LightPath Technologies, Inc. (LPTH) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon and welcome to the LightPath Technologies Second Quarter 2017 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. I would now like to turn the conference over to Dorothy Cipolla, LightPath’s CFO. Please go ahead, ma’am.

Thank you and good afternoon. Welcome to LightPath Technologies’ fiscal 2017 second quarter financial results conference call. Our financial results press release was posted to our corporate website earlier than planned due to an administrative error. Upon learning of this, we expedited the issuance of the earnings press release publicly through the wire service, which occurred prior to the close of market. Moving on, our conference 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 a 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. Following that, we will open the call to your questions. The most important development that took place in the second quarter is the acquisition of ISP Optics. I would like to once again publicly state how excited we are to have made this acquisition and welcome the many talented people within that organization to the LightPath family. As part of making this acquisition, we took out a bank loan and raised equity capital. So, I want to welcome our new stakeholders, many of which are institutional investors and thank them for their support of our growth initiatives. Also participating in that equity raise were members of LightPath’s Board of Directors and Executive Management who all along has been committed to our success. The financial results for our fiscal 2017 second quarter better out the successful execution of organically driven growth strategies developed by our leadership team and the addition of ISP demonstrates our ability to make strategic opportunistic acquisitions. The acquisition closed on December 21, 2016 setting in motion the transformative event for LightPath. With the addition of ISP, we have positioned the company for accelerated long-term growth in revenues and profitability with comprehensive capabilities at a time when our target markets are increasingly demanding infrared and other optical components. In our fiscal 2017 second quarter, we consolidated the results of ISP Optics for only 10 days. So, we have not seen the full impact of its contributions. However, in the second quarter, we reported double to triple-digit growth in numerous operating performance metrics and achieved very high levels for quarterly revenue, operating income, net income, adjusted EBITDA and period-end backlog and cash balance. Here are just a few of the highlights. Second quarter revenue increased 39% to $5.9 million, which is consolidated for all our businesses. Excluding ISP, our core revenue growth was still very strong with a 26% increase from the prior year. Gross margin was 56% as compared to 54% for all of fiscal 2016. Total operating expenses as a percentage of revenue improved to 33% in the quarter from 41% in the same period in fiscal 2016. Along with the expense management performance improvement, we increased spending on research and development for new products by 60% and this comes after an 80% year-over-year increase in the first quarter. Second quarter operating income was $1.3 million, an increase of 119% from last year’s second quarter. Net income was $1.1 million compared to a loss of $536,000. Adjusted EBITDA, which excludes the non-cash income or expense related to the change in fair value of the company’s warrant liability, was $1.4 million in the second quarter of fiscal ‘17, an increase of 85% as compared with the $739,000 in Q2 of fiscal ‘16. The 12-month backlog was approximately $12.4 million at December 31, 2016 compared to approximately $5.8 million at September 30, 2016 and $6.6 million at June 30, 2016. And finally, our cash balance at December 31, 2016 was $5.7 million, an increase of 95% compared to June 30, 2016. LightPath’s base business was very strong for our fiscal 2017 second quarter with continued momentum within telecom, industrial tools and molded infrared business lines. Revenue reached the highest level of quarterly revenue in the company’s recent history. The revenue growth reflects our ability to diversify our product lines at end markets which has been a competitive strength. Our backlog at the end of the second quarter reached nearly $12.4 million, another high for the company. Approximately $7.5 million of the backlog comes from ISP. So, our 12-month shippable backlog remained above the $5 million range. Our successful global marketing initiatives have allowed us to remain in that range even though our manufacturing efficiencies with increased production has enabled a consistent increase in sales as we look at the trailing four quarters. Our bookings in the quarter at $5.4 million continued to reflect the strong business trends we have been experiencing in recent quarters. We continued to expect strong business in telecom, industrial tools and infrared. We see no abatement to the trends experienced during the past 3 years of increased volume production and revenues on almost every year-over-year as well as sequential quarter comparison. It is a testament to the excellence of our team that we are able to deliver this performance while making the ISP acquisition. Now, a wholly owned subsidiary, ISP strengthens our position and will further add to our growth and provides the basis for cross-selling and other synergistic benefits. With such a material contribution from ISP Optics going forward, the company’s consolidated financial performance