LightPath Technologies, Inc. (NASDAQ:LPTH) Q2 2025 Earnings Call Transcript

LightPath Technologies, Inc. (NASDAQ:LPTH) Q2 2025 Earnings Call Transcript February 14, 2025

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Second Quarter Fiscal 2025 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. This conference is being recorded today, February 13, 2025, and the earnings press release accompanying this conference call was issued before the market opened today. I’d 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 involve various risks and uncertainties as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurance that the projected results would be realized.

In addition, references made by may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports in certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO, Sam Rubin will begin today’s call with an overview of today’s acquisition of G5 Infrared, a strategic overview of the business and recent developments for the company, while CFO, Al Miranda will then review financial results for the quarter. Following the prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to CEO, Sam Rubin.

Sam, the floor is all yours.

Sam Rubin: Thank you, operator. Good afternoon to everyone, and welcome to LightPath Technologies second quarter fiscal 2025 financial results conference call. Given the important news we announced this morning regarding the acquisition of G5 Infrared, I will be dedicating most of my remarks today to this topic. The acquisition of G5 infrared is a key and transformative event for LightPath and is a natural continuum of the strategic transition the company has been undertaking for the last few years. As a reminder, up until about four years ago, LightPath was a pure play optical components manufacturer. The core technology for LightPath up until that point, precision glass molding, was an innovative technology in the early 2000s, which gradually became commercialized and constantly commoditized over the last 20 years.

What was a leading differentiator for the company years ago has become, by 2020, a widely deployed technology with aggressive and ample competition, pushing LightPath out of the market. In late 2020, shortly after I joined and consequently built a new leadership team, we outlined a new strategy that leverages our differentiated into a more value added position with the goal to eventually become a solutions and subsystem provider, all of which is [technical difficulty] where we have strong domain expertise with the ultimate goal of becoming a systems supplier. We started the journey by first offering optical assemblies based on our optical components, then began to offer compact thermal cameras, such as our MANTIS multispectral camera. And later on, through the acquisition of Visimid Technologies in the summer of 2023, we added advanced capabilities in video engine and camera cores for uncooled infrared cameras.

The acquisition of Visimid also came at a critical pivotal point for the Visimid team, but shortly after the acquisition, Visimid and LightPath were awarded a large development contract with Lockheed Martin for a new missile program, a contract that has the potential to translate to between $50 million to $100 million a year in revenue from that one program alone. Similarly, though not as large, Visimid and LightPath have several other large programs in various stages, many of which have the potential of bringing more than $10 million a year in new revenue from each one of those programs. The addition of G5 infrared, as you will see, fits in naturally into what we have been building and is a logical next step in our journey. Not only do G5’s product complement LightPath’s products perfectly, but G5 is also at a pivoting point, about to be awarded some large lucrative defense programs that will be moving into LRIP.

LRIP is low rate initial production. We’ll be moving into LRIP very soon and from there, shortly into full scale production. So with this background now framing where we have come from and where we are, let’s dive into the acquisition itself. G5 was established in 2011 by a seasoned team that this was the second or even third time around. The first time around, DIOP, D-I-O-P, was a household name in our industry, establishing a big part of what was Axsys back in the mid-2000s and later sold to General Dynamics for $643 million in 2009. This highly accomplished team led by Lou Fantozzi are well-known in the industry as the ones that always deliver the highest quality, effectively gold standard cameras in long range imaging. These infrared cooled camera systems are used in places where extreme sensitivity of detection is needed, such as detecting people from miles away or vehicles or drones from tens of miles away.

And I will talk more about that later. And as is often the case in optics, just like LightPath leverages its BlackDiamond glass to make best-in-class optical systems and uncooled cameras, G5 also has its own optical coating service group, another element in the secret source of these high-end camera systems. These coatings are part of what makes their cameras perform the way they do, and this coating service offered to external customers also accounts for a highly profitable service revenue that makes up to 20% of G5’s revenue. These coating capabilities also fit very well with LightPath’s infrared components business and will be a critical capacity that will add a critical capacity to that of the LightPath’s business. So clearly, G5 is a successful and well aligned business to LightPath in and by itself.

This is also evident from their growth rates, winning businesses and solid financial performance, delivering strong margins and EBITDA of around or higher than 20% consistently. And while the financial profile is important, growth is too. So I’d like to dive in a bit into the product and technology and how this translates to revenue. LightPath’s transition to move from a pure play component to a subsystem or solution provider and from there to a system, the player can be characterized in many ways. But probably one of the best indicators to where a company fits in the food chain are ASPs or average sales price of its product. When I joined LightPath from 2020, the company was, as we mentioned, a component company, and its product, individual lenses, had ASPs ranging from $1 for the really commoditized telecom lenses to up to, say, $100 for the more complex diamond turned lenses.

