Good afternoon, and welcome to the LightPath Technologies Third Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note today’s event is being recorded. I will now pass the call off to Donald Retreage, Chief Financial Officer of LigthPath Technologies.

Good afternoon. Before we get started, I would like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations and involve various risks and uncertainties that are discussed in the periodic SEC filings. Although, the company believes 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, references may be made to certain non-Generally Accepted Accounting Principles, or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases. Following management discussions, there will be a formal Q&A session open to participants on the call. I would now like to turn the conference over to Sam Rubin, LightPath's President and Chief Executive Officer. Go ahead, Sam.

Thank you and good afternoon. Welcome to LightPath Technologies fiscal 2020 third quarter financial results conference call. Our financial results press release was issued after market close today and posted to our corporate websites. Following my remarks, our CFO, Donald Retreage will further review our financial results and provide more perspective on key areas. We will then conduct a Q&A session. Now onto my remarks. I'm pleased to be able to conduct my first conference call with LightPath at the time when our quarterly financial results showed consistent improvement in many areas, as compared to prior year period and for most performance measurement as compared to second quarter of this fiscal year. All things considered, we find the results to be satisfactory, given the global economic conditions and the challenges some of our customers, employees and suppliers have been facing as a result of the COVID-19 pandemic. In line with previous updates regarding our operations during this time, as a designated essential supplier of the medical industry, all our manufacturing facilities in China, Latvia, and the U.S. remain open and production has been ongoing without any interruptions. Our global workforce has risen to the occasion to deliver solid financial, results while continuing to support customers new and recurring alike, and while keeping our workplaces, their communities and their families safe. And while we deal with current impact of the crisis on our daily lives, corporations, government entities and educational community alike are developing strategies surrounding this new norms in connection with life during and after COVID-19 and what might be required to support us going forward. In terms of LightPath products, this pertains specifically our infrared lenses used in temperature reading, heat imaging and sensing technologies. During the third quarter, we announced an awards totaling more than $1.7 million for…

Thank you, Sam. Also I would like to mention that much of the information we're discussing during this call is also included in the press release issued earlier today in our 10-Q filed with the SEC. I encourage you to visit our websites at lightpath.com and specifically the section titled Investor Relations. Now, onto my remarks pertaining to the third quarter of fiscal 2020. Sam's remarks covered a lot of our financial performance, so I will specifically discussing key performance areas. Revenue for the third quarter of fiscal 2020 was approximately $8.7 million, an increase of approximately $803,000 or 10% as compared to the same period of the prior fiscal year. IR product revenue was $4.3 million or 50% of the total, up 12% from $3.8 million or 49% of the total in the prior year period. Visible precision molded optics, or PMO, product revenues were $3.9 million or 44% of the total, up 15% from $3.5 million or 42% of total in fiscal third quarter 2019. The balance of our revenues in the respective periods were from specialty products and non-recurring engineering projects, which vary greatly from quarter-to-quarter, but are substantially smaller contributions to our consolidated revenue. With respect to our margin profile, generally speaking, PMO products are small and almost entirely molded, so we have faster turnaround times, higher volume applications, and more automated processing. Due to these attributes, we historically have had margins averaging in a 40% to 50% range, 50% range. The IR product group represents a larger and faster growing market opportunity with gross margins lower than PMO. IR margins have historically been in the 20% to 30% range, with our new molded IR lens, which use our proprietary entirely developed BD6 material are on the top side if not able to go higher with…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Marc Wiesenberger with B. Riley. Please go ahead.

Thank you. Good afternoon and Sam, congratulations on your new role. I was wondering if you could maybe talk about some of the order trends that you're seeing in the beginning of April and May, relative to the orders you guys are seeing in February and March.

Sure. Thank you first of all. We're seeing definitely a continued growth in the 5G, I think that is a long-term plan that has been created and executed in different areas, primarily in China that they clear about the plan and have communicated publicly how much investment is going to go into that. And therefore, the trend on the orders really follow what has been communicated publicly for the majority of parts. On the infrared, we see what is still a strong demand in requests for us to increase capacity and deliver more lenses to go into the contactless temperature measurement. At the same time, we're seeing -- we're starting to see more potential players looking into developing temperature measurement devices and acquiring -- if it's -- still at small quantities, devices and lenses to incorporate into their designs. It is still difficult to know how much of this temperature measurement growth that we're seeing is sustainable and for how long. It could be growing much more as we described earlier, if really many locations started rolling out temperature measurement devices in their facilities, and it happens to be that our customers are the ones that would be providing those temperature measurement devices. It's also could be, at the same time, we're looking at the spike of six months and then six months everyone will have enough measurement devices, something might change regarding the virus, who knows. And then the characteristics of that market will change from our point of view.

