Good afternoon and welcome to the LightPath Fiscal 2016 Fourth 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 Ms. Dorothy Cipolla, CFO. Please go ahead.

Thank you and good afternoon. Welcome to LightPath Technologies' fiscal 2016 fourth quarter and full year financial results conference call. The call today will be hosted by Mr. Jim Gaynor, President and CEO. 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. 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 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. What a year it’s been. There are so many exciting things to talk about. If I had to summarize the year and our outlook it is best defined as accelerating growth. The fourth quarter of fiscal 2016 marks our sixth consecutive quarter of strong fundamental performance since we implemented a series of new growth initiatives in early 2015. Our solid performance in the fourth quarter completed a year in which we achieved substantial growth in route to setting numerous financial performance records over recent years. Here are some of the highlights from fiscal 2016 financial results. Revenue increased 26% to a record $17.3 million in fiscal 2016 from $13.7 million in fiscal 2015. Gross margin as a percent of revenue reaches record annual levels of 54%, up from 44% in 2015. Operating income of $2 million improved as compared to an operating loss of approximately $259,000 in the prior year. Net income of $1.4 million increased from a net loss of $715,000 in the prior year. EBITDA for fiscal 2016 was approximately $2.5 million, compared to a loss of approximately $144,000 in fiscal 2015. Adjusted EBITDA, which excludes the non-cash income or expense related to the change in fair value of the company's warrant liability was $2.6 million, up over 700%, as compared with $320,000 in the prior fiscal year. And our operating cash flow increased by 700% to a record $1.5 million in fiscal…

Thank you, Jim. First I’d like to mention that much of the information we're discussing during this call is also included in the press release issued earlier today and on Form 10-K, which we will be filing shortly. I encourage you to visit our website at lightpath.com and specifically to the section entitled Investor Relations. I’ll now review financial performance and operating detail from our fiscal 2016 fourth quarter and full year which ended on June 30. I’ll begin with a review of the fourth quarter. Revenue for the fourth quarter was $4.7 million, an increase of 5% from $4.5 million last year, which was nearly up by 15% from the third quarter. Although we have increasingly diversified revenue base, which Jim has addressed in his remarks on today's call in which we expect further diversification from the ISP acquisition, it is best to view our performance on a year-over-year periodic basis rather than on a sequential quarter basis. The fiscal 2016 fourth quarter growth is attributable to a 63% increase in sales of our high volume precision molded optics or HVPMO lenses, and an increase of more than 70% for sales of our infrared lenses and infrared non-recurring engineering products or NRE, which was offset by decreases in our low volume precision molded optics or LVPMO's in specialty products. Total precision molded optics revenues increased by 19% in the fourth quarter compared to last year. This marks the fifth consecutive quarter we have experienced year-over-year increases in sales of both our precision molded optics lines and for our infrared products. In addition to the product proof there is also the fifth sequential quarter in which our non-recurring engineering revenues showed marked improvement. It is important to note that for our non-recurring engineering work or NRE it is essentially revenue…

Thank you. [Operator Instructions] Our first question comes Joe Maxa from Dougherty & Company. Please go ahead.

Thank you and congratulations on a nice quarter.

Thank you, Joe.

I wonder if you could expand a little more on the key drivers you are seeing perhaps by vertical, the strength in the quarter and then the outlook if that is expected to be maintained in 2017, on your core business I’m talking.

Yes, I think there is a few catalyst that are driving our business right now. The telecom sector which is kind of a sweet spot for us is doing very nicely and it’s being driven I think by three factors that we think will continue for the foreseeable future over the next several years and those are the Chinese investment in its infrastructure and in particular in its networks and that kind of thing is driving - some construction projects that they have reinstituted such as the expansion of the high speed rail, is driving our industrial tool volume and that’s a very nice thing. In the telecom sector you have again the Chinese, but you also have the data centre interconnect driving volume in these networks and the upgrade of the metro core of the shore haul high-speed data transmission. So I think those things are driving the telecom sector and we are seeing very nice growth in our customers and those catalysts are, from our perspective verified by the orders we see from our customers who build that type of equipments or put components into those type of networks. So, I think those are very strong drivers of our existing business and then on the infrared side we see continued adoption of commercial type applications in the infrared sector and technology developments that are continuing to drive and open that market up and we think that will continue for the foreseeable future. Things like the autonomous car and LIDAR type systems, there are sensor systems, firefighting and safety equipments are all things from a commercial perspective that are driving that market. So those factors I think are what we see driving our markets for the foreseeable future and yes I think they are going to continue for the next several years.

