Okay. Hello, everyone. My name is Austin Moeller. I'm the Aerospace and Defense Analyst here at Canaccord Genuity. Today we are joined by Sam Rubin, the CEO of LightPath Technologies. I guess just to start off, Sam, if you just want to give everyone a brief overview of LightPath and your business model and your product lines. Yeah. LightPath is a technology company in the field of photonics, optics, photonics, depends how you want to call it. Specifically, we focused on infrared imaging or thermal imaging. We're a company in transition. Up until five years ago, we really were completely on the left side of this map, making individual optical components. That was the history of the company for 35 years before that. For the last five years, we've been moving to the right side of the map, starting from doing optical assemblies all the way to complete camera systems. With that, a transition in the end markets, moving away from telecom and less commercial and far more into defense. Today we're positioning ourselves as one of the prime leaders in the area of infrared imaging with a very heavy focus on defense applications. Can you discuss the company's evolution from being primarily a component supplier into becoming more of an imaging systems designer and producer like the Mantis, and what the expected margin accretion might be from that transition? Yeah, absolutely. When trying to do such a transition, I mean, this isn't, we're not the only ones trying to do this or doing it. Many companies have always wanted to move from the component up the value chain. What you need really is a value proposition, a reason for the customer to answer the phone when we call him and say, "Hey, instead of buying lenses, we want to sell you the complete solution." In our world, that comes from technologies, from technological differentiators. More specifically, LightPath has some very significant strengths in material science, in fabrication, and in overall system design. We leverage those. We expanded quite a bit on the material science with our BlackDiamond materials that not only replace germanium, but also provide significant technical advantages in system designs. Using that, we started stepping into that market through some differentiating capabilities, through some unique product offering. Our first camera solution called the Mantis was combining mid-wave imaging with long-wave imaging, something that typically requires two different cameras to do it, two separate cameras. With that, slowly made our way into the market to this point where now the camera solutions and assembly solutions are well more than 50% of the business. Can you also discuss LightPath's level of vertical integration and how that's changed over time relative to other manufacturers in this market space? Absolutely. When it comes to vertical integration, we own a very unique value proposition, and that is in the actual optical materials, the glass. Typically, in infrared imaging, the number one material used to make the actual lenses is germanium. Germanium mostly comes from China. China has stopped selling germanium to the U.S. altogether. Having this vertical integration, having those materials in-house, and being the main supplier in the U.S. at this point of optical materials for infrared is an amazing positioning at this point. In addition to just being able to secure our supply chains, which is becoming a big issue today for everyone, having secure supply chains, we also have materials that are very, very unique and allow us to build cameras that differentiate compared to competitor cameras from FLIR and others. One example for that was last week when G5 Infrared, our subsidiary, announced that they redesigned two of their cameras to completely remove germanium and use our materials instead. G5 is now in a position of being, as far as we know, the only company making high-end long-range zoom cameras that do not require any germanium whatsoever. It is something that gives them a supply chain security. Being a first market there, we anticipate that that will win us quite a few new design wins. I think that makes for a good transition into discussing BlackDiamond glass. Can you talk a little bit about your BlackDiamond glass product and how it differs from using your germanium-based camera optics? Absolutely. There are two things here to consider. First of all, germanium is a naturally occurring material that needs to get mined and refined and processed to reach the germanium crystal or germanium metal at the end. Therefore, the supply of it is driven by the mining and refining of it. The glass we make is glass, which means it is not one material. It is actually a combination of multiple materials, multiple raw ingredients in it. It also means that scaling up production of it means just adding more furnaces and melting more glass. That by itself is already one big difference. The main differences between this material and germanium are the properties. Because these materials are produced in production, not grown out of a crystal coming out of nature, one can alter their properties. With it, we have materials that were designed originally at U.S. Naval Research Laboratory, which properties were optimized to achieve better performance than anything else out there. You see that where, for example, a system on the bottom right corner that used to include 21 individual lenses in it when one could only use germanium and silicon and other materials. Using our new materials, the number of elements goes down to 12. Going down from 21 to 12 means half the weight. It means lower size, lower cost. It means more optical performance. Very significant advantages. The second part there is what is called multispectral imaging. Today, when you look at a payload like this on a drone, you will see multiple cameras inside one payload. Those cameras are different types of infrared cameras that do different functions. One of them is thermal imaging. One of them sees through clouds, for example, and others. They're different cameras because the glass is different. The glass that is used for a thermal imaging camera cannot be used for a shortwave infrared camera, which sees through clouds as an example. These materials can do all of it. We can now combine what used to be, until now, multiple cameras into possibly just one or two cameras. Another massive reduction in size, weight, power, everything anyone ever wants really in the defense world. Leveraging those capabilities to become a camera supplier was a very natural step at that point because we can now make cameras that are better than what's available elsewhere and with a secured supply chain. Can you detail how you expect the revenue to shift towards defense from industrial applications in the near term versus the LightPath model in the past? Five years ago, when I took over the company, defense was 8% of the business. The majority of the business was telecom. 