LightPath Technologies CEO: Backlog Boom, Black Diamond & What’s Next for $LPTH?

You started following—I mean, you followed when I joined. We were a dollar or sub just below a dollar when I joined.

Appreciate that.

Yeah. Well, I'll gladly talk about the business. I'll gladly talk about strategy, what we have, where we're going. I'm not going to comment on share price ever. That's not my job and it would be irresponsible of me to do that one way or another.

I can say, momentum is continuing. We're continuing to grow. I think a lot of the people I spoke to assumed that the growth of the attention we're getting is purely because of the growth in backlog and that it's assuming that we're just going to focus on executing that backlog. But that backlog grows. It's continuing to grow and I think that's an indication for even more growth beyond what necessarily people were assuming or taking into account. So yeah, I talked last earnings call about the next step function which hasn't come yet even. So our backlog continues to grow without that step function yet introduced in. I think when that comes, which I expect it to be September, October, November time frame probably, we might see another very significant growth. You ask me where was I, what was I doing? It's not enough to book the orders, you actually need to deliver on them. So, lots of work, the team and some incredible people that we have, but it's still a very, very tasking job to double a company once in 12 months and now double it again in 12 or maybe a bit more months, right? That's a lot of work.

I have a saying that, when I met my wife and I would tell her that every time there were problems in work or anything like that, it drove her mad. But my belief is that everything is going to work itself out eventually. It might not be as short as you want, as quickly, it might cost you a bit more than you want, but everything has a solution, nothing is unsolvable. So once you approach that and you look at that, and once you've been through a couple of things in life that were really disastrous and bad, you put things into perspective.

Yeah. In my six years at LightPath, I've never lost sleep. I don't think I've ever come across anything that I thought like, 'Oh my god, how on earth am I going to solve this? This is the end.' Never.

I would have blamed myself, but who gives up? Who gives up? I go to do what I got to go to do, because it's a difficult job, not because I'm not interested in the easy stuff.

You can probably blame my Israeli Navy training where it all started, where you just can't give up on anything. But I mean, look, everyone has setbacks. Everyone has things that don't work out exactly the way they want. But again, that's not enough of a reason to throw in the towel.

Lockheed Martin makes the THAAD missile, right? Yeah.

Yeah. Let me answer it this way without specifically talking about the THAAD because I don't think customers ever want us to talk about specific programs unless they approve it.

Last month, Lockheed Martin announced that the NGSI passed the guided flight tests with exceptional results. I think they even mentioned that it surpassed the performance of the missile with the cooled camera. So that's pretty exceptional and saying I'm proud of the team is an understatement. This is an unbelievable achievement of theirs. But it also means now, and this is really what that whole team has been focused on the last few months, is that our solution, our unique heat-seeking solution which is significantly smaller and cheaper than the older technology of cooled cameras, is now to be considered in every single heat platform. It would be irresponsible of any player not to consider that kind of technology at this point. And we always said, or probably for the last year or so, we said that we have a couple of other programs that we've locked. So there's more than that. There's more than a couple of other programs. There's some larger ones and some longer-range ones. NGSI or Stinger, don't forget it's a short-range interceptor. So we're now looking at others at the longer range. We were at a meeting just this week at the Army discussing low-cost interceptors and how our technology can be used in other platforms. So I'd say any new platform designed, and if any get redesigned, then they're very likely going to be considering our technology at least.

That's one aspect. Second aspect is you don't go and redesign something as significant as a Patriot overnight. So the contract Lockheed announced is clearly for the same missiles they've been making, identical, expanding that production. Could there be a next version or a newer version that will work together with that one that will have newer technology in it? Absolutely there could. Then there's one more aspect to it which isn't exactly what you asked about but I would say besides the camera, which is obviously one product that we make, our glass and subsystems that are built out of the glass and so on are a very big part of our business. And I would say that at this point I would be extremely surprised if there is any new infrared imaging system being designed by anyone that isn't including Black Diamond in it in one way or another. I seriously doubt anyone does anything new now, new systems, that are not using that.