That’s helpful. And Jim on your, the acquisition - potential acquisition with ISP, are they seeing a similar type growth rate you are, I mean you have a pretty nice 26% growth rate, maybe give a little color on if you think that’s going to continue for you, but also curious on how ISP is doing and what’s driving their business?

Well, I think ISPs business is strong as well. They are into different kind of business, little bit different than ours, although it is very complementary. They are much more project-based in their business model. So they do, the majority of their business is driven by custom optics or particular programs and designs for specific applications and relatively high-end type product. So, I think their growth rate is in that - historically has been running 8% to 9%. We think that will continue, they've had some very nice pops in recent years that are more like, what was it, Dorothy, 15% or plus percent growth. So, we are seeing nice growth and from what we see in the forecast and stuff we expect that to continue.

And margins, your business, do you think you can maintain that say mid-50s, low-to-mid 50s range and should we assume based on your comments made on ISP for that to be a little bit higher gross margin?

Well, I think, actually LightPath’s margins are currently a little bit higher than ISP’s, but I think that has more to do with material costs and we have some very low-cost operations in China and very efficient. So, I think our gross margins are currently a little bit higher than theirs and I think that’s probably what we will see in the immediate future. As we said, we really expect our margins to run in the high 40s to low 50s. We think that’s a normalized rate and we certainly expect that to continue. ISPs margins are in the high 30s to low 40s, which is also very good margin for the type of work that they do and the amount of development work et cetera that’s associated with their products.

Okay thank you, it’s very helpful.

The next question comes from John Nobile from Taglich Brothers. Please go ahead.

Hi, good afternoon, Jim and Dorothy, and thanks for taking my questions. In regard to ISP, I just wanted to get a better understanding of your acquisition here, correct me if I'm wrong, isn’t your molded optics method, isn't that in direct competition to ISP’s diamond turning method?

Well, it depends on the product you're talking about John, but no, I would say not. I think they are totally complementary. You know there is a business of molded optics that has a lower cost structure that’s generated more towards commercial with slightly higher volumes. Where their product - and there’s also a need for turned and polished lenses as well. And the way we look at it is, it is completely complementary. It now expands our capabilities to do those types of things and expand that business, but we think it’s an additive, a scope enhancing type thing. Moving forward, we are very excited about that. But I really want to focus on our results this quarter and we will be talking more about the acquisition as we move forward here, but today's call really needs to be focused on the performance that we had in our 2016 and our fourth quarter, which we think we had a phenomenal year.

Well, no doubt about that. Actually, in regard to the quarter, the fourth quarter was very strong looking at it compared to Q1, Q2, Q3, and I look back at last year the fourth quarter was much stronger also, so it raises the question of seasonality, is there a seasonality that we could expect in the fourth quarter, I mean this is two years in a row where there was a nice jump up in the fourth quarter and if there isn't, I mean, is this a level that we should expect going forward, a revenue run rate?

Well, I think if you look at what happened in 2016, we’ve - I don't think we had a quarter below 4 million, 4.1 million for the year and so we've continued to increase the volume in our business year-over-year and quarter-over-quarter. So, I think we are reaching higher levels of business overall and I think that those types of levels are the levels that we are at. Early in the year, we put out some metrics that said we would continue to grow 12% to 15%, 12% to 16% a year for the next several years and we fully expect that level of growth to continue. We exceeded it this year, but as I said we went from 1% to 15% to 26%. So, we're having a nice run. The catalyst in the business that I talked about earlier are driving that and we continue to see those types of opportunities and the other exciting part is, Dorothy talked about the level of NRE's and stuff that we're had this year and that’s all future stuff. I mean that’s engineering work, designing products for newer applications and custom type stuff that we’ll play out in the future, some in the immediate future, some longer term, but that increase in that type of work is a good bellwether of what you can expect going forward.