In 2021 to 2022, we gradually transitioned into offering assemblies, a more complex engineered optical product. That resulted in assemblies in ASPs going from $100 to $500 already a more complex by itself. But while ASPs in and by themselves are not the goal per se, they’re good leading indicator to the complexity of the product and the offering, and hence, to the value created by that product. And as many strategy books will tell you, creating value followed by capturing value is how one creates a strategy that leads to sustainable profits and growth. And so we went from single-digit ASPs to three-digit ASPs. Next came our uncooled cameras, such as our MANTIS innovative multispectral uncooled camera, which was our ticket into the world of cameras.

Those products of cameras had ASPs of $10,000 to begin with. And through more complex cameras for oil and gas industries, we are now selling cameras with ASPs of $30,000 which is really a leap into five digit ASPs, if you would. Again, not the goal by itself, but an indicator. Now comes G5 with cooled mid infrared cameras. ASPs of their product start from $50,000 for their entry level cameras, short range detection cameras, up to $500,000 for the high-end long range detection cameras. And when we say long range, we are talking about cameras that can detect the presence of a vehicle from as far as 68 kilometers away, 42 miles, that is. So very, very impressive products. So in the span of 4 years, we’ve gone from selling lenses at single dollar lenses and declining unfortunately to assemblies at hundreds of dollars, to uncooled cameras at thousands of dollars and now to adding cooled cameras at tens or hundreds of thousands of dollars per day.

G5 is also a fast growing business with a significant pipeline of new business opportunities with multiple programs of record expected to begin production in the next 2 years, driving strong growth far beyond their existing revenue base. The long range cameras are used for detecting objects at, well, long ranges, if you would. The two main applications are around detection of drones, also known as counter UAS or CUAS, and detection of people in vehicle. The former, counter UAS, is a fast growing application in which G5’s cameras with their proprietary image stabilization software, ATCOM, are considered the best performer in terms of detection range. One of the programs of record G5 is designed into includes placing those cameras on hundreds of naval vessels with passive detection of for passive detection of incoming threats such as drones, missiles and more.

The word passive is actually pretty important in this. As we’ve all seen in the Ukraine conflict battlefield, if one uses an active system such as a radar to detect incoming drones and missiles, the radar’s emission immediately turns you into a target. And so passive detection of incoming threats is one of the fastest growing technologies today and one that G5 systems are by far the leader in. In this application, G5 sells cameras to integrators that place them into larger systems with pan tilt and motion control and build a complete system for detection and tracking of such threats. A second leading application is perimeter and border security. Here the same camera technology is used on towers along the border and for perimeter security and critical infrastructure like stadiums, power plants and more.

G5 has a long history with cameras for border security and has already hundreds of cameras installed along the border. With the limited lifecycle cryogenic coolers in such systems, G5 also provides a ongoing service for repair of those hundreds of cameras, which is a great revenue stream that we expect to grow significantly more in the in coming years. More specifically, G5 provides metal cameras that are used in the Customs and Border Patrol CTSE towers and just last month received their first award and order for the new surveillance towers of Custom and Border Patrol, that’s part of Homeland Security Department. We expect to be able to announce soon more detail about those programs, both the naval and the Border Patrol one. So a highly accretive acquisition brings over $15 million in preliminary unaudited revenue in 2024 and brings us to a point where we expect our combined revenue in the next 12 months to exceed $55 million placing us a completely new place altogether.

And while we don’t provide guidance for future quarters specifically, I would encourage everyone to study the future earnouts that are part of this acquisition as it gives a very clear picture of what G5 management expects the business to look like in the next 24 months. I will give you a hint that the earnout for the first year includes projections of revenue between $21 million to $27 million from G5 alone compared to $15 million last year. And that gives — I think a pretty good taste into the kind of growth rates we are looking at. I’d like now with the time left to switch gears a minute and to talk about the last — the previous quarter. The previous quarter was impacted by two — in two ways by one major event. That event was on December 5, China announced further restrictions on germanium export, now completely banning sale of any germanium to any U.

S. Company and to The U.S. and to any dual use applications. And while we have prepared for this moment both by significantly reducing our germanium business and by preparing the BlackDiamond — our BlackDiamond substitute, we did not escape completely unharmed out of that. Once China announced those restrictions, practically all shipments out of China suffered one way or another. This means materials that are not related even to this ban like zinc selenide and zinc sulfide were also completely stopped for a while. To us, this means that more than three quarters of a million of dollars of revenue from last quarter could not ship in the last few weeks of the quarter and had to move into this quarter we’re in now. I will emphasize that we haven’t lost a single dollar of revenue.

