growth in that area for optical networks, which is being driven by the three catalysts that we -- market themes that we mentioned, which is the datacenter interconnect expansions, the big one being I think the upgrade of the metro core, which is the shore haul thing to higher speed fiber optic networks, and that I see continuing for quite some time.

And then the third being the continued stimulus that we see going in the emerging world, in China, in particular and other emerging economies as they continue to spend -- even though their economy is sort of down, they are continuing to spend on this type of infrastructure build out in the optical and wireless network as those -- as the bandwidth demand continues to grow.

So, that's driving that side of it. And then in addition to that, China has announced a huge investment in its infrastructure build out in the transportation sector, primarily around expanding their high-speed rail system.

I think they announced that they were going to spend like $722 billion over the next three years for transport type infrastructure expansion. And a large part of that will be for the high-speed rail where they said they are going to double the size of it. They currently have four main lines, and they are adding four additional lines.

So, I think -- and that's huge construction. So that gives a boost to our market in the industrial tool segment. So for things like laser levels and all the kinds of tools we are using, those kinds of guys and laser optics as part of the tool.

So we see that growth continuing, and I think it's been laid out in more detail in some surveys that Needham put out, and we see it in the order activity from our own customers as their business in that particular segment has continued to grow and grow quite substantially..

That's helpful.

A question on the gross margins, obviously very strong in the quarter, do you expect that to continue or should we see that pull back as some of the other and maybe the engineering services come back is, or specialty products, or is this is a pretty good level to think about?.

Well, I think -- you know, I believe that it's a fairly decent level, I believe there is some variability to it quarter-to-quarter, but we should be running in that -- at these kinds of volumes we should be running in the very high 40s to the mid 50s, pretty consistently.

So I see it you know, 50 -- in the low 50s going forward here pretty consistently..

Great, thanks a lot..

Okay. Thanks, Joe..

And the next question will come from John Nobile of Taglich Brothers. Please go ahead..

Hi, good afternoon, Jim and Dorothy. Excellent top line by the way, $5 million beyond what I was expecting, but I wanted to talk to you about the bottom line, in particular the tax rate, I know that you have a 25% tax rate in China, but when I look at this, it doesn't make sense, you had nearly a 65% overall tax rate.

So, I was hoping to get to the bottom of why so high in this quarter?.

Well, I'm going to let Dorothy answer that question..

The primary reason has to deal with the fact that we cannot take advantage of those foreign tax credits on the U.S. side, because we have NOLs. So, NOLs have a 20-year life and foreign tax credits have a 10-year life, and you have to use the NOLs first.

So, we have the disadvantage of having to pay taxes, but we have the good point of having income, but we cannot be deductive against U.S. tax rates..

Okay, but still China is -- I believe you should be paying about 25%, even if all of this was in China, that's what I was trying….

Yes, if you look at the standalone numbers, it is that -- in the book that 25%, but you have to remember that what is -- China's largest customers is in our company and those sales are eliminated..

Okay, okay..

So, for Joe -- I mean, John, I'm sorry; the thing that really happened is we entered a period where you know, the tax shelters that we had on our foreign profits expired. Our business expanded and we were more profitable than we had forecast, and so we had to adjust some of the accruals for taxes to true it up with what was going on.

So we had you know, some hopefully one-time higher tax rate it appears as we went through that change in the way -- as we went from having been able to just eliminate those taxes against the shelters and not having that and then having better performance, a little higher performance than we had actually forecasted, so our accruals weren't quite right and we had to adjust….

Okay. It was a one-time adjustment, it's not like going forward, I'm going to get surprised on the tax line..

No, we think we are going to -- the majority of that overage that looks like an overage is a one-time deal that we don't think we will see that again..

Okay..

And you know, we will do some things now that we got a better view of where we are, what the tax rates are, we will try to make some adjustments that minimize that..

All right. And obviously in regard to ISP, you had about $484,000 hit the SG&A line, and there is going to be more going forward. So I was hoping if you could just kind of give us little guidance in what to expect for Q2. Do you anticipate maybe all of it finishing in Q2? Once again, I assume that an acquisition will go through.

So, I just wanted to get a feel for what to expect in Q2 at least on any extra expenses from ISP..

Well, I think we will have some -- I'm not quite sure we are prepared to say exactly how much, but the balance of what we have to do that we have to run through the P&L has been done. I mean, most of the audits, lot of the legal fees, all of those kinds of things you know, we've just paid for those.

As we go forward, the bigger expense will be associated with the capital raise, but that will be more of a balance sheet item and be netted against the proceeds. So, I think -- you know, I don't think we are going to see a big ahead, but there will still be some expenses as we do some integration, and we finished off the transaction..

