Good afternoon and welcome to the LightPath Technologies Fiscal Year 2017 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 Dorothy Cipolla, Chief Financial Officer. Please go ahead.

Thank you and good afternoon. Welcome to LightPath Technologies Fiscal 2017 Fourth Quarter Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted to our corporate Web-site. Today's conference call 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 would be realized. In addition, we will also be making 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 continued interest in LightPath. I will open with an overview of operational results, highlights, and recent developments, and then we 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. Before going any further, I'd first like to note that our thoughts and well wishes go out to those impacted by the recent hurricanes. With Harvey and Irma, we have seen unprecedented disruption and destruction to life and property in the Southwestern and Southeastern United States as well as in the Caribbean. Irma was such a large storm that at one time it covered the entire state of Florida, and as such the entire state was impacted. LightPath's headquarters in Orlando, Florida was left without power due to Irma from Sunday night, September 9. In advance of the storm, we implemented a prepared strategy which involved reallocation of certain manufacturing to our other global operations and had full IT backup and redundancies in place for remote management. To the extent possible, for about seven days before the storm, we accelerated the production and shipping of orders that had been scheduled for our Orlando facility. Given that we do not expect to get our power restored until this weekend, there could be some impact to our Q1 results in 2018, although we do think it will be minor. As for the fiscal fourth quarter ended June 30 that we are here to discuss today, we are pleased to report very strong financial results. We delivered significant growth in key performance metrics, including revenue, earnings per share, cash flow, adjusted earnings before interest, taxes, depreciation and amortization or adjusted…

Thank you, Jim. First, I'd 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 in our annual report on Form 10-K, which we'll file today with the SEC. I encourage you to visit our Web-site at lightpath.com, and specifically to the section titled 'Investor Relations'. Before reviewing the financial performance and operational details from our fiscal 2017 fourth quarter, which ended on June 30, I want to remind everyone that the acquisition of ISP closed on December 21, 2016. Simultaneously, with the closing of the acquisition, LightPath completed an underwritten public offering of 8 million shares of its Class A common stock for a portion of the purchase price of the acquisition of ISP. This offering is the primary reason for the change in our outstanding share count from the end of year. Now, on to the results for the fiscal 2017 fourth quarter; revenue for the fourth quarter was $9 million, an increase of approximately $4.3 million or 90% as compared to $4.7 million in the prior year period. The growth is attributable to an approximately $3.5 million increase, or 544%, in revenues generated by infrared products, primarily attributable to ISP; an approximate $550,000 increase, or 40%, in sales of high volume precision molded optics or HVPMO lenses; and an approximately $318,000 increase, or 17%, in sales of low volume precision molded optics or LVPMO lenses. The substantially higher revenues were only partially offset by an approximately $84,000 decrease, or 12%, in revenues from specialty products, due to orders from one of our defense customers who experienced reduced demand for its products. Moving to our geographic revenue mix, 37% was from the United States, 26% was from Asia, 27% was from Europe, and…

[Operator Instructions] Our first question comes from Matt Koranda with ROTH Capital. Please go ahead.

Maybe just one housekeeping one to start off with, could you help us break out for the infrared products, I know you provided the revenue, but could you help us understand what was core LightPath IR product versus ISP?

I don't think we can. Do you have that, Dorothy?

Yes, you want it for the year or the quarter?

Just for the quarter would be great.

All right, okay, give me a second and I will get it for you.

Got it.

For the quarter it was $243,000.

Okay, got it. So core LightPath $243,000, ISP made up the difference, so that's essentially – and then you guys gave, was it $3.5 million of – or sorry, $4.1 million of infrared product?

In the total, correct.

Okay, got it, all right. So, that still means organic growth is running somewhere around in the high-teens essentially by my calculations. Is that roughly right?

Yes, I think it's around 18% – well, total growth was around 18% I think.

Right, okay. All right, got it. So, in terms of the backlog, I was looking at the 9.3 and I think that suggests somewhere around $7 million in order flow during the quarter. Could you just help us sort of set expectations about where that order flow should be during the first half of this fiscal year that we are in now? I know you mentioned that there are some annual contract orders that you would expect to kick in here. Have you received any of those yet during the first half of the year, when would we expect to see them, and then what does that mean for sort of quarterly order flow cadence? Should we bump up above that $7 million and get toward the double-digits or what's sort of a reasonable expectation here on our end?

I think, Matt, first to all, we are not through our first quarter for 2018. I mean it's, so you're I think talking calendar year and we are talking fiscal year, so we need to get on the same calendar I guess. And we really don't want to give a lot of guidance. We don't give guidance. But I do think the kind of growth rates that we saw last year, we expect it will be in those kinds of growth rates for the business. We have incorporated now the effect of ISP acquisition, and so now we are going to start seeing pretty decent growth rates. We'll have a little bit of further impact from the acquisition because we'll have a full year instead of half a year of ISP, right. But I think from an organic growth point of view, what we have put out in the past is, it will be in that 20% range, plus or minus 3% to 5%, something like that.

Okay, got it. So, no change in terms of the expectations for the organic growth rate going forward?

No, but I do think we may see some cycling a little bit. We're seeing some shifts in the telecom sector, as I think you are pretty aware. That seems to be slowing a little bit and we are shifting some of our product growth into some other areas. So I think our growth will continue. It may not be as much of the telecom as it has been in the last couple of years.

Got it, okay. And then just in terms of those large annual contracts, coming back to that one more time really quickly, what are those generally associated with? Can you help us understand, is that more on the infrared side or is that more on the traditional high-volume/low-volume PMO stuff that you do? Help us just understand sort of where the lumpiness lies in the business.

I think the contracts, the largest ones that we have are associated with the infrared business and predominantly with the ISP products, even though some of those contracts are involved with molded product as part of it. I mean some of the large contracts we have that are in the sporting equipment area involve both segments, some of the diamond turn product from ISP as well as molded product from the core business of LightPath. But that particular contract we probably, we expect it in late October or early November. So the other parts of the business, predominantly the precision molded optics, the core businesses still remains predominantly a purchase order business from the contracts. So we do have some blanket orders that come in on a quarterly basis, but they are not annual type deals, more like quarterly deals. Although with some of the larger customers, we are starting to see propensity to move more towards larger annual contracts that involve multiple products.

Okay, that's helpful. Just an update on cross-selling, you just mentioned in your response to my last question, the sporting equipment contract that involves both turned and molded optical components, but just wanted to get a progress report or a status update on sort of your efforts there as it pertains to winning new customers, and should we expect to see more wins announced this fiscal year or is that something that's going to take a little bit longer? I mean, my understanding was I guess it will take a few quarters from the time they integrated ISP, but how are we feeling on that front?

I think the opportunities are there. We are certainly pushing it, particularly in that line. I think there are good opportunities with it, and as people get more comfortable with our capabilities and our expansion that we did with the ISP acquisition, I think we'll see that occur. It's still building and I think it's still going to take another quarter or two to flesh out.

Okay, got it, then a couple of more quarters here. And on OLE, I guess it sounds like you guys are particularly excited about that development effort that you are working on with them. I think you've mentioned on the last call as well as this one. But you've said sort of don't expect much in the near-term. What is fair I guess in terms of factoring in meaningful revenue from that opportunity? Should we see it in fiscal 2018, should we see it further out, is it a couple of years out? And then what particular products do you think would be impacted by that the most? Is it sort of the PMO traditional optical components that you make or is it some of the infrared stuff that you have been developing?

I think, as I mentioned, those are in – we are supplying prototypes and those kinds of things to multiple customers there. Those products, the products that are involved have to do with Fiber Delivery Systems. So, it will tend to be more collimator type products which are a higher-end product. Although there are also some molded lenses involved with some of the applications. So, it's really the PMO on a smaller scale but the larger part of those types of developments are around collimator type products that we build.

So those collimator products would be reported in the specialty product line.

Yes.

Got it, okay. So, if we are going to model the impact, it should be on your specialty products. And then, just Jim, I don't know, the timing-wise, just help us kind of gauge sort of when – if successful in some of the development efforts, is it reasonable to assume that we would see some revenue, some commercial scale revenue this year, or is it something that's sort of coming down the pipeline in later fiscal years?

I think there will be some small production level starting in the back half of 2018, our fiscal 2018. But the bigger volumes I think will approach in 2019 to 2020.

Got it, okay. You mentioned Irma and just sort of the impact to your operations. Is there just, for modeling purposes, I mean could you help us just quantify the impact a bit more there? I mean, what should we be expecting for your fiscal Q1 and sort of how this temporarily impacts you? And then, I would assume you guys essentially just make up the difference in the next quarter, but help us kind of game out or think about how the impact flows through your P&L over the next quarter?

I think the good news, Matt, is that we didn't suffer any physical damage to the buildings or equipment, so we don't have any of that kind of concern as a result of the storm. The only issue we have is getting the power restored to the Orlando facility. Now, the majority of our products are manufactured in other locations and we tried to shift a lot of, as much as we could, to those. We also tried to shift as much early as we could, ahead of the storm. Several, particularly several of our distributors and catalog houses were very interested in taking anything we could give them before the storm hit. So, we are fortunate from that standpoint. I can't gauge the size of the impact here in Orlando until I know when I'm going to get our power back. I don't envision – I mean what the power company has told us is that by this weekend we should have it back. Now whether that means Saturday or Sunday, I don't know. That means that we've lost about four to five days operation, which we should be able to make up from the standpoint of shipping once we get the stuff in-house. And our China facility is cranking it up, our Latvian facility is cranking it, and so is our New York facility. So, I think the impacts will be relatively minor and will certainly be made up in the following quarter. The timing is unfortunate, because we do tend to ship heavily at the end of our quarters, which September is. And so, it's going to be hard to gauge that very much, but I think it is a very temporary impact which we will recover very quickly in Q2.

Got it.

I don't know how to give you a better answer, Matt.

No, that's sufficient, that's helpful. And then, to your knowledge, Jim, I guess any large distributors or customers that you would typically ship to that were impacted by any of the events by Harvey or Irma, and if [indiscernible] into the future in any way?

Not to my knowledge, no. No, I don't think so. I don't think any of our customers or bigger distributors, those kinds of people, we have not heard of any impacts there from this type of storm. So I think it's relatively limited. Fortunately, from our point of view to just our office here in Orlando, and from an office point of view, we are able to operate remotely. We didn't delay our costs as a result of the storm, for example. We were able to do that and file things as necessary. So, the sales impact, the sales guys are also working. They are all working out of their homes and wherever they can. So the office side of it is minimally impacted. It's just a little bit of production that we do here. And as we did, we had really accelerated our tooling deliveries, particularly to a Chinese facility, ahead of the storm. So they are in good shape and they have not been impacted from a production scheduling point of view in terms of what they needed that comes out of Orlando. And if we get going the end of this week, we'll make that up very quickly. So I don't anticipate that to be too big a deal.

Okay, good to hear. Maybe just one more and then I'll leave it. On the balance sheet, I mean very strong cash balance here, guys, and potential for I guess either accelerated debt repayment or some interesting acquisitions out there. Could you just talk about priorities for cash deployment and sort of where you see deploying cash over the coming maybe 6 to 12 months, and do you see that being allocated toward accelerated debt repayment or more toward acquisitions that look interesting to you, or other priorities?

I think where we will focus the excess – I'll call it, it is probably a bad word, excess cash or some of that cash is into investments for the growth of the business. We have multiple opportunities here, from making sure that we have the right capacity in place to stay ahead of the volume requirements that we see coming from the different opportunities that we have, as well as we are also trying to put the right assets in the right facility to make sure that we continue to manage our costs down. So, we are really trying to do two things with that, ensure we have the capacity for the volumes, as I said, and ensure that we continue to cost-reduce our manufacturing, and one of the ways we do that is making sure we have the right capabilities in the right place, whether that's Asia, Europe or North America. So that's the first priority for some of the cash from a capital investment point of view. So we are doing some things along those lines to make sure that we are positioned properly to take advantage of these opportunities that we have. Now, it's pretty exciting to me when I look at the different market segments and the diversification that this Company has. For example, we see some really good opportunities in the defense sector, and we have the products to do it, whether they are diamond turned assemblies or elements as well as molded elements and assemblies. We can do windows and things like beam-splitters, the collimator products that we mentioned, all fit very nicely in the defense sector, whether that's missile systems or night vision applications or aiming and illumination, those kinds of things, or even with some training application. Automotive is another sector…

Okay, got it. I lied. One more maybe, just Dorothy, I was curious if you could help us understand sort of the net impact of the changes in currency that have been happening recently and sort of how that may impact the business? It seems like net-net, a strength in the Euro, that would be a benefit to LightPath, but also if you could give us the puts and takes on the Chinese Yuan and just where things stand and how that impacts the business for the next year, that would be helpful.

Right. For the year, the impact of foreign exchange was a hit, an expense of $78,000, and last year it was a pickup of $370,000. So, it's very definitely related to if the dollar strengthened or weakened. And it's mostly the impact that the inventory and fixed assets in the country have, now that they are being revalued, it's basically that. So, as you say, I think what we're kind of seeing right now is maybe one of the currency is going in one direction and the other one going in the other. So, I'm thinking the exposure is mitigated with that, a little bit that way. It's hard to predict where they will go, but it's really the impact of revaluing the assets and inventory.

Okay, all right, got it. I'll leave it there, guys. Thank you.

Thanks Matt.

[Operator Instructions] This concludes our question-and-answer session. I'd like to turn the conference back over to Jim Gaynor for any closing remarks.

Thank you. In conclusion, we appreciate the support of our shareholders and the dedication of our global and expanding team at LightPath. With our strengthened presence around the world, we remain focused on our efforts to drive top line, bottom line and cash flow growth. Thanks again for participating in today's conference call and we look forward to speaking with you next quarter.

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