We always said we would get there. The ban on germanium simply accelerated it. But we were always very, very clear. Our play here is not waiting for germanium to not be available and that's it. Our play is we have a set of materials, a portfolio of materials that improve performance of the systems significantly. What people didn't want is they didn't want to go and redesign anything, very naturally. So unless they had to, and no one redesigns something if they don't have to, so we were just limited to sort of only new platforms being worked on and designed. But what the ban on germanium did is simply accelerate that. But once someone starts using Black Diamond, negative thermo-optic coefficient or thermo-optic coefficient of zero, or materials that can replace germanium but still be molded or made in other shapes and sizes, those are advantages that don't go away even if germanium is available.

Yeah. It was just a matter of getting us to the point that people are comfortable with it and want to use it. Once they do, the results speak for themselves.

I can't remember when was the last conversation we did but we did like two cap raises in the last...

Yeah, so we did three weeks ago one, and another one, but God, I lost track of time now, January I think we probably spoke after the...

Mhm. Yep. Yep. But the last one was a pretty decent-sized capital raise. Well, it was secondary and primary, right? So we sold or the bankers sold 100 million worth in the market. Only 50 of it is new stock really, right? We had a shareholder, a very good shareholder, Northront Capital, that really is the one that joined us when it was time to do the G5 acquisition and has been an incredible partner to us and a very, very long-term oriented investor. But also held a very large position. After the G5 acquisition, they held about 20% of the company or so. And naturally they wanted to cash out on some of it and we were perfectly happy with that. More shares in the market, more float, we don't want everyone to hold everything just long term, that doesn't help liquidity. But we also don't want a large shareholder like that going out in the market and just selling. Even though they were extremely responsible even when they were selling in the market, it's still a very large amount and created an overhang. So the idea is, let's use this opportunity and help them offload some of those in a much more structured, responsible way, in a good way. And also let's add more to the balance sheet because the opportunities we're seeing are just unbelievable and I'd rather have a bit more cash rather than keep going back for more every time.

Absolutely. And we have a very disciplined approach to M&A that has proven itself I think three times now exceptionally well. And we continue with that same approach but we're seeing much more opportunities available now and some of them bigger. So some of it is because the market has been waking up and the defense industry altogether, consumption is much higher. So companies just like LightPath is growing, other companies are growing and some are becoming much more attractive to us now than they were maybe two or three years ago because of their growth tied into the market. But also because we've become a good enough name and successful enough that people are coming to us with opportunities that in the past maybe wouldn't even consider us because they would be like, this is too big for LightPath. When I joined, LightPath had a market cap of $20 million. We couldn't go and buy anyone for those prices. So either because they're considering or they want to be part of the story. We're getting founders, owners coming to us now to offer their business, they want to be part of this. They understand exactly what we created with the Black Diamond and other differentiators and they understand that whatever they have will be highly more successful together with us.

I wish. Yeah.

Oh, we're still—I mean, sure, some things will be a bit slowed down, restocking some weapon systems and things like that might take a bit of a slower burner. Some newer platforms, I'm pretty sure everyone will still be developing new platforms. There are two things driving, as I see it, the growth in defense, I'm not talking about ours, but defense altogether. One is a drastic shift in structure of platforms driven by unmanned technology and what we're seeing and learning from Ukraine and Israel and other conflicts. Things are changing and you don't go from one day investing everything in ships and submarines and planes that are worth each hundreds of millions of dollars to the next day doing drones without making large investments. That's what we're seeing there. And then we're seeing also the restocking of things. I'm not even talking about getting ready for war, just even getting back to a minimum of inventory needed for some of those platforms. Neither of those are going to go away if peace breaks out. Even though we all would love to see it, if I was in Poland and Putin would have said, 'Okay, I changed my mind. I give up. I'm not going to attack you guys.' Would you say, 'Okay, thank you. I believe you'?

So I don't see any of that going away. The more interesting question I think is, five, ten years from now, what does LightPath do that is other than just defense? If you look at the historical LightPath, when I joined it was doing 8% defense, 92% was non-defense, was commercial, industrial. There are a lot of applications, there's a lot going on there. And the way our technological world works, at least in the optics, is technologies diffuse from the military to civilian to industrial and open those markets. So I'm not worried about that. We don't view ourselves as a defense company first and foremost. We view ourselves as an optical technologies company that right now our technologies are needed a lot in defense but not only. We still have a huge base of industrial imaging and industrial optics and so on.