Okay. And I wanted to pinpoint the infrared product sales, not only this quarter, but all of last year, both on revenue and a unit -- per unit, it's grown over 40% which is significant, very significant.

So I was just trying to crack down on what you believe might be driving continued growth of the IR products going forward? And then isn't even including ISP, just to get your core IR products, what are we looking at for the strongest growth in this area?.

Well, I think we've had great success in the safety and equipment area, particularly with smaller or personalized firefighting, our thermal sensing cameras for firefighters and policemen and those kinds of things got designed into some of those products and that has been one of the main drivers of that growth.

So what the overall larger picture is what we see happening in the infrared market is the continued commercialization of this technology as the cost of both the sensors and the size of the sensors continues to decline, or get smaller, so that's driving the overall cost of the components of these -- the imaging devices down, and so that become more affordable and therefore you know, as we cross those cost barriers, more and more commercial applications become viable.

I think as we mentioned the senor market, for things like building management where you run in lighting or HVAC, or those kinds of things with sensors, automotive type applications will be coming online as the number of sensors in an automobile increases that do driver awareness, you know, buying spot detection, position detection, all of those kinds of things, with the autonomous car becomes maybe a reality, those kinds of things are expanding that growth.

So I think we are really excited about this sensor technology, this collaboration we did with ULIS is a very good example of what's going on as you see these sensor companies moving into these markets and they are seeing the same things that we've seen.

So I think we have positioned ourselves quite well to continue that growth factor, and the molded process with the [indiscernible] material system offers a volume type production process with the repeatable process at a lower cost. And so, it fits right into that trend that's going on in the infrared technology..

Okay. I mean obviously the first quarter was -- I don't know on unit growth, but 40% I believe it showed up as a revenue growth and this is coming up of last year.

You believe you can keep that kind of rate into 2017 on the IR line 40%, and once again not including ISP because that's a big jump right there?.

Well, I think the growth rate is going to continue to be substantial. I think the rate -- the percentage rate may come down as the base gross. I mean that's -- we have been coming off a relatively small base, but we see the opportunity to grow in the high-20s to the mid-30s, maybe even to the 40% range, looking at where we are seeing going forward.

So I think that's very encouraging, and then we see some opportunities to enhance that with the ISP acquisition with some of the synergies we can do by perhaps the combining molded technology with turn technology and offering even some of the other applications that we weren't able to address with only in molded product and provide that value to those customers.

So we think that's going to be a big synergy going forward, and there are some real good opportunities that we see where you combine these technologies and those capabilities. And so we are really excited about that looking forward..

Oh, good to hear.

And actually a question for Dorothy, and forgive me I have to look through the proxy statement and the registration statement, but in regard to goodwill with this acquisition of ISP, could you give us the number of what you expect goodwill to be?.

Yes, that's actually within the -- in the proxy statements it was filed with….

Oh okay, forgive then if I missed that there, I could check it out there, I just wanted….

It's 2.2 million..

How much was that?.

2.2 million..

2.2 million, okay..

As of June 30..

And looking at the pro forma statements which shows ISP basically boosting your rev and this is a static number by 71% going on the 2016 numbers I believe.

So, while net income is going to increase roughly half that rate, so roughly about a 35% increase in net income, 71% I noticed, so I'm just going to ask you be in the top line looks like it's growing or the rate is higher than the bottom line growth, do you see that there is any cost in ISP that you might be able to reduce that can actually flow through to the bottom line?.

Well, there is some that we have identified in the pro forma and that we are basically cost at ISP had that we were related to their sale, that they had hired some consultants to help with that process..

Okay. So, some -- what the pro forma has that's looking at what you anticipate obviously from a static point on June 30, showing that kind of wash you see at 34%-35% increase in your bottom line from this acquisition.

And actually you know, one more question if I could, I know you filed the registration statement for up to 8 million shares, could you give us an idea of how much of a note you would need being that your cash balance is up right now? I know in the press release I think you had about the remainder which was 6 million, but what do you think you are actually going to require for that? And could you share any terms of that right now, what the terms of the note might be?.

Well, I think it's a little early to try and play that game since there are so many variable remaining. It depends on when we go to market how well it's received, what the prices of the shares are going to be to how many shares we need to issue. So that's going to be a real variable.

I mean, we have arranged for a bank debt and what we are going to try and do is balance the dilution created by issuing shares against the debt cost and try to come with the best combination that we can, John.

So, rather than speculated what that's going to be, I think we just got to wait and see how that works out and dependent on how the market receives it and what price we're able to get, I think that's -- you could come up with 150 or an infinite number of solutions there, I think..