35% of the business was China. This was telecom companies or other industrial manufacturing companies in China integrating the individual lenses that we make into their systems. Today, China is less than 5% of our revenue. We replaced all of that revenue with defense revenue in the U.S. Defense is now more than 50%. 60%. 60% of our revenue. Thank you. The U.S. by far is 70%+ of the revenue, so a very significant shift. If you look at our top line numbers, you don't see it because during those five years, what you see is what looks like a flat growth. In reality, it is going away or saying goodbye to 20%, 30% of the revenues that was coming from China and replacing it with new revenue from the U.S. and from the defense. This is far better revenue. It's revenue that is driven by units that have ASPs in the thousands or tens or hundreds of thousands of dollars. It's driven by defense business, which gives us much better long-term security and stickiness and is far less sensitive to pricing. We're far less commoditized than we were before. How might your systems fit within the counter-UAS integrated payload market? Yeah. This is probably our number one growing market at this point. In the last few months, we've seen probably around $10 million, slightly short of $10 million, of new orders of cameras just for counter-UAS. The ability of a long-range zoom camera to, I'm not sure which slide it is in here, but I think we have it somewhere, to zoom in and see a drone, in this case, a pocket-sized drone from a mile away, where at first, before the camera zooms, you can't even see it there. It could be, yeah. If you're in New Jersey. The ability to detect drones like that from a distance passively without emitting any signal is really what everyone is after right now. Lessons from Ukraine to everyone is you can't turn on a radar to detect a drone. You become a target within seconds of turning on the radar. You have to have a passive system that cannot emit any radio signal, any infrared, any signal whatsoever, and detect the drones. This is infrared cameras. Long-range infrared cameras, such as the ones that G5, our recent acquisition, does, is the way to do. G5 has a whole range of cameras. Some of them are without germanium completely. With it, we have won some major contracts in the Navy, in Border Patrol, and now some significant work being done in counter-UAS. Can you discuss the exclusive licensing of your BlackDiamond glass to the U.S. Navy? Yeah. The glass was developed at the U.S. Naval Research Laboratory, and we received an exclusive license for it. The cost of the license was a joke, like $10,000. The royalties we need to pay are very, very small because this was really something that was developed years ago in the Navy for uses of the Navy for doing multispectral imaging, for reducing dependence on germanium, everything I described. It does not help them if it's not commercialized. The Navy came to us to commercialize it because we were pretty well known already for making the glass and for our shift towards infrared. It fit very nicely with what we needed. It just so happens that it fit perfectly with the geopolitics and the lack of supply of germanium now. I wish I could take credit and say I really knew this would happen this way, but it happened, and it's ours now. The license is completely exclusive. With it comes the right of first refusal on any new materials coming out of NRL. The license renews automatically into perpetuity. It's just an incredible tool for us right now. I think when I visited your facility and we walked the production floor, you had two pieces of equipment there on the production line that you had said that essentially you have some of the only ones in the country. Do you know what I'm referring to? Yeah. The refractometer for measuring refractive index, purchased by the federal government with tax dollar money to support us. This is part of the beauty of this, because these materials are so critical to the supply chain and to future capabilities of the U.S. Department of Defense. We get some significant support from them, including millions of dollars in funding and equipment to help us commercialize those materials, to put them through the testing. We have a partnership with the Defense Logistics Agency, Strategic Materials. Those are the guys in charge of stockpiles of key materials, and they work with us hand in hand to accelerate the adoption of those materials. Could you discuss your contract on the SPEAR program? Yeah, definitely. One of the two most exciting contracts we have, I think, if I can find it. Here we are. This contract, which is a fully awarded program of record exclusive to us, is to install infrared cameras on every naval surface vessel, two cameras per vessel. We expect this to start low-rate initial production in the next six months or so. We got already awarded it. We announced it, I think, in March or so. We expect this to bring us about $10 million- $20 million a year of repeating revenue for the lifetime of the program. Programs like this usually are 10, 11 years, followed by supplies and repairs and refurbishing. If we think about your entire product portfolio, when do you expect BlackDiamond glass-based optics to be able to fully replace or offset the germanium-based optics? I think we're starting to see that. Last week's announcement where we ourselves designed two of the G5 cameras to replace germanium is a prime example of that. We have another contract with a defense prime, which we can't provide too many details on, but in which the BlackDiamond plays such a critical role that that defense prime has actually funded equipment for us to scale up production and to have production capacity dedicated just for them. That one is a pretty accelerated program because the material is replacing germanium and others in an existing design, but is improving the performance of that airborne system significantly. This is on a very accelerated timeline. They're actually going to do flight tests, I think, soon, and it's going to scale up pretty nicely for us. I would assume if there's a U.S.