september 25, 2019 - global leader in optical technology · global photonics systems market $556.4b...

SIDOTI & COMPANY FALL INVESTOR CONFERENCE

SEPTEMBER 25, 2019

Safe Harbor Statement

This presentation contains “forward-looking” statements that are based on our beliefs and assumptions and oninformation currently available to us. Forward-looking statements include information concerning our possible orassumed future results of operations, business strategies, product development plans, competitive position,potential growth opportunities, use of proceeds and the effects of competition. Forward-looking statementsinclude all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,”“could,” “seek,” “estimate,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” orsimilar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause ouractual results, performance or achievements to be materially different from any future results, performance orachievements expressed or implied by the forward-looking statements. Forward-looking statements represent ourbeliefs and assumptions only as of the date of this presentation. Except as required by law, we assume noobligation to update these forward-looking statements publicly, or to update the reasons actual results could differmaterially from those anticipated in the forward-looking statements, even if new information becomes available inthe future.

This presentation includes certain non-GAAP financial measures as defined by the SEC rules. We believe thesenon-GAAP financial measures are appropriate indicators to assist in the evaluation of our operating performanceon a period-to-period basis. We have provided a reconciliation of those measures to the most directly comparableGAAP measures, which is available in this presentation.

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Overview30 years of leadership in precision visible

and infrared optics

Deep expertise in optical aspheric lens

design for visible and IR applications

Diversified end markets include industrial,

commercial, medical, defense, telecom

Capabilities in molded optics, thermal

imaging optics and custom optics

Vertically integrated low cost/high volume

manufacturing capabilities

Multiple revenue streams

344 Employees in US, China and Europe

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Leaders in optical and infrared solutions

Key Developments

IR business growing rapidly with the addition of the BD6 material system, our new family of lens assemblies and the release of several new products.

Our precision molded optics business is stable with growth driven by 5G demand.

Significant benefit will be realized in Fiscal 2020 from the closing of the New York facility. The cost structure has been aligned for improved gross margins and operating margins while ending fiscal 2019 with record yearend backlog of $17.1 million.

The company has sufficient cash to fund operational growth through continued investments in product development, manufacturing capacity and expansion of our customer base.

Transitional Period of FY2019 Ended 6/30/19

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Key Developments

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FY2019 Sets Stage for Growth & Operating Leverage in FY2020

Record level of backlog at beginning of year of $17.1+ million, up 33% from prior year – 3rd consecutive year of backlog growth greater than 30%.

BD6 IR lenses in high demand – molded IR lenses grew 159% FY 2019 vs. FY2018.

Investments in manufacturing efficiencies and cost reductions will improve EBITDA margins into the range of 12% to 15%.

Addition of Chief Operating Officer combining sales, engineering and operations under a single leader will balance supply to demand and speed time to market.

Establishment of Product Management to ensure product portfolio management of each of our revenue streams: molded optics; thermal imaging optics; custom optics and catalog.

Capital expenditures and equipment financing/leases reduced – heavier spending completed in FY18/19.

Leaders in optical and infrared solutions 6

Market Overview by Segment

Global Photonics Market Size, By Application, 2018 (USD Billion)

Information & Communication Technology (24% = USD 135.3B)

Display (18% = USD 98.7B)

Lighting (16% = USD 86.4B)

Others (11% = USD 59.6B)

Photovoltaic (10% = USD 55.9B)

Production Technology (9% = USD 47.7B)

Medical Technology & Life Sciences (7% = USD 39.2B)

Measurement & Automated Vision (6% = USD 33.6B)

Global Photonics Systems Market$556.4B in Total (2018)

7% CAGR

LightPath/ISP


Optics & Photonics Application Descriptions

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Information & Communication Technology (24% WW Market)Data GenerationTransformationData Transmission and StorageData ConversionData UsageAmplifier SystemsLight Modulation SystemsFiber Optic CablesTunable LasersTransceiver

Display (18% WW Market)3D TelevisionTablets/e-readersVirtual ServicesOnline Education ServicesLCDOLEDLED

Lighting (16% WW Market)LEDOLEDCFL

Photovoltaic (10% WW Market)Solar Energy ConversionEnergy DistributionEnergy StorageEnergy Use