There wasn’t any cancellation, and we don’t expect to lose any of that. It is simply a matter of timing. When all orders when all shipments out of China came to a halt, that impacted also non- germanium business of ours for a short period of time. We expect this to be covered very soon, although what we are seeing there is that Chinese companies like Vital are completely stopping shipping any optics altogether, not only germanium. But we have many other suppliers, and we are building into that and are recovering from that small hiccup. It’s unfortunate because we report our numbers, of course, on a quarterly basis. And something that happens in the last 2 or 3 weeks in a quarter is really just, for us, a matter of timing of revenue and not a business issue.

But when reporting on the quarterly numbers, it appears that way. At the same time, we also stood towards the new restrictions of finally leading our customers to make the move to our alternative materials. We are seeing an influx of interest in those materials and are extremely encouraged by this. As a reminder, systems need to be redesigned to replace germanium with other materials. And so what we are seeing now is a very significant asset to start the redesign process by pretty much all customers related to this. With some systems, such as our customer for SPV drone optics that we announced last quarter, the redesign is fairly straightforward and allows us to get it done within weeks. But in other more complex systems, this takes months, and we are seeing quite a bit of this happening now.

We are not only working with customers to help those redesigns, we are also taking a look at our manufacturing capacity to prepare the needed capacity to make the glass needed for these programs once the redesign and qualification is done. As a reminder, we spent nearly $6 million in our Orlando facility over the last few years preparing the infrastructure needed for growth. We do not expect to need to outlay any significant additional capital for this increase in capacity. We expect to be increasing our glass capacity significantly in coming months, but with fairly modest investment in that. Okay. Since we are running out of time and I can’t really cover everything that happened last quarter, I will encourage everyone to review some of the recent press releases on new products such as gas detection camera, on new contracts such as our FPV drone optics and many other things that we reported over the last few months.

And I will be also available as always to answer questions on those. But now I’d like to turn the call over to our CFO, Al Miranda, to talk about our second quarter fiscal 2025 financial results. Al, please go ahead.

Albert Miranda: Thank you, Sam. I’ll keep my review to a succinct highlight of the financials this quarter. As a reminder, much of the information we are discussing during this call was also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our Investor Relations webpage to access these documents. Revenue for the second quarter of fiscal 2025 increased 1.5% to $7.4 million as compared to $7.3 million in the same year ago quarter. Sales of infrared components were $3.1 million or 42%. Revenue from visible components was $2.8 million or 37%. Revenue from assemblies and modules were $0.9 million or 12%. Revenue from engineering services was $0.7 million or 9%.

Gross profit decreased 11% to $1.9 million or 26% of total revenues in the second quarter of 2025 as compared to $2.2 million or 30% of total revenues in the same year ago quarter. The decrease in gross margin as a percentage of revenue was primarily driven by differences in the product mix, coupled with minor and typical manufacturing yield issues, exasperated by a slowdown in supply chain, which Sam discussed, mostly attributable to China exports and impacting visible and infrared components. Operating expenses increased 12% to $4.4 million for the second quarter of fiscal 2025 as compared to $4 million in the same quarter of the prior fiscal year. The increase was primarily due to higher legal and consulting fees related to business development initiatives, including $174,000 in expenses associated with G5 acquisition announced today, product development cost of about $200,000 higher than the comparative quarter as well as increased sales and marketing spend to promote new products.

Net loss in the second quarter of fiscal 2025 totaled $2.6 million or $0.07 per basic and diluted share as compared to $1.7 million or $0.05 per basic and diluted share in the same quarter of the prior fiscal year. The increase in net loss was primarily attributable to lower gross profit coupled with the increased SG&A and new product development costs as well as higher interest expense. EBITDA loss for the second quarter of fiscal 2025 was $1.5 million compared to a loss of $0.5 million for the same period of the prior fiscal year. The decrease in EBITDA in the second quarter of fiscal 2025 was primarily attributable to lower gross profit, coupled with increased SG&A, including legal and consulting expenses related to business development initiatives, including acquisition costs and higher new product development costs.

Cash and cash equivalents as of December 31, 2024, totaled $3.2 million as compared to $3.5 million as of June 30, 2024. As of December 31, 2024, total debt stood at $3.9 million and backlog totaled $19.8 million. As Sam noted, today we announced the acquisition of G5, which had preliminary unaudited revenue of $15 million in calendar year 2024. The expectation is for the combined companies to generate $55 million in revenue in the 12 months following today’s acquisition. Subsequent to quarter end and to finance the G5 acquisition for $27 million of total consideration, we issued $25.5 million of 6.5% fixed convertible preferred equity as well as private placements totaling $1.5 million and two senior secured promissory notes totaling $5.4 million.