Understood it, understood it..

We are going to try and balance it out, so that it's fair as we can do..

All right, understood. Well, that's all I have. Thanks for taking my questions..

Appreciate it, thanks John..

[Operator Instructions] Your next question will be from [indiscernible] Private Investor. Please go ahead..

Hello. Congratulations for a great quarter, especially for revenue growth..

Thank you..

And so, I wanted to just ask for some of that cost that you listed. Now I understand that the additional stock compensation costs were one-time only related to that designation.

Would you say that the travel costs and the legal and accounting costs, were they kind of also unusual related to the ISP acquisition?.

No, because we -- any costs that are related to the ISP acquisition, we segregated separately and reported as that $484,000 number..

Okay. So, your business in general requires more traveling and legal and accounting expenses….

Well, I mean we've had -- we put quite a push on the sales side. So we have announced some reorganization of our sales force and that kind of stuff and those people are getting out in the field more, making more contact with the customers, which is part of why we are having some success with generating the higher revenue.

So there is additional cost there over what we have historically done from a travel point of view. The legal costs, it just depends on what's required..

Yes, and some of that has to deal with the training of when the invoices are received for the annual audit this year compared to last year..

All right. I mean it's completely understandable that you need some [indiscernible] for higher revenues. Now, regarding the backlog, you said that some orders, some expected orders got pushed into next quarter, which is the currently ongoing quarter.

Have you received those orders yet?.

Some of them, I think we still anticipate some more, but we think we are going to see pretty good recovery of backlog based on what we anticipate coming, but the other factor that's in there is we have increased our capability and reduced our time to turn orders, which I think is a good thing from a customer point of view.

So that backlog get driven down a little bit as what we book and ship within the same quarter, so it doesn't reside in the backlog. I'd much rather have the shipments going out and sitting in the backlog if I can do it. So I think those two factors are what really contributed to that dip in the backlog that we saw this quarter -- this past quarter..

So, would you say that your backlog was kind of sub ultimately high before because you have grown service customers….

Well, we have been through towers servicing the customers, so that's taking a data little bit, yes..

All right.

And regarding ISP, is there anything you can tell us about the way ISP's business is going, what's the latest [indiscernible] are they -- what kind of growth are they experiencing since last time you told us about them?.

Well, I think what we see so far is that they are hitting the types of growth numbers that they forecasted. When we took a look at and did our evaluations, so we are pleased with that.

So margins as they are typical in this business have been slightly lower than they were the previous year, but I think that's more related to just the mix of the type of product and the material content that's required. So I don't see anything in there that the servicing, I see the kind of growth that we anticipated.

And so we're very comfortable with what we see going on so far..

And again what is the growth that you forecast?.

That was relatively - the growth was -- I mean, they have been exceeding it, but historically they have grown their business 7% to 8% a year..

Okay. And currently they are slightly exceeding it, okay.

And you talked a lot about your success with different fields, but did you hear anything about medical, is there anything happening with medical with those under scopes?.

That business is still in development. So we didn't have any like tremendous growth associated with it, although in some of the other areas of our traditional business, some of the medical applications had been continuing.

So we see that kind of thing, but the under scope business is still prior well developing and with the start up of that type of disposable and discope [ph]. So we are not seeing anything too exciting in this past quarter that -- related to that..

All right.

And on the offering, do you have any kind of time period just to when we should expect it?.

Very soon, I mean we have said that we want to try and close this deal in the fourth quarter. So that gives us between now and probably realistically the middle of December to be able to do that, with pretty tight time schedule, so we are coming up on it pretty quickly.

We are still somewhat dependent on getting our registration statement effective, which we are waiting on the SEC to give us that green light..

Okay.

And if you want to push specifics, I guess, you contacted Raymond James, right?.

It's ROTH Capital..

Once again?.

It's ROTH Capital..

Oh, ROTH Capital. Sorry.

You will be offering to shareholders directly, right?.

Correct. It's all through the….

Okay. All right, well, thank you very much again, and congratulations again for great results. That's it for me..

Thank you for your interest, appreciate it..

And ladies and gentlemen, this will conclude the question-and-answer session. I would like to hand the conference back over to Jim Gaynor for his closing remarks..

All right, thank you. In conclusion, we appreciate the support of our shareholders and the dedication of our global team at LightPath. This team is expected to significantly increase upon the acquisition of ISP Optics.

And with this expanded global presence, which has bolstered its scale and scope, we intend to remain focused on our efforts to drive diversified revenue and growth and continue to drive benefits from the leverage in our business as we improve our profitability and generation of cash flow.

Thanks again, and we look forward to speaking with you next quarter..

Thank you. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect..