Lightpath Technologies Inc 2026 Q4 Earnings Call

Thank you, operator. Good afternoon to everyone, and welcome to LightPath Technologies' fiscal fourth quarter and full year 2026 financial results conference call. The last few calls I typically opened by talking about the strategy and how the strategy is working and where it's taking us. Tonight, instead, I will let the numbers talk and let the fiscal year results do the talking. Fiscal 2026 is the first year in which the transformation we have been describing shows up cleanly in every line of the financial statements, not just the backlog. Four numbers frames a year. Revenue grew 93%, from $37 million to nearly $72 million. Gross margin expanded from 27% to 36%. Adjusted EBITDA moved from a $5.1 million loss to a $4.2 million profit, a swing of more than $9 million. Backlog finished at $110.9 million, up 197% from where we started the year.

The fourth quarter was our best quarter in every one of those categories. Revenue of $21.2 million was a company record, and our fourth consecutive quarter of sequential growth. Gross margin was 39.4%. Adjusted EBITDA was $2.1 million, or 10% of revenue, which was our fourth straight profitable quarter on that measure. All great results, which we expect will continue to grow and improve. Now, I'd like to spend a moment on the quality of that margin, because it is the part that I am most pleased with. The 39.4% margin did not come from a one-time favorable contract or from raising prices. It did come from two things we did. First is the mix of products. Assemblies, modules, and cameras were 43% of the fourth quarter revenue and 44% of the full year, compared to 23% of the revenue in fiscal 2025.

These products, which our strategy has really took us towards, have both higher prices and higher margins as a result of the significant value add compared to our legacy component business. Second is execution. The yield and throughput problems that dragged our component margins in the past are, well, they're in the past. Every one of our four product groups improved its margin year-over-year. The mix improvement is a result of strategy. The margin improvement is the results of operation. We needed both, and this year we got both. While the backlog has not grown sequentially, shortly after we closed the quarter, we reported two large orders totaling $24 million and have been continuing to book and grow our backlog. The backlog you will see for the quarter ending in about three weeks' time will show already some more growth.

While we continue securing new customers, both by converting them to Black Diamond and by providing them with assemblies and systems, much of the orders coming now, like the two large orders I just mentioned from July, are for production, as many of the programs we have been working on move from qualification to production. We have said in the past that a design and qualification of a new program, whether it's a redesign to use Black Diamond or a new program altogether, can take up to two years. Much of the growth in our backlog and bookings recently that we are seeing is the result of such new programs beginning to move into production.

Two years ago, in late 2024, China imposed the first restrictions on export of germanium and gallium, and we began to see a growth in demand to Black Diamond and systems using Black Diamond glass. Now we are beginning to see the transition of some of those into production. A trend I expect will intensify, as most customers did not start their redesign and substitution effort until much after the initial export ban on germanium. To that end, I will provide now an update on some of our key programs we have in the pipeline and their status. As mentioned in recent calls, due to the good problem of experiencing exponential growth in all our sales fronts, I can't really cover all the large programs. Instead, I will focus on ones where we had some changes or recent developments. NG-SFI, our three-year-old interceptor program with Lockheed Martin.

As many have heard, the Army has pushed out the timeline by a few months in an effort to potentially explore other options. We do not see this as a risk to us, only a delay. We have seen this happen in multiple other programs where the Army wants to foster a truly competitive environment. Our confidence continues to be very high. Given that our seeker is being designed and evaluated into multiple platforms now, we have little concern here. In the last few months, we have relocated the groups that works on that seeker into a new building and have begun investing in increasing capacity for building seekers. Knowing that any program that moves into production will need to scale very quickly. More broadly about seekers and missiles.

Our camera systems are now being designed into or actively evaluated in seven different platforms, three of which are with Lockheed Martin. The remainder are with primes or as they are sometimes referred to recently, neo-primes. Newer companies entering the defense market. The full qualification of our low-cost seeker that was completed as a result of the NG-SFI flight test, as expected, opened the door to many other opportunities. The same manufacturing facility in Texas will support all of those opportunities. In border patrol or border tower, we have seen funding being released from DHS to the primes. However, that has not yet translated into orders for cameras. What we have seen is a growth in demand for similar towers and cameras that end up installed outside the U.S., primarily in the Middle East. A few other programs. We have an unnamed airborne program which has completed qualification, and we await the production order for LRIP.

The Apache program is looking like it might make a comeback soon with a renewed interest in that system. Drones, and in particular drone dominance programs, are generating significant demand, which we are addressing by starting to add automation to some of our processes for high volume assemblies. Counter-UAS programs continue to move along well with two of the programs now transitioning to a cadence of deliveries of tens of systems a month. In parallel to more design wins of our existing products, the teams have been working on designs and redesigns of additional products, all of which leverage our Black Diamond glass and make use of our supply chain resilience and having alternative materials instead of depending on germanium.

On the camera front, we have been redesigning the last of the G5 cooled cameras to use Black Diamond instead of germanium. That program is progressing well technically, though behind schedule. However, all the results we have seen so far indicated the cameras will work at least as well as the germanium-based cameras. We have also been working on zoom lenses and zoom cameras in what is called long-wave infrared, often referred to as uncooled cameras. Here, too, we identified an area of the market in which we can leverage our position to provide products without supply chain constraints. An effort that has been ongoing for the last year is now coming to fruition with our first orders for zoom lenses and complete uncooled zoom cameras to be delivered soon. Once those are fully production ready, we expect to see the need in the market translate into orders fairly quickly.

Let me now turn to the structural changes we have completed after year-end, which is the divestiture of our China operation. In July, we signed a definitive agreement to sell our China subsidiary to an entity owned by the local management team that has run the facility for us, for $4.5 million payable in installments over five years. That transaction is expected to close later this month. Financially, it is a modest event. Roughly $4.5 million of annual third-party revenue leaves our consolidated results, and the buyer continues to supply us as a third-party vendor for our commercial customers in the U.S. and Europe. So there is no disruption to those customers. Strategically, it is not modest at all. Six years ago, most of our manufacturing footprint was in China, and more than a third of our revenue came from China.

As of this fall, LightPath now does everything, melts glass, coats optics, builds cameras and assembly exclusively outside of China, in Orlando, in Plano, Texas, in Hudson, New Hampshire, and in Riga, Latvia. We have no ownership, no facility, and no commercial activity in China. For a customer base that is now dominated by the defense primes and public safety agencies, that is no longer a nice-to-have talking point, but something that will now open up significant bid opportunities where that is a condition for participation. That connects directly to our regulatory backdrop. Defense programs are required to move off optical glass and optical components sourced from covered nations before the end of the decade. What has changed over the last year is not the rule, it is the timing. Qualification cycles for an optical system run 2-3 years.

The sourcing decisions that determine who supplies those programs in 2029, 2030 are being made now, in this fiscal year and in the next one. However, several executive orders around waivers for germanium and classification of material as critical and specific tariffs applied will likely pull that timeline even closer. Now, to address that, let me talk about capacity a bit, because capacity is our single biggest operational theme going into fiscal 2027. When we acquired Amorphous Materials in January, we increased our Black Diamond melting capacity. And just as importantly, we unlocked large diameter melting, up to 10 inches and beyond, versus the 5 inches we could produce before. In optics, the further you need to see, the larger the optics need to be. Large diameter is what opens up long-range camera systems, large assemblies, and space-based missile detection and tracking.