Following the close of the transaction, the August 2024 bridge promissory note of $3 million will be fully converted and no longer outstanding. The 25.5 million in preferred is mostly held by a fundamental investor that takes a concentrated position with a long-term perspective in a few investments. Terms and conditions are not toxic and are clean as possible. The investor will also become a Board member for a 5-year term to assist in our growth plans. We consider this new investor as a partner to our business. In closing, I view the acquisition of G5 as a robust tool to supercharge the near-term potential of LightPath, particularly in the defense space with the introduction of high margin, high ASP and incremental products. We see this as providing an expedited path to achieving our long-term goal of 15% EBITDA margins.

Defining LightPath is a platform company focused on disciplined strategy and delivering value to our shareholders as we scale and grow. With that, I’ll turn the call back to Sam for some closing remarks.

Sam Rubin: Thank you, everyone, for taking the time today to attend our call. Looking ahead, we will continue to drive the future of imaging as seen through our proprietary BlackDiamond Optics, leveraging our clear advantage in our capabilities and supply chain security as compared to legacy germanium based solutions. We’ve defined catalysts in industrial, defense and camera solution market, taken in tandem with our acquisition of G5, providing an entrance into the cooled infrared camera space. We believe calendar 2025 will build additional momentum towards our LightPath 3.0 vision of becoming a leading next generation optics and imaging solutions provider. With that, I will now turn the call over to the operator to begin the questions and answer session. Operator?

Q&A Session

Operator: [Operator Instructions] The first question comes from the line of Jaeson Schmidt from Lake Street Capital Markets. Please go ahead.

Jaeson Schmidt: Hey guys. Thanks for taking my questions. Just want to start on the gross margin in December. You noted some kind of manufacturing yield issues. Just curious if those have been fully resolved?

Sam Rubin: Sorry, Jaeson.

Albert Miranda: Sam I are sitting together, so we usually need eye contact.

Sam Rubin: Yes. I would be one of those.

Sam Rubin: So our yield issues in this quarter were not particularly bad. I would say it was normal. There’s you don’t get 100% yield, particularly with coatings. They were minor. The problem was sort of exasperated by the fact that we usually have more material. We can get extra materials. We plan for it. We have it. So when we have yield issues and not a fast and quick source to some of the materials coming out of China, it sort of delays our ability to deliver. So a normal yield issue becomes a not normal yield issue, if you will.

Jaeson Schmidt: Okay. That makes sense. And then obviously, it sounds like you guys are pretty familiar with G5. Just curious, sorry, the customer overlap between the two companies and relatedly the cross-selling opportunities you guys are envisioning. And if there are cross-selling opportunities, are those sort of baked into the growth expectations reflected in the earnouts?

Sam Rubin: Yes. I’ll take that one. There’s definitely some great opportunities there, and we are seeing a lot of excitement from the customers. So to begin with, on just on the optics part, which is the easiest to answer, since G5 has a very good and robust optical coating services, they naturally service many of our customers already in that aspect. So that part is sort of an easy, very natural part. When it comes to the camera part, which is really where a lot of our growth we expect will come from, most times when you see today a system that has those cold infrared cameras, it will very, very often have a uncooled camera that goes with it. If you look at some of the companies like Silent Sentinel, which is today part of Motorola, and you look at their product offering, those same pan tilt systems or [indiscernible] will have a short range camera, uncooled camera like our uncooled cameras and a long range camera from G5 next to it.

So the selling opportunities there is tremendous. Same is also in optical gas imaging. Oftentimes in a gas field, there will be many small uncooled cameras like our gas camera and then one large cold camera, which obviously naturally it’s much more expensive and over $100,000, but that one is able to actually quantify exactly how much gas is leaking. So it gets pointed at the places where the smaller cameras identify the leak to begin with and so on. So there’s some great opportunities there, we feel. And as of now, those are not baked into the numbers. The revenue numbers for G5 and their earnout is based on their projections and their own expectations of revenue without any synergies in that.

Jaeson Schmidt: Okay. That’s helpful. And then just last one for me and I’ll jump back in the queue. How should we think about the gross margin profile through the G5 business?

Sam Rubin: Al, you want to take that?

Albert Miranda: So the camera business has higher margins than the LightPath visible or infrared component business. So in terms of expectations, the margin will blend upwards with the portfolio being added.

Jaeson Schmidt: Perfect. Thanks a lot guys.

Sam Rubin: Thank you.

Operator: Thank you. The next question comes from the line of Glenn Mattson from Ladenburg Thalmann. Please go ahead.

Glenn Mattson: Hi, guys, and congrats on the acquisition. I couldn’t help but notice your comment on the when you were talking about G5 a little bit about you said you mentioned something about to be awarded several large programs and that you should be moving into LRIP. I’m just trying to understand that language because — normally I guess you wouldn’t say about to be awarded unless you had the business pretty secure or is it can you just give us a color on that?