will be modified accordingly. I would like to take some time on this call to discuss our forward-looking financial model. Consistent with our prior guidelines, we will not be providing guidance. On revenues, in addition to the continuation of our organic growth, we will have the addition of ISP. We expect significantly higher revenues as well as net income and cash flow on a consolidated basis. Due to the inclusion of ISP, our consolidated gross margins are expected to temporary decline a few percentage points from the current level which will be remedied in part as we integrate some of our high volume manufacturing practices to that part of our business. Meanwhile, with the leverage in our model and the larger base and anticipated growth in revenues, we are excited by the prospects for increased operating net income and cash flow margins during the balance of fiscal 2017 and longer term. In the immediate term, the company’s fiscal 2017 second quarter adjusted EBITDA is already sufficient to cover the cost of making the acquisitions, including normalized amortization of principal and interest service on the acquisition term loan and sellers note, while simultaneously allowing for continued investment in product development and capital expenditures and increased working capital to support our growth strategies. The second quarter of fiscal ‘17 as I mentioned earlier, we increased R&D spending. The cash level in the quarter will be held relatively steady for the balance of the year, if not longer. So, we expect to benefit from the leverage as margins improve and revenues increase. Looking out on a longer term basis, LightPath’s growth driver include increasing demand in telecommunications, growth in industrial tools, government and military spending and the commercialization of infrared products. From fully or partially autonomous vehicles to unmanned aerial systems to LIDAR applications, our optical and infrared technologies are beneficiaries of some of the fastest growing trend impacting the industrial and consumer economies. These elements were critical catalysts for our business as we successfully execute our strategy to diversify our product lines and end markets. We remain committed to investing in our products and processes which enable us to deliver high volumes of industry leading quality lenses at comparatively low cost. Furthermore, ISP optics significantly accelerates our infrared capabilities. In turn with the legacy of improving manufacturing yields we are able to enhance our product portfolio while providing better value for our customers. LightPath has a proven track record of combining its proprietary technology and manufacturing efficiencies to open up new end markets applications that stimulate volume demand increases. However large our addressable market is today as a highly diversified industrial technology components supplier, we believe we will become a far more formidable player that will benefit from the development of new demand creation to drive organic growth with the ability to strengthen our platform through opportunistic and accretive acquisitions. As we previously noted ISP effectively expands LightPath’s served available market to $1.7 billion from the $830 million we previously had. In effect we are combining two financially strong companies with complementary businesses which have the potential for meaningful sales, marketing and product development synergies. Our impressive second quarter results is just the beginning. Between our base business lines that have been progressing at a rapid pace the inclusion of ISP and the cross-selling and other synergies contemplated for our businesses as they work together. We believe LightPath is poised for an exciting future. I will now turn the call over to our CFO, Dorothy Cipolla to provide additional detail on our second 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 issued earlier today and on Form 10-Q which we will file shortly. I encourage you to visit our website at lightpath.com and specifically the section entitled Investor Relations. Before reviewing the financial performance and operational details from our fiscal 2017 second quarter which ended on December 31, I would like to review some of the details pertaining to the ISP acquisition. As previously disclosed LightPath completed the acquisition of ISP on December 21, 2016, for a purchase price of $18 million subject to post-closing adjustments of which $12 million was paid in cash with the balance in the form of a 5-year subordinated note issued to the sellers. The $6 million sellers note will accrue interest for the first 15 months on only the principal amount in excess of $2.7 million. Simultaneously with the closing of the acquisition, LightPath completed an underwritten public offering of 8 million shares of its Class A common stock which included the full exercise for the underwriters of their option to purchase 1 million shares of Class A common stock to cover over allotment at a public offering price of $1.21 per share. Net proceeds from the sale of the Class A common stock after deducting underwriting discounts and expenses were approximately $8.7 million. The company used the net proceeds from the offering for a portion of the purchase price of the acquisition of ISP payable in cash as well as to pay transaction expenses and other costs in connection with the acquisition. The balance of the cash portion of the purchase price was funded by a $5 million acquisition loan that is payable on an interest only basis for six months and thereafter amortized over 54 months. Since some of the