Okay. And as far as seasonality, should I say that there really wasn't any seasonality?

I think you see a slight increase in our quarter. Generally, our Q3 because it has the Chinese holidays and the U.S. holiday season impacting it, tends to be a little weaker and so you get a little bump in the fourth quarter as a result of that. It is probably a carryover from some slowdown in the third quarter. But given the strong year, it’s – you kind of got, the third quarter was still pretty good even though we did see some slowing. So, I think you see a little carryover based on the holidays and those kinds of things. We lose a couple of weeks of focus in China in that October time period when they have their big holiday and so that, the whole country kind of slows down there and that we see some impact from that. Now having said that, the Chinese economy is not strong right now overall, but for us, we've had very good success this year in China and very good growth because we’ve been positioned properly and because we're picking up some business from some of the weaker players that are dropping out, so while overall people talk about the weakness in China it has slowed down quite a bit, but our business has grown in that sector and we see that continuing and partially it’s because we have high end customers and we produce quality product at great value and so we are able to pick that up.

Okay. A question for Dorothy, I think the last quarter the NOLs in China were fully depleted, so I’m just curious what to expect as the tax rate for sales in that region?

The tax rate that you should expect is 25%.

Okay. 25% for that region and just one more question in regard to the board with the Dr Zhu’s resignation, I’m curious if there’s going to be a need to replace him or is the board going to stay at the current size?

Well, we don't have any plans to add any new directors at the moment, so right now there are no plans to replace that. The board will be at seven directors with six of them on the outside as I said, outside directors and that’s sufficient for what we're doing right now, but we went through where we could add some people, we put some flexibility into the size of the board at our annual meeting last year, which is, we appreciate the shareholders doing that and we did that so that if the opportunity or the need arises that we can add those skill levels to the board and have that flexibility as we move forward here to grow the company, but for the immediate time frame we don't intend to immediately replace them.

Well alright. Well, thanks Jim and Dorothy for taking my questions. That's all I have right now. Thank you.

Thanks John.

[Operator Instructions] Next question comes from Chris [indiscernible] a Private Investor. Please go ahead.

Hello. Thank you for taking my question and congratulations on a great quarter?

Thank you very much.

So, I have a couple of questions. First, am I correct in noticing that the adjusted EBITDA and the adjusted net income are really actually still lacking about, they haven’t adjusted for about 400,000 a one-time cost, like maybe together 50,000 but the professional cost regards with acquisition and another, well kind of $50,000 of currency losses, is that correct?

No, that’s not correct. EBITDA and net income is only for the change in the fair value of the warrant.

All right, so if you want to adjust for a onetime cost than the adjusted EBITDA and the adjusted net income would be about 400,000 high, is that correct.

Yes.

Alright. So why, I mean if you are providing adjusted metrics why don't you adjust all the way, I'm just curious?

Well, I tell you, we try to be as fair as we can with the numbers and there always seems to be these recurring, non-recurring charges, so we try to be fair to what we report and give a relatively conservative base.

All right, I understand that you want to be conservative. Okay [indiscernible] backlog, you had a nice increase year-over-year, but it seems like a small decline sequentially, what is that about?

I think it is more just timing and have the orders flow and I think if you really look at, we grew our backlog while we significantly increased our shipment volume, so rather than sitting on the backlog we're pushing it out into shipments and revenue.

Okay and the kind of a relatively large increase of inventories year-over-year is that indication of higher revenues for the next quarter?

I think yes, as well as we’re growing our infrared business and that has some higher material costs associated with it, so as those materials go in to raw material and web, get a little bit of an increase there just because of the value of those materials.

Okay.

So, like a 70% increase in our infrared volumes in the course of the quarter. So that business is developing and so we will see that type of thing is the working capital requirements increase.