Sam Rubin: One of them is a matter of dates, literally. I mean, it’s in very final negotiations. And when I say LRIP, I mean, just to put it into perspective, the naval program, for example, for the prototype that we expect to order any day now, it could be several million, let’s say $2 million to $3 million for the prototypes. When it goes into production, so LRIP is just the beginning of low rate initial production since scaling, we are expecting this could be $10 million to $20 million a year.

Glenn Mattson: Okay. And you said the time frame on that? Remind me, you mentioned the [multiple speakers].

Sam Rubin: So prototype now in the next 6 to 8 months and then we expect LRIP towards the end of this calendar year.

Glenn Mattson: Okay. Thanks. That’s helpful. And yes, just on the synergies, I missed part of your answer on the last question, but one thing that struck me was in the press release, you talked about multiple programs of record for G5. Is there an opportunity to use those as a funding vehicle whereby you could cross-sell better your uncooled cameras and things in those …

Sam Rubin: Yes. Exactly that. Exactly that. So when you look at many of those systems that are deployed, they would very often have a mix of both uncooled and cooled cameras together. So the uncooled cameras, of course, cannot detect the range of those cameras, so you use them for a short range detection. And but because they’re so, so much cheaper than the long range ones and the cold ones, you would sometimes deploy a few of them and have them look in different angles. And then you will use sort of the big cold, long range camera on a pan tilt where you would point it to where one of the uncooled cameras saw something maybe. So oftentimes, a combination of both. And I know our sales team is extremely excited and can’t wait to start cross-selling on both sides.

Glenn Mattson: Right, right. I guess that really makes it sound like a strategic bid like you mentioned. And just lastly, the exposure to some of the issues with the Chinese, can you remind us how much of your business is still exposed to that as you move toward and …

Sam Rubin: Yes.

Glenn Mattson: Al, do you have a number on that on how much do we still have sort of.

Albert Miranda: So we’ve $2 million of sales in germanium in the U. S. That I would say is at risk because of the restrictions, right, to bring germanium in. So we’re sourcing that locally, switching to a local sourcing, which is a project that’s been going on for several weeks. We have also a couple of million of germanium sales in Europe, but at much less risk because Latvia [ph] and the end users for those products are not on the Chinese no sell list. But nonetheless, we’d like to move all of that product out of germanium as well in Europe. But and we have similar plans to migrate, but the urgency isn’t there yet like it is now in the United States.

Glenn Mattson: Right.

Sam Rubin: And just to add on that $2 million in the U. S, Al, so first of all, we’re going to supply those by sourcing locally, but the local sources of germanium, as everyone knows, are very, very limited. So it’s not really a long-term strategy. So once we supply those $2 million of germanium orders in the U.S. we will no longer be doing any germanium business in the U. S.

Glenn Mattson: Okay, great. That’s it for me. Thanks guys and congrats again.

Sam Rubin: Thank you.

Albert Miranda: Thanks.

Operator: Thank you. The next question comes from the line of Orin Hirschman from AIGH Investment. Please go ahead.

Orin Hirschman: Hi. Congratulations on the acquisition. Just going back to some of the earlier comments. So you mentioned on the acquisition, these are just random questions. You mentioned Motorola is an example. Is that a current customer? Were you using that as an actual customer example?

Sam Rubin: Yes. Motorola is a very large customer of G5, yes.

Orin Hirschman: Isn’t the …

Sam Rubin: And Motorola — to those who don’t know Motorola is one of the leading companies in perimeter security and safety equipment. So it’s a very major part of the business for us.

Orin Hirschman: Okay. And I don’t I’m not an expert in this space. My impression is they’ll be very long range infrared cameras or a newer type of security way of doing things? Is that true? Is this early on in the use of infrared, particularly long range infrared security where there’s a big runway?

Sam Rubin: Definitely for — yes, definitely for counter UAS. So counter UAS and perimeter security, they have not been really used too much until now. In Border Patrol, G5 actually has quite a installed base there. Now in the past systems were not as long range because the technology advanced and especially the ATCOM capabilities that G5 has now with the stabilization significantly improved that. But also in Border Patrol, the cameras were not as widely spread as they are now. Now they’re talking about putting these towers every couple of miles. So it’s a much, much larger install base going to be. In perimeter security, I mean, this is now really growing. This is every data center when you look at it now, the data centers are like Fort Knox.

They’re secured with radars and with the most advanced systems. And so we expect that market to really take off considerably. The relationship G5 has with Motorola is very significant for that. And our sales team of former [indiscernible] people are also going to be pivotal at getting us into that. Then the whole world of counter UAS and detecting drones, and as we all know from the news, that is only getting started. I mean, so it’s going to be huge.