interest in the amortization of the debt taken on to make the ISP acquisition is not payable or to be recorded for the next several quarters. The references Jim made earlier on the call to normalize amortization of principal and interest service on the debt refers to our cash flow from operations being able to cover all of our costs including full quarterly interest in the fourth quarterly amortization. Now, on to the results for the fiscal 2017 second quarter, revenue for the second quarter was $5.9 million, an increase of $1.6 million or 39% from $4.2 million in this last year and up by 18% from $5 million in the first quarter of this fiscal year. The increase from the second quarter of last year is attributable to 151% increase in revenues generated by our high volume precision molded optics or HVPMO, 161% increase in revenues generated by infrared lenses which include ISP products, a 32% increase in revenues generated by sales of low volume precision molded optics or LVPMO and this was partially offset by a 48% decrease in revenues from specialty products and a 66% decrease in revenues from non-recurring engineering or NRE projects. Specialty products is the project based business and last year it benefited form the program that we licensed to a customer that is a non-recurring business resulting in a revenue decrease of $358,000 as compared to last year. This marks the eighth consecutive quarter where we have experienced year-over-year increases in sales of both of precision molded optics lines and for our infrared products. Moving to our geographic revenue mix, 36% was from the U.S., 47% was from Asia, 14% was from Europe and 3% was from rest of world. Our geographic mix has moved from 62% to 64% international sales from the second quarter last year. Adding to the transparency of our financial reporting, I will provide vertical market sales figures which further demonstrate our diversification. In the second quarter of fiscal ’17, vertical market sales included 35% from distribution of catalog, 17% from telecom and wireless, 7% from medical, 19% from industrial and 8% from government and defense sectors. The gross margin as a percentage of revenue in the first quarter was 56%, this compares to 54% for all of last year. The improvement in gross margin is attributable to increased revenue of HVPMO products with higher average selling prices and this leverage is born out of higher sales volumes against fixed manufacturing overhead expenses with better yields for infrared products. Gross profit in the second quarter was $3.3 million up 40% from $2.4 million in the year – last year. Total cost of sales was approximately $2.6 million for the second quarter, an increase of approximately $697,000 compared to last year. The 37% increase in cost of sales favorably compares to the 39% increase in revenue to deliver the improved gross margins. This marks the second consecutive quarter where we have had the favorable revenue to cost of sales comparison. Due to the higher revenues in the second quarter increased R&D spending in ISP acquisition related expenses primarily for professional services, total costs and expenses increased by approximately $212,000 compared to last year. Broken out, the primary increased expenses included $125,000 increase in expenses related to the acquisition of ISP, $200,000 increase in wages and this was partially offset by a reduction of $125,000 in other expenses resulting from the company’s continued emphasis on expense management. Consistent with our growth strategy and included in total costs and expenses, we increased R&D spending by 60% to $258,000 in the second quarter from $168,000 last year. Excluding the acquisition expenses and other minor one-time expenses for either of the second quarter periods total costs and expenses as a percentage of revenue was 31% in the second quarter as compared to 41% last year. We expect this G&A costs to be higher than the second quarter range for the balance of this fiscal year due to the addition of ISP. In the second quarter the company recognized non-cash income of approximately $247,000 related to the change in the fair value of warrants issued in connection with the June 2012 private placement. In the second quarter of last year the company recognized non-cash expense of approximately $1.1 million related to the change in the fair value of these warrants. The applicable accounting rules for the warrant liability requires the recognition of either non-cash expense or non-cash income which has a significant correlation to the change in the market value of our common stock for the period being reported and the assumptions on when the warrants will be exercised. The warrants have a 5-year life and will expire in December 2017. The fair value will be re-measured each reporting period until the warrants are exercised or expire. Net income for the second quarter was $1.1 million or $0.07 per basic and $0.06 per diluted common share which includes income tax related to our Chinese and Lat-Am subsidiaries and non-cash income of approximately $247,000 or $0.02 per basic and diluted common share. For the change in the fair value of warrant liability, this compares with the net loss of approximately $5.36 or a $0.04 loss per basic and diluted common share which includes the non-cash expense of approximately $1.1 million or $0.07 per basic and diluted shares for the change in the fair value of the warrant liability last year. The company has foreign currency exchange expense in the second quarter due to the changes in the value of Chinese yuan and euro in the amount of approximately $237,000 which had a $0.01 impact on basic and diluted earnings per share. This compares to foreign currency exchange income of $26,000 with no impact on income per share last year. Adjusted net income which is adjusted for the effective non-cash change in the fair value of the warrant liability increased by nearly 64% to approximately $851,000 in the second quarter as compared to $520,000 last year. Adjusted EBITDA which eliminates the non-cash income or expense related to the change in the fair value of the June 2012 warrant liabilities was approximately $1.4 million in the second quarter, an increase of 85% as compared with approximately $739,000 last year. EBITDA with effective in the fiscal 2017 period, primarily by the recognition of higher non-cash income as a result of the change in the fair value of the warrant and an increase in SG&A costs which included approximately $125,000 related to the acquisition of ISP. We did average basic shares outstanding was 16.5 million in the second quarter compared to 15.3 million last year. This was primarily due to the issuance of shares for the acquisition of ISP and shares issued under the employee stock purchase plan and exercises of stock options of the June 2012 warrant. I will now briefly review financial performance and operational details for the first six months which ended December 31. Revenue for the first half of ’17 was approximately $10.9 million, an increase of approximately $2.4 million or 29% as compared to last year. Gross margin as a percentage of revenue in the first half of ’17 was 56% compared to 55% in the first half of fiscal ’16. Gross profit in the first half was $6.1 million compared to $4.6 million last year, an increase of 33%. Total cost of sales was approximately $4.7 million for the first half, an increase of approximately $925,000 compared to last year. During the first half total costs and expenses were approximately $4.4 million, an increase of approximately $1.1 million compared to last year. A key component of the increased expense was $609,000 spent ISP acquisition. In the first half, the company recognized non-cash income of approximately $290,000 related to the change in the fair value of the warrant. In the first half of last year the company recognized non-cash expense of approximately $687,000 related to change in these warrants. Income tax expense was approximately $506,000 in the first half, an increase of $502,000 from last year. Although the company has net operating margin carry forward benefits of about $86 million against net income as reported on a consolidated basis in the U.S. the interval doesn’t not apply to taxable income from foreign subsidiaries. The increase in the income tax expenses in fiscal ’17 was primarily attributable to income taxes associated with LightPath’s Chinese operations into a lesser extent our Lat-Am [ph] operations. Net income for the first half was $1.2 million or $0.08 per basic and $0.07 per diluted common share, which includes non-cash income of approximately $290,000 or $0.02 per basic and diluted share for the change in the fair value of the warrant liability compared with the net income of approximately $307,000 or $0.06 per basic and diluted shares which included non-cash expense of $687,000 or $0.01 per basic and diluted share for the change in the warrant liability last year. the company had foreign currency exchange expense in the first half due to the changes in the value of the Chinese yuan and euro and the amount of approximately $272,000 which had a $0.02 impact on basic and diluted earnings per share. This compares to find currency exchange expense of $176,000 which had a $0.01 impact on income per share last year. Adjusted income, which is the adjusted for the effect of a non-cash change in the fair value of the warrants with $948,000 in the first half as compared to $994,000 last year. Adjusted EBITDA which eliminates the non-cash income or expense related to the change in the warrant liability was approximately $2 million in the first half as compared to $1.4 million last year. EBITDA was affected this year primarily by recognition of higher non-cash income as a result of the change in the fair value of the warrant liability and increases in SG&A costs which included approximately $609,000 as result of expenses incurred related with acquisition of ISP. Cash and cash equivalents totaled approximately $5.7 million as of December 31, 2016 and 93% increase from June 30, 2015. This follows a 23% increase in cash from the beginning of the fiscal year through the end of the first quarter on September 30, 2016. Cash flow provided by operations was approximately $1.5 million for the first six months compared to $1 million in the prior year. During the first half of fiscal ’17 the company expended approximately $873,000 for capital equipment while growing its cash balance as compared to $596,000 in this last year. The current ration as of December 31, 2016 was 3.3 to 1 compared to 3.5 to 1 as of June 30, 2016. Total stockholders’ equity as of December 31, was approximately $21.8 million, 99% increase compared to approximately $10.9 million as of June 30, 2015. This is reflecting the common stock offered in December 2016 and cumulative net income. As of December 31, the company’s 12 months backlog of $12.4 million compared to $6.6 million as of June 30, 2016, an increase of approximately 92%. This backlog increased 63% due to the acquisition of ISP Optics. With this review of our financial highlights concluded, I will turn call back to the operator, so we may begin with question-and-answer session.

Thank you. [Operator Instructions] Today’s first question comes from Matt Koranda of ROTH Capital. Please go ahead.

Hi, good afternoon guys. Thanks for taking the questions. So just wanted to start off with I think in your prepared remarks and in the release you guys had alluded to sort of a temporary decline in gross margins by a few percentage points, I just wanted to make sure that’s mix shift due to the ISP acquisition and nothing organic, is the correct assumption?

Yes, it is. I don’t think there is any degradation in our core business gross margins, so it’s only the effect as we consolidate the two businesses together.

Okay, got it. And then just when we look at some of the cross selling opportunities, I wanted to dig into that a little bit more if we could here, so when we see customers of yours introducing guns goes with thermal imaging capabilities or other products that seem to include may be both turned and molded are either infrared and visible type components maybe can you just help us understand the opportunity there for LightPath in and ISP as a combined entity and essentially when do you expect to start delivering on opportunities LightPath incorporates both companies product sets?

Well, I think there is quite an opportunity to take advantage of the combined technologies that the two companies bring together, particularly in the infrared space. I mean so by combining you have the opportunity to use the molded product to replace a turned product. In some assemblies you have the opportunity to combine molded and turned in some assemblies and thereby probably offering an increased value to the customer as well as perhaps improved margins to the company. We see that as a real opportunity going forward. We have been marketing some of those types of capabilities. We have had some success. And we see we will start selling some of those actually in the next quarter. We see that beginning. In addition, you have the combined capabilities of the ability of LightPath to do molded optics and Chicagoan eyeglass and then you have the capabilities of ISP that brings to us turning capability, diamond turning as well as conventional grind and polish and CNC grind and polish processes. And all of this does has allowed us to expand the range of products that we can offer to the marketplace. So now, we are no longer limited in size. We are no longer limited in material choice. And so what it gives us is the ability to work with a customer out of design and pick the right material system and the right process to make the most efficient manufacturing capability for the customers’ needs. And I think under one roof that’s kind of a unique capability going forward. So, we expect to do quite well with that in the marketplace as we move forward. And in addition to that, with operating facilities in Asia, North America and Europe, we can provide those products in the region that the customer exists so that we can be closer to our customers from that perspective in many cases.

Okay, that’s really helpful. So, it sounds like you guys are already delivering or will be delivering shortly on some combined products. Can you remind us sort of just the sales cycle for opportunities like that? Is it longer sales cycle or is it pretty typical with your existing sort of sell-in to customers and spec-in?

Well, I think anytime you get where you are doing a design or a custom type design that it’s a little longer process, but it does fall into the typical product cycle that LightPath has had in the past for things that are relatively routine for us. You are in that 12-week timeframe, but some of those things may take longer to develop given that it’s a custom application. There could be some product qualification involved at the customer’s end. So you maybe doing some prototypes and some first articles and then before you get to the production cycle which could extend that sometime.

Okay. Okay, got it. That’s helpful. Just turning to synergies for a moment, can you just help us understand a little bit better how those will show up in the P&L, what we should be looking for? I mean, best practices sharing between the different coating teams and in terms of your manufacturing teams at the different facilities, I would assume those show up in sort of an incremental improvement in sort of gross margins and certain product categories. But is there an opportunity in sort of the incremental SG&A that ISP adds as well and maybe you could just walk us through sort of where you see those opportunities to kind of take cost out with the acquisition here?

Well, I think one thing that it’s going to happen fairly quickly is with ISP’s coating capabilities we now bring immediately in-house the ability to coat infrared products of all types, where we were outsourcing some of those previously. So that will be a cost enhancement to us from coating cost and processes. I think we haven’t really gotten fully into it, but I think as we begin to understand the cost drivers in the ISP business model, then we can start to work on those things and find some additional synergies with cost savings there. But I think the real synergies comes from the enhanced selling that we can do whether it’s the products that we were talking about when we combine technologies earlier or we are just taking the expanded product lines through the various sales channels of each company. So, LightPath has fairly well established sales channels into Asia, probably a little bit stronger than what ISP had. So, we can take their products through those channels into the Asian market and vice-versa. ISP with their location in Europe, we can use that as a lever into those channels, into the European market and expand our products through that channel as well. So, I think that’s where we really see the major synergies moving forward. And we have actually been focused quite heavily at the upfront part of this acquisition, even though it’s only been a little over a month with the cross-training of the various sales teams in the different product lines for each company and that will continue. And so as that knowledge level and experience level gains some traction, then I think we will see some of this growth opportunities materialize.