Understood. So, maybe if you could boil that down to kind of how should we think about maybe growth in your fiscal fourth quarter, as well as maybe what are your longer term expectations for growth of the business and maybe some of the respective verticals.

Hi, Marc. This is Donald. We expect our growth trend to continue. The question that we ask, let's address fourth quarter first, because it's liquid, as I mentioned and hopefully we do not have any more close. We expect this trend on the third quarter to continue in general, as far as the growth is concerned, which is showing overall between of 5% to 7%. Again, that's extended to the second -- the first and second quarter in 2021, all -- again, how all this is going to plan out.

That's helpful. Thank you. And maybe can you talk about the pricing environment across your products what you're seeing and the dynamics at play that might be continuing over the next few quarters?

Well, as you know, we have this mix that traditionally we go through. Our PMO or precision molded optics, is holding its own. The price is generally declined. They decline anywhere from 10% to 18% on the average. That has been for the past three quarters for several reasons. Even though, we may still be enjoying high margins. Competition is one, and hopefully now with this, we'll have less competition, because a lot of businesses are closing or manufacturing less. But that's -- as the volume goes up, traditionally the ASP goes down a little bit. IR is difficult, because as you know, our molded, it's a little higher than the PMO average pricing, but far less than the IR and is volatile in the sense that we do a huge lens $200 and we do a lens half that size and it could be $50. But we see the trends for IR stabilizing or at least increasing getting better as the demand increase.

Yeah. That's really helpful. And just on that point, the elevated PMO clearly helped the gross margin along with some other things. Should we think about these kinds of mix and trends continuing over the short-term and the kind of gross margin level as well remaining kind of at this elevated level.

First, this third quarter elevated level is due to the full capacity. The efficiencies that we have were at full capacity at least from our PMO end getting to the rest. The second part, as you know, the closing of the New York facility did give us some savings. That all being said, I honestly don't expect a 46% as we saw there, as published out there. But I see us in a low 40s, it's quite possible that we'll keep everything again, if no businesses are closed and our orders continue similar to Q3, which we expect everything be normal.

That's helpful. Just two more from me. Talk about the supply chain issues that maybe you're running into as a result of COVID-19. And then the final one would be, you have mentioned increase in demand for new customers. Do you think you'll be able to leverage the relationship to expand sales into other product categories? Thank you.

Sure. In terms of the first part, the supply chain, there were some short-term impacts that we saw in China at first, while different parts of the country were under different situations or conditions. And at which point it took some vendors time to give backup or get all the employees back in or resume full operations after the Chinese New Year and the closures they had there. We have been seeing some similar things with some vendors outside of China. For example, in Mexico, we've had one vendor that was required by the government, they're closed down their facility early for awhile. We've had -- we've had vendors here in the U.S. that have had to scale back the operation, scale down operation to even support how many people they can have to clean the building or just how many people can come in and operate. For the most part, this has not affected us that much. The couple of vendors where we have been -- hasn't been able to get parts from, we have alternate vendors for. We have a team here that looks regularly at the different risks and how things unfold and goes out and finds vendor where needed -- vendors where needed. The only other effect is the supply chain is the shipment. And this is both because the shipping companies have to scale back the operation and because like us, many other companies want to expedite shipping or want to get faster from place to place. So, for the most part, the shipping carrier, that we use, have some delays. Those delays typically on the order of adding one or two days to shipments, with the exception of one shipment that took a bit longer. But again, we were able to recover from that quickly. The second part of your question, sorry was?

In terms of -- you mentioned demand for new customers leveraging that.

Yeah. It's definitely interesting. For the most of the IR and the PMO are fairly separate in their customer base, in a sense of -- in a technical perspective, those are different wavelengths, typically are used for very different things. What we're seeing is that the thermal measurement segment is getting attention on many players in the field. Players that believe that they can leverage the knowledge they have in infrared imaging going different aspects of optics to now develop thermal tested measurement devices for measuring contactless temperature. All of those have some business in optics already. Many of them have significant business in the infrared. So, there's definitely a very good potential there to engage with those customers in other parts of their businesses as things unfold.

Very helpful. Thank you. And best of luck.

Thank you.

[Operator Instructions] We show no further questions. I'd like to turn the conference back over to Mr. Rubin for any final remarks.

Thank you. To conclude our third quarter 2020 conference call, I'd like to leave by reiterating our focus on building upon success achieved thus far in this year. While remaining grounded is the realities that face all businesses and at the current and present environment, LightPath is well-positioned to address the challenges and opportunities that lie ahead. I'd also like to thank our employees that continue to work hard and deliver products needed for the fight against the COIVD-19 and continue to come to work and perform their duties in an exceptional way. Thanks again for participating on today's conference call. We look forward to speaking with you next quarter.

Thank you. This concludes today's conference call. You may now disconnect your lines, and have a wonderful day.

Thank you.