-China trade deal that resolves the export restrictions on germanium, that it's still your intent to fully transition to BlackDiamond glass over time. Yeah. I mean, I think there are two things at play here. One is, you know, everyone got bitten by this and understands now the dependence on China for those materials and wants to resolve that and don't want to be in that situation again. It's going to take years for the U.S. to set up germanium manufacturing. It's not something that can be done overnight. Secondly, as we've seen in some of the examples I've shown, once you redesign with those new materials that simply were not available before, you can get far better performance, lower weight, smaller systems, better range altogether. As we see it, anyone that started to redesign and is already seeing the benefits and went down that path doesn't have a reason really to go back to depend on germanium so much. Now, don't get me wrong. There is room for that. I mean, in an ideal world, if the supply of germanium was available unlimited, both BlackDiamond and germanium would coexist because you can then get the best of both worlds. With lack of germanium, 25% of the germanium the U.S. imports goes to the optics industry. We can solve that 25% with our BlackDiamond. The other 75%, I don't have a solution for, but at least whatever germanium is available would be available for those industries. Are there any significant performance differences in imaging between BlackDiamond and germanium-based optics? Yeah. One of the biggest advantages of BlackDiamond is optomechanical performance or mechanical performance altogether in varying temperature changes. When the temperature changes, any material changes its properties. We see that on bridges and so on, expanding, shrinking, and such. It's not different in optics. When the temperature goes up, what's called the refractive index, the optical power of the lens changes. Germanium is extremely sensitive to temperature changes. When the temperature goes up, a camera that is using germanium loses focus, so to speak, and it needs to be retuned or refocused. If this is a handheld unit held by a soldier, that's not a big deal. The soldier just goes and refocuses the camera, the binoculars, or whatever he's using, and that's not a big deal. If it's on a drone and that drone is sitting on the tarmac now and it's 100 °F there in the desert and it goes up to 30,000 ft and all of a sudden it is 0 °F there, that temperature change gets the camera out of focus. To compensate for it, you have to add another motor on the camera to be able to remotely refocus it and adjust for that. These materials don't have that. Not only don't they have that, some of them have the opposite effect, meaning when the temperature goes up, their index goes down instead of up. They can suddenly completely compensate passively. This is part of the beauty of what makes these materials so attractive to so many airborne systems. Anything that flies needs to withstand significant temperature changes. If you need to refocus everything all the time, every time the temperature changes, that's not only a pain in the behind, but that's actually a pretty significant cost that you add to the system. You add more equipment that you need there, a motor, you take more power consumption, more weight, everything a drone is sensitive for. Being able to design optical systems now that do not need to worry about temperature changes like that is a very significant advantage and why I'm so confident that even if germanium comes back fully, once people now are starting to see the real benefit here, we're going to be in there. Can you discuss LightPath's existing cash balance today and the expected capital needs over the next 12 months to support operations? Yeah. One can never have enough cash, to be honest. A growth company, even more so, we're going through tremendous growth. We're going to be reporting numbers next month. I can't talk too much about them, but we've very publicly said that after the G5 Infrared acquisition, we expect to nearly double in size in the first year. That takes cash. Al, my CFO here, is actually a master at managing our cash among the different entities and the different locations. We managed to do pretty well with that. Right as of now, or the last numbers we published, we definitely were fine. We have short-term debt, but we can convert that debt into equity if we want. We have enough cash and we're back to generating cash soon. We should be fine. That said, there are some significant opportunities ahead. In some of them, like the one prime that I mentioned, we get funded by the customer, and the customer writes a check for equipment to make sure that we have whatever we need. In some of them, we need to put equipment. A lot of it we've already done. Two and a half years ago, we raised $10 million, which we invested in our headquarters in Orlando. We pretty much doubled the capacities there, increased the location. It's a beautiful place. Anyone that wants to visit is welcome. Short of an acquisition that might require it or any major contract that would require us to put in cash, I don't see a need to raise cash in the near future. Okay. I guess could you go into a little bit more detail on what ultimately led to your acquisition of G5 and what is the timing that you expect for integration of that business fully into the existing product lines and related expenses? Yeah. G5 acquisition came, first of all, we set the direction where we wanted to