Orin Hirschman: Just finally, just in terms of those shipments that pushed out being in this quarter and just in general, are we seeing that coming through? And how do you give any comments on the current quarter, how it’s shaping up?

Sam Rubin: Yes. Al, do you want to talk about that?

Albert Miranda: So we shipped most of that already, Orin, in the first 6 weeks of this quarter, the stuff that pushed out. My concern is that the supply chain is not speeding up out of China. So we did get some good indications, product is being released, but the releases that come are still small, too really too small, to be honest. So on the one hand, we can close the gap. So there’s no rollover from this quarter, or we could end up at the end of Q3 coming up a bit short again because of the same sort of roll forward problem. I mean, it really comes down to sort of like every day checking with Customs to see what comes through and what’s approved and licensed. And it’s a day by day thing really.

Orin Hirschman: And how is the rest of the business doing in terms of some of the newer programs ramping?

Albert Miranda: So the new business that we are ramping and particularly in the assemblies and chorus, I like this business. It doesn’t take up as much space. It doesn’t use as much capital equipment. And with the ASPs the way they are and the margins high, historically high for anything else we do, I like it. So I keep encouraging Sam and the sales team to bring in more of the assemblies and core business for sure.

Sam Rubin: I think we haven’t also given any update on the Lockheed Martin project. So just shortly, it’s going very well on track. We are about to start shipping flight worthy units for actual flight tests of the missiles, which are extremely exciting for us personally. And we are moving along very well with Lockheed, both from this program and the two other derivative programs in which Lockheed is already integrating our camera systems into two more programs.

Orin Hirschman: Thanks so much. That’s what I wanted to hear.

Sam Rubin: Thank you.

Operator: Thank you. The next question comes from the line of Scott Buck from H. C. Wainwright. Please go ahead.

Scott Buck: Hi. Good afternoon guys. Thanks for taking my questions and congrats on the transaction.

Sam Rubin: Hi Scott.

Scott Buck: I guess, first thing guys, hopefully I didn’t miss it, but could you give us just a little bit of background on how the deal came together? Were they actively out looking for a suitor or was this more, I guess, organic in the way it came about?

Sam Rubin: So like many of the acquisitions we contemplate, G5 is a company we’ve had an ongoing relationship with. And in this case, it goes back nearly 30 years, well before I even joined LightPath. But ISP Optics has been a supplier and partner for G5 back when they were DIOP [ph] and later Axsys and General Dynamics, and so was LightPath. So we’ve known each other already pretty well. We got the feelings that they’re about to go out and possibly start shopping around, and we did a bit of a preemptive strike, if you would, and just essentially picked it up before they went and formally engaged a bank. And to that extent, we’ve always been very clear that we are on the lookout for acquisitions. I think we are being very clear that we could see acquisitions in two forms.

One could be like Visimid, a small technical group that adds specific technologies and others would be larger like G5, which would be in the $15 million to $20 million of revenue, profitable with strong margins. And those are the type of acquisitions. We have at any given point in time multiple acquisition opportunities or ideas that we keep on keep in touch with or keep an eye out for. We always make sure that any acquisition we do with people that we know. And if we don’t know them, then we proactively engage in some joint projects to get to know each other because as anyone that has done M&A would know the number one reason for sale of acquisitions is culture. So a culture fit and getting to know each other if we don’t know yet is very important for us.

In this case, we’ve simply known each other for a very long time, so it was very easy.

Scott Buck: Great.

Albert Miranda: So if I could add on to that, Glenn (sic) [Scott]. So we mentioned that this is not the first time for this group to come together and create a company. They didn’t have a good experience with the last time. Sort of the last time they sold, it was General Dynamics. They basically picked it apart, used the technology, moved it around planet Earth, and the current owners, sellers didn’t really like the outcome that came with that for the people that were working there and had been loyal to them. So Sam is 100% right in terms of cultural fit, but also strategic fit and our plans for them is to grow that location and the way the original founders imagined it and continue along that path. That went a long way towards them feeling warm and fuzzy about the situation with us and not going to investment bankers to try and sell it outside.

And they believe they left money on the table by not doing that. We can argue that all day long, but that’s their belief and yet another reason why the culture fit and everything else about Y Path [ph] was attractive to them.

Scott Buck: Great. I appreciate that, Sam and Al. That was helpful. And then second one, just a quick modeling question. Is there any seasonality in their business that we should be thinking about as we model the out quarters here?

Albert Miranda: Yes, there is seasonality. I’m not 100% confident yet in how it looks. But typically, if you’re using our fiscal year, their third quarter Q3 and Q4 is light on revenue, and then Q1 and Q2 is heavy on revenue. I don’t have the exact mix. It’s really something I want to confirm with the management team next week when we start going through the more detailed forecast versus the ones we used currently and get a better handle on it. And I’ll help you guys try to understand what that looks like.