Okay, got it. What’s the, I guess, maybe could you give us just a quick flavor for what the initial customer reception has been like in terms of the cross-selling that you are referring to. So, when you are selling to one of your channels in Asia and you are looking at bringing some of ISP’s products in. Have you gotten initial customer feedback as how much interest is there, is there a way to quantify that in terms of sort of the uplift it may get you in terms of revenue growth?

I think it’s a little early to really have a good read on that Matt at this point, but in the stuff that we – the contacts that we did during the due diligence with the customer base on both sides of the acquisition was viewed very favorably. It gives us more scale. So some customers like that, because we are a little bit larger organization now and then the ability to have the various technologies under one roof I think is also very favorably seen. So, I think maybe another quarter or two, we will have a better read on how well we are doing with that, but I haven’t gotten any negative feedback from the marketplace at all on the deal and the combination of the companies.

Okay, got it. I am just going to ask one more and then I will jump back in queue and then I am taking up a lot here, but ISP’s contribution to sort of the products revenue breakout that you give, I assume they are mainly contributing to the infrared products, but can you just give us a sense for is all about sort of $600,000 incremental from ISP going into the infrared products category?

Yes. I mean, they are an infrared company, so it all goes into that category. That’s correct.

Okay. Just want to make sure it wasn’t going into NRA or anything like that, so it sounds like all infrared?

Correct.

Okay, got it. I will jump back in queue. Thanks, guys. Nice quarter.

And ladies and gentlemen, our next question comes from Ronald Spring of [indiscernible]. Please go ahead.

Hi, thanks for the increasing transparency in your reporting. Interrelated questions, you have both a production plant and significant revenues derived from China, do you see any effects from the current Washington, let’s just call it, situation on either of these. Have you done any contingency planning on anything? And lastly, do you participate in any currency hedging with $1?

From a political point of view, we haven’t seen any impact at this point. And we just keep charging ahead with our business. It seems to be continuing to be very strong in the Asian market and we do that. On the other side of it, we have created by having our international exposure and our lowest cost platforms, we have created quite an opportunity for our U.S. operations in our engineering and professional positions that we hold in the U.S. and strengthened that organization as well. So, I don’t really see that going to be a problem for us. Optics is a strategic technology that is necessary across the world. And I think we are very well positioned to service customers around the globe and that’s where we intend to continue to do. In terms of hedging, we don’t do any of that from a foreign currency point of view. We do translate everything on a quarterly basis and so we minimize that impact that way.

Okay, thank you.

You’re welcome.

[Operator Instructions] Our next question comes from Gene Inger of Ingerlettter.com. Please go ahead.

It’s Gene Inger. Thank you. Jim and Dorothy good job with the acquisition, this is my revisit after an 18-year absence. LightPath was the pick of the year’s stock of ours in 1998 that worked out great, lot of water under the bridge since then. I am delighted at the advances that you have made and ISP Optics acquisition is what brought us back to be interested in the shares and I am very curious I think many of the questions have been asked mostly by Matt, but I had mine as far as your vision Jim, could you perhaps reflect it a little bit on your competitive stance with the combined acquisition and could you perhaps reflective, I found it hard to extrapolate Dorothy on the 10 days that you have with ISP not considering future revenue but their existing revenue what if you had a full quarter how would this appear?