Others (11% WW Market)AgricultureWater PurificationMeteorologyScienceProduction Technology (9% WW Market)Laser Systems in Manufacturing IndustriesLasers in Printing TechnologyFiber LasersBar Code ReaderParticle Counting

Medical Technology & Life Sciences (7% WW Market)EndoscopesTherapeutic LasersMedical Imaging SystemsCR SystemsFluorescence Diagnostics SystemsCoherent DetectionOptical Coherence Tomography SystemsDiagnostic Systems Based on Raman (CARS)Photoacoustic ImagingFlow Cytometer/Cell Sorting: Blue or Red LDFluorescent ImagerConfocal MicroscopyDNA Sequencer

Measurement & Automated Vision (6% WW Market)Automatic InspectionProcess ControlRobot GuidanceSpectroscopyMachine VisionLIDARConfocal MicroscopySemiconductor MetrologySurface InspectionLiquid ChromatographyGas Analysis

Highlighted apps indicate LightPath supplies optics


• The Markets that LightPath serves have certain Characteristics

• Value performance and quality over price• Need product customization• Smaller lens size• Need higher level of customer service• Value added services – Dicing/special coatings/unique testing• Optical Design services• Precision Products (tighter tolerances)• Are growing on the average of 7% CAGR• Multiple customers

Market Characteristics

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• LightPath's Capabilities/Characteristics

• Able to serve a broad range of markets

• Vertically Integrated, low cost manufacturing

• High quality products

• World class optical design

• World class engineering services

• Multiple lens fabrication technologies

• Mold/Diamond Turn/Conventional & CNC Grind & Polish

• Flexible material selection both in infrared and visible glasses

• Worldwide manufacturing presence – North America/Asia/Europe

• Volume manufacturing capability

• Value add services – custom testing/sub assembly/custom coating

LPTH Capabilities

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Conversion Cost of LightPath Lenses

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Visible Molded Infrared Molded Diamond Turned Ge

Cos

t

Tooling Material Coating Labor

JG1

JG1 Jim Gaynor, 9/19/2019


• Factories – North America/Europe/Asia

• World Class – Optical Design

• Flexible Fabrication- Concept to volume manufacturing

LPTH Capabilities

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Thermal Imaging Optics

Molded Optics

Custom / Specialty Optics


Thermal Imaging Optics

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Thermal Imaging

Defense

Commercial

360° Camera

Monocular

Rifle Scope

Firefighting

Sporting

ADAS Automotive

SportingOptics

ADASAutomotive

FirefightingCameras

SmartBuildings/Home

360° Camera

Thermal Weapon Sights

Infrared Counter Measures

Applications

1.5 mmf/1.3

1.9 mmf/1.3

2.7 mmf/1.3

5.3 mmf/1.3

6.3 mmf/1.3

7.7 mmf/1.3

9 mmf/1.3

15 mmf/1.2

15 mmf/1.0

19 mmf/1.1

20 mmf/1.2

24 mmf/1.2

35 mmf/1.0

50 mmf/1.2

100 mmf/1.3

0

20

40

60

80

100

120

1M

1M

1M

1M

1M

1M

1M

2M

2M

2M

2M

2M

1M

1D

1M

1D

2D

FOC

AL

LEN

GT

H (

mm

)

LENS TYPE

LightPath Thermal Imaging Lens AssembliesServing Diverse Markets

CONSUMER DEFENSE

Fall

2019

120°

COMMERCIAL

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Precision Molded OpticsVisible and Infrared

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Molded

DatacomTelecom

Automotive

LifeSciences

Flow Cytometry

Endoscopes

ADAS Automotive

Tunable Laser for Optical

Networks

Industrial & Construction

Scientific

ApplicationsTransceivers

Tunable Lasers

Laser Headlights

ADAS

Laser Levels

Rangefinders

Spectrometers

Microscopy

Spectrometer

Laser Headlights

Rangefinder


Custom / Specialty Products

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Quantum Computing

Endoscope

Flow Cytometry

Custom / Specialty

Telecom

LifeSciences

Space

Endoscopes

Medical Instruments

DefenseVelocimetry

Laser Range Finder

QKD Quantum

Satellite

Doppler Velocimetry

Applications


• LightPath Business Model is to provide high quality, low cost, innovatively designed products across a broad array of markets at the fastest TTM possible.

• LightPath has multiple revenue streams• Molded Optics • Thermal Imaging Optics• Custom Optics• Catalog Optics

• Changes Designed to Improve the Execution of our Business Model• Marketing Investment in Strategic Business Development

• SVP of Strategic Business Assessment – Best Market Opportunities / Industry Optical Lens Requirements

• Product Management – Portfolio Management

• Created the COO position• Improve Execution/Accountability for Supply and Demand Fulfillment• Combining sales, marketing, operations and engineering

• Proactively put LightPath at the intersection of market opportunity and LightPath’s unique capabilities.

Execution Improvement Requires Change

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The essence of product

line management lies at

the intersection of the

technical capabilities

of the company and the

requirements of the

market, finding the

right applications that

match our capabilities

and will maximize our

growth and profitability.

Molded OpticsIntersection of Market and Capabilities

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Market Requirements

Optical Encoders

LightPath Capabilities

All glass

Biconvexaspheric

Strong catalogoffering

LightPathDifferentiatorsCustom

lenscapable

High volumecapable

Verticallyintegrated

In housecoating

andassembly

Engineering expertise

and direct support

Customized metrologyto ensure optics willbe functional in the

applicationReasonable pricing

(not lowest price)

Low costlabor

Opticaldesign

Example:Encoder

Leaders in optical and infrared solutions 18

Thermal Imaging OpticsIntersection of Market and Capabilities

Thermal Imaging Products

LightPath Capabilities

DLC Coating

AR Coating

Molding

Diamond Turning

Passive Assembly

LightPath Differentiators

Hybrid Design Options

Low-cost Labor for ITAR

BD6 Glass Manufacturing


Build on individual customer successes

Example: Optical Encoders

Customer Success:• Customer is a market leaders in optical encoders• Over 10-year relationship, signed 3-year production contract in

2018• Our lenses are used for illumination and detection

Market Analysis**:• Encoder System Market Size: $1.6B (2019 est. all encoders)• Forecasted CAGR: 8.6% (through 2024)

• Conducted search and found 18 additional potential customers in same application space worldwide

Sales Growth Example:Leverage Success

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How optical encoders work

Optical Encoder

*Source photos by Renishaw**Source: www.marketsandmarkets.com

Expanded Manufacturing Capacity

• Diamond Turning Capacity

• Optical Coating Capacity

• Material Polishing Capability

• Glass Melting Capacity

• LCR Precision Glass Molding

Capacity

• Engineering Bench Strength

Significant Growth: FY19 vs. FY18• IR Molded up 159% - BD6• Telecom Sector up 60% - 5G

Backlog$17.1 Million - Up 33% from 2018

Backlog in Fiscal 2019LightPath Investments

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LightPath has 3 distinct product capabilities: molded; thermal imaging lens assemblies; and custom. Each have different growth rates, conversions costs, and material content.

• Organization changes – COO and Product Management• Balances supply to demand• Improves communication between functions and facilities• Improves quote win rate• Manages product portfolio• Maintains focus on the intersection of LightPath capabilities and market opportunities

• Gross Margin Improvements Focused on IR Business• Cost of materials ‐ introduction of new BD6TM product family• Coating In house DLC – significant savings – cost and time• Transitioned out of NY – lower cost basis; more efficient and available labor pool• Capital investments – enables vertical integration for reduced handling and shipping costs; higher volume

manufacturing; improves turns• Improved factory utilization with increased volume/orders and more efficient practices

• Management implemented similar strategies for PMO lens operations when consolidated GM increased from 35.8% in fiscal 2012 to 53.9% in fiscal 2016 (pre‐ISP) acquisition

Margin Execution

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• Business transition initiatives provide for visibility into more sustainable growth and higher profitability and cash flow

• Core markets are diversified and experiencing solid growth

• Catalysts include engagement in exciting, high volume potential market trends

• High volume manufacturing efficiencies & leading IP/technology portfolio includes molding and diamond turning capabilities

• Multiple cost reduction opportunities being implemented; allows price flexibility which leads to increasing volumes (lower cost materials, in-house coating, diamond turning, NY closure)

• Multiple margin enhancing strategies in place with greater impact anticipated beginning 7/1/19; strong US dollar in past diluted local market results

• Tariff (US/China) relief strategies implemented as needed to partially/fully offset financial impact

• Record backlog achieved at end of year from 2017-2019

• Continued balance sheet improvement – debt reductions in 2019 and 2018

• Strategic acquisitions will be part of our growth story

• Experienced management; significant insider/affiliate ownership; recent insider purchases

Investment Highlights

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APPENDIX

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Results for 4Q/FY Fiscal 2019(Fiscal year ended 6/30/19)

Revenue for the fourth quarter of fiscal 2019 was $8.7 million, an increase of 8%, ascompared to $8.1 million in the fourth quarter of fiscal 2018. Revenue for the full year was$33.7 million for fiscal 2019, an increase of 4%, as compared to $32.5 million in fiscal 2018.

12-month backlog was $17.1 million at June 30, 2019, an increase of 33%, as compared to$12.8 million at June 30, 2018.

Net loss for the fourth quarter of fiscal 2019 was $1.8 million, compared to a net loss of$807,000 for the fourth quarter of fiscal 2018. The fiscal 2019 period includes non-recurringcharges of $845,000 relating to the relocation of our New York facility (the “IrvingtonFacility”) and a non-cash reversal of $406,000 of income tax benefits recorded in the first halfof fiscal 2019, due to a change in the Company’s estimated utilization of net operating loss(“NOL”) carryforward benefits for fiscal 2019.

EBITDA* loss for the fourth quarter of fiscal 2019 was $219,000, compared to an EBITDAloss of $269,000 in the fourth quarter of fiscal 2018.

Capital expenditures, including equipment financed through capital leases, totaled $2.5million for fiscal 2019, a decrease of 25%, as compared to $3.3 million in the prior fiscal year.Capital projects continue to support global growth initiatives and product development,including enhanced capacity for infrared (“IR”) products.

Total debt, including capital leases, was $6.6 million at June 30, 2019, a decrease of 11% ascompared to $7.4 million at June 30, 2018.

Cash and cash equivalents were $4.6 million at June 30, 2019, compared to $6.5 million atJune 30, 2018. The decrease in cash of $1.9 million, or 29%, from the prior year end isprimarily related to capital expenditures and debt reduction.

Balance Sheet

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Income Statement

Non-GAAP Reconciliation

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Experienced Management Team

Alan Symmons Chief Operating Officer

CEO since January 2008, previously Corporate Vice President of Operations from July 2006 to January2008. Prior to joining LightPath: Director of Operations for Puradyn Filter Technologies, Vice Presidentof Operations and General Manager for JDS Uniphase Corporation’s Transmission Systems Division.

J. James GaynorChief Executive Officer

Hui YueManaging Director, China

Eriks BedikisManaging Director, Riga Latvia

Appointed COO in 2019, he was Executive Vice President of Operations since February 2015, andpreviously Vice President of Corporate Engineering from September 2010 to February 2015 andDirector of Engineering from October 2006 to September 2010. Prior to joining LightPath: EngineeringManager for Aurora Optical, a subsidiary of Multi-Fineline Electronix and worked for Applied ImageGroup – Optics, (AIG/O).

General Manager of LightPath Optical Instrumentation Co (Shanghai) since 2012 and General Managerof LightPath Optical Instrumentation Co (Zhenjiang) since 2013, previously served as Sales Managerfrom April 2007 to 2013. Prior to joining LightPath: Senior Director of Sales at Walsin Fujikura.

Donald Retreage, Jr.Chief Financial Officer

Appointed CFO in 2018, he is a corporate leader with 25 years in international finance and accounting,a financial management expert with a proven track record of accelerating revenue growth, and adept atstrategic decision-making to maximize workforce productivity and business profitability. Prior, servedas SVP at Houser Logistics and spent majority of career in increasingly progressive financial/operationalroles for multinationals, including Seaboard Corp. and Sodexho/Universal Ogden Services.

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Mr. Bedikis joined ISP Optics Latvia in 2013 bring twenty years of experience within the European manufacturing market. Upon completion of an engineering degree from the Technical University in Riga and an MBA from the International School of Economics and Business Administration, Mr. Bedikis joined the Scandinavian Innovation Group, Ltd. and became its leader. Mr. Bedikis’ prior roles include experience in logistics, marketing, programming, and sales.

september 25, 2019 - global leader in optical technology · global photonics systems market $556.4b...

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