Scott Buck: Great. I appreciate it guys. That’s all I had. Thank you.

Sam Rubin: Thanks.

Operator: Thank you. The next question comes from the line of Brian Kinstlinger from Alliance Global Partners. Please go ahead.

Brian Kinstlinger: Great. Thanks so much. With the $55 million revenue target, it implies significant growth from G5 from the $15 million. I joined late, so hopefully I’m not repeating, I just joined when Glenn was asking questions. Have the few programs that you expect to drive this growth with G5, are those awarded? Have you started shipping against these contracts or subcontracts? And at what point do you expect these shipments to meaningfully ramp in order to achieve this growth?

Sam Rubin: Yes. So one of the programs, the Border Patrol, they received the first order last month and already began shipping towards that. So that one is already, I’d say, in the pocket and confirmed. The second one, the naval shipments, we expect any day now the purchase order for that, and those would be for the initial seven units, I’m not sure, something like that or something around that, where towards the end of the year, that will scale into low rate initial production. Other than that, the rest, many of the programs in all in different security and defense, some of them confirmed and some of them fairly confident. But I’d say that in this case, founders and the owners of G5 literally put their money where their mouth is by putting a significant bet onto their earnout that is for the next 12 months designed around them hitting revenues of between $21 million to $27 million.

Brian Kinstlinger: Yes. And then given the commentary on seasonality, at least the modest knowing that the March and the June quarter are their weakest, will LightPath as a combined company be profitable assuming you close as expected and you have a full June quarter? Will that be a profitable quarter from an EBITDA perspective?

Sam Rubin: Al?

Albert Miranda: From an EBITDA perspective, we should be positive.

Brian Kinstlinger: Great. And then again, sorry, I missed the prepared remarks. Can you comment on whether you’re beginning to see a ramp in the MANTIS orders? I know last quarter you commented you expected several customers would begin ordering in the second half and here we are. So I’m curious, has that ramped as you’d expected?

Sam Rubin: Yes. We’ve already been taking orders and shipping more and more of the furnace camera orders. The gas detection ones are not ramping as fast as we thought they would. I think for the gas detection, we still need to go through some quantification test of measuring or giving a actual performance number of how much gas it can detect in parts per million. And that’s something that we didn’t realize we really can’t begin significant sales before we have that. That’s ongoing right now at the customer site in Salt Lake City. So I’m hoping that the gas the optical gas imaging cameras are going to start scaling up very soon.

Brian Kinstlinger: Great. The last question I have, I don’t know if you addressed this. Is there anything that keeps you up at night about tariffs, whether it’s for your customers, whether it’s for your suppliers, anything that you’re carefully watching?

Albert Miranda: So we are we started almost immediately [indiscernible] tariffs to our customers and we are passing it through. It’s transparent, the customers see it, they know it. This includes purchase orders already in house. For the U. S. market, our customer base seems to have accepted the fact that this is happening.

Sam Rubin: Yes, I would add, Al, I don’t stay up at night because of the tariffs. I don’t think that will be that impactful to us. I do worry about supply chain of materials. I mean, the side effect of when China announced the ban on germanium and suddenly companies like Vital Materials stopped exporting any materials, period. That was took us completely by surprise and isn’t over yet. So companies like Vital still aren’t selling materials altogether, not only germanium. So I worry a bit more about that part. But there are many people, LightPath is one of them, but many players working day and night to recreate the industrial base in the U. S, thankfully. I’m very confident about that longer term, but I think we are we do still have a few months of transitory effects related to material supply.

Brian Kinstlinger: And then I have one follow-up. I mean, you clearly have been preparing for this for many years. There’s no doubt about it. But my question would be, what percentage of your business relies on imports from China?

Sam Rubin: Well, Al, what’s the — I mean, when we say imports from China, it could be also like our regular glass lenses made in our China operation.

Albert Miranda: Yes. From an overall perspective …

Brian Kinstlinger: Sorry, maybe I’m just thinking about the material, I mean, you’re talking about …

Sam Rubin: Oh, the material?

Brian Kinstlinger: Gushing [ph] germanium that’s having trouble.

Sam Rubin: Yes.

Brian Kinstlinger: So, I’m guessing you’re talking about germanium on the exports that we are having trouble on the supply chain.

Sam Rubin: No, no, not at all.

Brian Kinstlinger: [Multiple speakers].

Sam Rubin: Al?