vertically integrate and become more of a system company. We saw that we could do part of that internally. We developed our first camera, the Mantis camera, alone internally. We developed some others after an acquisition of a small company called Visimid Technologies two years ago. Ultimately, to make a very big leap in that direction, we needed to buy our way in to some degree. G5 team and LightPath team have known each other for a very, very long time in many different scenarios, even before they were G5 in their previous company and have worked together as far back as 30 years ago. We knew each other very well. It was a very good culture fit, and that is extremely important because cultures are what make or break acquisitions many times. It was a very good culture fit. The founders were, most of them, in their 70s or so and wanted an exit. They loved the direction we're going. They understood exactly the benefits they get from being part of the company that has BlackDiamond exclusively. It was really a great thing overall. Integration-wise, we're doing really well already. We're developing products together. Sales team is cross-selling each other already quite a bit. G5 also has an earnout, and they need to meet certain criteria in profitability and revenue to meet that earnout. We can't do a complete full integration yet because of that. We're very much along the way. We got very lucky in a sense that G5 uses the exact same ERP systems that LightPath uses. One part that anyone that has done operational integration knows, one part that could be very painful was avoided. Do I have any questions from the audience at all? Thanks, Austin. You have an ambitious plan over the next five years to grow the company organically. Can you just kind of explain what capital needs the business does need as it grows? Most businesses, when one goes from, pick up a number, you know, you add $50 million of revenue, you need a certain amount of working capital in order to facilitate that. I'm just trying to understand, what are the, do you have a rule of thumb for the working capital, CapEx, other sorts of needs you have when you incrementally increase revenues by, call it $50 million? Yeah, that's a great question to put Al on the spot here. We did the normal things in terms of working capital. You know, look at our cash cycle, our ratios, and then try to drive that down over and over and over again, right? Keeping that flow of the lifeline. As sales are going up, even the revolutions are still poor in terms of dollars, right? We have to keep a close eye on that. When it comes to CapEx, we do have an internal rule that CapEx has to be funded no more than 50% of EBITDA. EBITDA has not been positive in the last quarter or two. You don't get CapEx if you don't have EBITDA, right? It turns out we don't really need that much CapEx because we did the big spending two years ago. As a general rule, we do try to tie cash to a metric that makes sense out of production. Can I ask a question again? That wasn't the answer I was looking for. Pretend you are at full capacity today, right? You need to add capacity in order to grow revenues $50 million. I'm trying to understand how expensive CapEx is for you, the revenue you generate. When that client, you know, they don't pay tomorrow. They wait their time to pay. I'm trying to understand what sort of working capital you need to keep up inventory, taking account of receivables and all that sort of stuff. We're actually getting most of our customers to prepay for raw materials. They give us a warranty to prepay. There are lead times on a lot of raw materials that they've ordered. We're getting funded off the LOIs. We're getting funded off of prepaids. You don't really see that number so easily on the balance sheet. Certainly, that's a way. It also helps us in terms of locking into pricing on raw materials that might fluctuate. That's something that the customer wants. As Sam said, we happen to be in a good position, which two years ago was not the case, but it is now. We're taking full advantage of it by asking for 20% of prepaid or our funding to raw materials. Customers want 48-week delivery times and 14-week delivery times. We're just telling them you have to pay, you have to buy finished goods. You have to pay for it. We're not going to actually put money on the shelf. Yeah, I mean, we're in a very strong position right now, so we can afford to dictate that we're taking prepayments. You want to raise any time. Given all the factors you mentioned about, you know, some companies have negative working capital, right? They collect money first. You don't exactly, but given all the parameters you mentioned, again, if you grew revenues $50 million and you already were at full capacity, how much cash would you need? Or is the business really positive cash flow generative? The answer is yes. I don't want to give out too much. When it comes to cameras, scaling up production of cameras is mostly labor. The amount of equipment needed to now double the amount of cameras we do is very, very small. For $250,000, $500,000, I pretty much can get all the equipment, test and measurement equipment I need to double camera production or build another station. When it comes to more traditional LightPath, that used to be very capital intensive. Making lenses is pretty much gated by how many spindles you have or how many diamond turning and such. This is another part of why we're moving away from that, why we're going elsewhere. The only place left in terms of an area we expect significant growth that is CapEx intensive is glass. Making the glass requires more furnaces, requires more equipment, but it's not massive. I can double the amount of glass I make with a $2 million, $3 million investment. We're not talking about enormous numbers. The really big numbers would come if we would have stayed in a model where we're making infrared optics and every diamond turning machine costs $250,000 and can only make X number of lenses. We're not there. I think we're at the end of our time here, but thank you again so much, Sam, for coming to join us today and give us the latest on LightPath. Thanks for having me. I appreciate it.