Okay so, can we assure that those kind of in inventories are mostly in infrared and high volume molded optic areas are really growing really fast?

Yes, I think it is quality inventory that is not, we're not growing on our obsolete inventory here and our reserves and stuff had not really increased that substantially nor do they need to.

Okay. And gross margins also increased nicely year-over-year, but also slightly lower sequentially, I thought you would have more benefit from your new Chinese facility this quarter, can you give us some more detail on that?

I think that’s just, you're going to see some quarter-to-quarter variation based on product mix. That is just a normal course of thing. So I think that is one you have to look at a little longer term given the nature of business in the quarter-to-quarter fluctuations in mix that we have, so that tends to drive that. There really aren't any yield problems or those kinds of issues that are driving our increased cost that are driving on a cost of goods basis.

Okay. And some questions about particular areas that you pointed out during last conference call, the [indiscernible] are those growing in mass production, are those selling?

Well that’s still a developing opportunity. They haven't really hit the production volumes yet, although that we are still very excited about the opportunity looking forward. They are having very good results from their test cases. So, I think that’s still a very good premise for the future.

So, are you still waiting for government approvals on that?

Well it’s not our product, I mean we are providing some components into that device for our customer. He has that product approved, so now it’s a matter of getting it moved into the various doctors and hospital, clinics and those kinds of things it just take some time and some proofs that they are doing. So, they are we are working around the world to develop those and having good success with it. So, we look forward to that being a very nice opportunity in the future.

Okay this will be good speaking as a patient as well. It’s horrible to think you are getting used [indiscernible], anyways so the HVAC you said that there is new applications for completely optical HVAC systems that instead of sensing temperature they look at the temperature of different parts of the room is on, are those things happening?

Yes, I think you are seeing the growth in the infrared sensors for those types of products, whether that be lighting control or air-conditioning control or occupancy control, heat sensors or safety equipment that’s still again a developing area, but I think you are seeing that take off and the thing that we like about those types of sensing of operations are applications is they tend to have better volume from a commercial aspect and they've had lower costs as a result of that and that's where molded infrared optics really can have a good application.

Okay. That's good to hear and I know you don't want to talk about the acquisition, but I would just like to try a couple of questions, have you decided what portion will be debt, what portion will be equity of the new offerings?

Well I think what we’ve said is, we are paying $18 million of which $12 million will be cash, $6 million will be note taken back by the sellers, beyond that we just we don't know how that mix will play out, and when we go to market we will be able to further define that and there will be more information coming out about that into the near future, so I would like to leave it at that.

Can you at least assure us shareholders that you won’t dump $12 million worth of shares by some kind of - at the market offering because I mean you have a relatively lower market cap, if you got - and relatively low volumes, I mean can we assume that if you put in an offering it will be placed by a bank and not at the market?

Well I can't tell you exactly what's going to happen, but I will tell you that we are sensitive to delusion versus debt and we're going to try and balance that as best as we can and what we think is in the best interest of our shareholders and the company, so we will do our best to make sure that we do this in the most fair and equitable way that we can accomplish it.

Okay and final question about debt, you said that it would be accretive within 12 months, is that accretive per share including any possible dilution or do you just say – do you just mean that it is accretive as to total net income?

We believe you got to profitable companies together that should make a profitable company going forward with tremendous upside potential, so we believe it’s going to - very good income going forward and the potential to be very profitable as we move forward. There’s a lot of factors that go into that so, it is a tough one, but we believe we are in good shape.

Alright, thank you and I look forward to hearing again from you about this deal. Thanks.

All right. Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Gaynor, CEO for any closing remarks.

All right thank you. In conclusion, we appreciate the support for 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 is bolstered in scale and scope we intend to remain focused on our efforts to derive diversified revenue and growth, and continue to derive benefits from the leverage in our business as we improve our profitability and generation of cash flow. With the progress that’s been made and our plans for continued execution, we look forward to delivering long-term profitable growth, which may deliver meaningful returns for the benefit of our shareholders. Thanks again and we look forward to speaking with you next quarter. And thanks operator.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.