Albert Miranda: It’s a funny thing. So material called zinc selenide and zinc sulfide, that’s available from other countries as well, but we were just buying it from a Chinese vendor, even supply of that material out of China [indiscernible]. So about — from a revenue perspective, Brian, it’s $8 million, let’s call it $8 million into Europe and the U. S. coming out of China. The germanium risks are the ones that I mentioned earlier, $2 million in the U.S and $2 million in Europe. Obviously, the U. S. is high risk. Europe is, I would say, moderate risk at this point. So that’s kind of rough numbers, rough high-level numbers. And Sam is right. So we knew what the germanium was and we knew what the risk was and have known for a while.

We’ve been trying to get out of it for a while, right, switch customers. The surprise that came in the quarter back in December is companies like Vital, who just shut everything down. We — nobody could have predicted that. We know nobody could have predicted it because our competitors and our customers are all in the same place as we are.

Brian Kinstlinger: Okay. Thanks for taking all my questions. Congrats.

Albert Miranda: Thank you, Brian.

Operator: Thank you. The next question comes from the line of Richard Shannon from Craig-Hallum Capital Group. Please go ahead.

Richard Shannon: Well, hi, Sam and Al, thanks for taking my questions and congratulations on someone. Looks like a really nice deal. Let me ask a quick high-level question following, Sam, your comments in your prepared remarks about G5. You said they had a really big pipeline. Can you quantify or characterize that in any way by itself or relative to the pipeline that LightPath has itself?

Sam Rubin: Yes. So I think the programs of record that we are seeing, the Border Patrol, the Naval, those vary in our what we expect them to be in full production from typically those programs are anywhere from $5 million to $20 million a year in what the potential during production will be. And since those are all military or defense related programs of record, and program of record means it’s a line item in the defense budget and Congress budget, so you can actually go and look it up in the formal congressional budget. Those programs are typically 8 years of rollout followed by many years afterwards of spare parts and repairs, which are very, very lucrative. So we are looking at the business that could easily, easily be alone in the $50 million to $60 million in a matter of 2, 3 years.

Richard Shannon: Okay, perfect. That’s a helpful way to think about it. You mentioned a number of applications for the products from G5 here and all of them sound interesting border control, obviously a key thing for in our current U. S. administration. Data centers obviously resonate with everybody tracking AI, but one that’s really stood out to me I’m really interested in is in drones or I think you see UAS or some acronym I don’t really understand. Maybe you can talk about what’s going on there. It sounds like a particularly useful and extremely important near-term application for the defense community. Maybe you can talk about what’s going on there and how big of the pipeline are you expecting from that?

Sam Rubin: Yes, yes, definitely. So that’s the largest program to begin with, the Naval program. And that’s also the largest customer in Motorola. I think a lot of their systems go into that. And essentially, this is how do you detect drones or other small objects like that in movement in the best way without active measures necessarily. So of course, a lot of those could be detectors detected with radar or active systems, but those oftentimes give out too much information about your location and where those systems are as we’ve all seen in Ukraine. So you end up needing to have a passive system to be able to detect drones and objects like that. And so a few technologies being looked at. There’s acoustic technologies trying to detect the noise of the drone.

There is different microwave trying to detect the transmission of the drone if it is transmitting and so on. But by far, the best technology known there right now is those infrared cameras. And it has to be an infrared camera and not a visible camera because, of course, you need to be able to see it at night without the lights flashing and all of that. You need to be able to see it in many different conditions. And so right now, those are mainly midwave cameras and that’s what G5 is offering. But they’ll also be expanding into shortwave cameras or even multispectral, both shortwave and midwave together because shortwave cameras can see through clouds, for example, or could see through different adverse environmental conditions. So and this is where our BlackDiamond materials, it’s really designed for multispectral imaging, will play a major role together with the G5 technology.

So what we are seeing is these cameras getting in sold now, multiple of them in important locations that are very sensitive on pan tilt systems that are rotating and looking around. You’re talking about cameras that can zoom 20x as much, so they can start from a very wide field of view and zoom into small objects. Again, they can do I mean, the performance is just insane to be able to detect a tiny drone from 10 miles away is optically is just very, very impressive technology.

Richard Shannon: Okay. Some great detail there, Sam. I think in the interest of time, I will get back in the queue, but thank you very much.

Sam Rubin: Thank you, Richard.

Operator: Thank you. As there are no further questions, I would now hand the conference over to Sam Rubin for his closing comments.

Sam Rubin: Okay. Thank you all for attending. Very, very exciting times for us. If it wasn’t apparent from our remarks, we are extremely excited and happy to be able to be here at this point with this deal. I look forward to meeting some of you in person in our Investor Day at February 25. And I would also like to end the call by welcoming the G5 team to the LightPath family. We very much look forward to working together and seeing what great things we can be doing together soon. Thank you, everyone, and good night.

Operator: Thank you. Ladies and gentlemen, the conference of LightPath Technologies has now concluded. Thank you for your participation. You may now disconnect your lines.