Do you want to take that one Dorothy? Our strategy is really centered around growth from that standpoint, so our vision is to use this acquisition. We have had a strategy that involved infrared for the last several years. We focused on the molding side of it because that’s our LightPath’s core capability, but we always wanted to have be able to offer a full service type thing and for all the material systems and all the various process types as well as lenses sizes in the infrared market. The infrared market is growing at about twice the rate as the visible optics market on a component basis, so we believe that with this acquisition we have got ourselves very well positioned to take advantage of that growing market. And so that ties into our growth strategy as well as I mentioned some of the newer technologies that are being developed with LIDAR systems and those kinds of infrared type applications. And the commercialization of that technology as the costs continued to come down whether that’s being driven by the size of the sensors in the thermal images, the cost of the sensors itself given that there is un-cooled versions and now we can offer with our various manufacturing capabilities in locations a lower cost optic in many cases. So that all leads to further commercialization of the technology whether that be in sensor technology where you are monitoring HVAC systems or lighting systems and commercial building using infrared technology, whether you are replacing smoke detectors with infrared sensors, whether you are monitoring pedestrian or vehicle traffic intersections in high population centers, all of those types of things are commercial applications that the cost barriers are broken those applications explode. So I think we are very well positioned to take advantage of that and that really is what we thought would happen and we have been pursuing that strategy and now with this acquisition it positions us in even a stronger position to provide any kind of optic, any kind of infrared material system that is commonly available. So I think from that perspective it fits very well and it allows us quite an opportunity to grow our business quite rapidly.

To your earlier question if you – when we file, go look in our 10-Q that footnote three talks about some details of the acquisition and it also gives us pro forma as if we had included ISP numbers for the last six months. So ISP kind of standalone for the last six months has about $6 million in revenue and it was – adjusted for deal related costs was $1.3 million.

Great, that’s helpful Dorothy. If I might ask it, to me this is a company that is transforming, by the way because I am an analyst in general China, but you didn’t touch on this, but China is doing their own hedging in the sense they have been stabilizing yuan relative to the dollar, so that makes all of that issue that somebody asked about by itself, if I might ask are you now on attack where you are going to focus on consolidating these companies rather than additional acquisitions and does that help potentially shareholder value for the lack of much further dilution?

Well, I think obviously this is a brand new acquisition for us so we are going to take some time to digest it and it is a fairly significant acquisition for a company our size. But we continued to look for work and we will participate in strategic acquisitions if we can identify the right kind of things is another channel for growth. So I think that our organic growth and particularly with this acquisition we are very well positioned to grow quite nicely over the next several years. I think but at the same time, it’s the timing when the right acquisition comes along that would continue to enhance our capability whether that be from an assembly capability or moving up the food chain type thing or whether it is just a scaling type opportunity if it’s the right opportunity and it has the right type of financials associated with it we wouldn’t shy away from it.

Okay. I guess finally I might say speaking of acquisitions, do you consider yourselves a potential market with the expanded from – to someone in the semiconductor or a sensor business?

I won’t – I don’t know what other people think. But I will tell you that we are not considering ourselves for sale.

I am glad to hear that. I am very impressive what you have done and wish you guys great success.

Thank you very much.

And our next question today is a follow-up from Matt Koranda of ROTH Capital. Please go ahead.

Hi, guys. Just a couple of kind of housekeeping items, I wanted to see if you can maybe provide a little bit of color or outlook on sort of are there any other sort of one-time items or purchase accounting items in the next quarter associated with ISP like step up the fair market value of inventory and sort of how should we be thinking about that?

No those types of adjustments have put – have been put into these preliminary numbers.

Okay, got it. And then the integration expenses I think you guys called out $125,000 of integration expenses, just wanted to see if you could be a little bit granular in terms of what that consisted of and is that going to recur through the remainder of fiscal ’17 or is all of that essentially done now?

Yes. That’s essentially done, those weren’t integration type expenses. Those were expenses pertaining to the acquisition of ISP, so they are mostly professional services, lawyers, accountants, consultants that type of expense.

Okay, got it, alright. And then end of period share count, can you share just sort of basic and diluted end of period if you would?

Yes. We typically have – we have 23.7 million shares outstanding, but for purposes of the weighted average is that what you are asking for?

No, end of period?

End of period, yes. So 23.7 million shares.

Got it, okay, perfect. Thank you.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. In conclusion, we appreciate the support of our shareholders and the dedication of our global team at LightPath. The team has significantly expanded with the acquisition of ISP Optics. We have made impressive progress on the integration of synergies that have part of our growth leases leading to this acquisition. With our expanded global presence that has been bolstered in scale and scope, we remain focused on our efforts to drive diversified revenue and growth and continue to drive benefits from the leverage in our business to further improve our profitability and generation of cash flow. Have to learn more about our global growth plans, please join us at the ROTH Capital Conference in California next months. Details on our presentation will be announced shortly. So thanks again for participating on today’s conference call and we look forward to speaking with you next quarter.

Thank you, sir. Today’s conference has now concluded. And we thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.