From a China-created Supply Chain Crisis to an $8M Investment | Sam Rubin CEO LightPath Technologies

So once you understand where your value is, where you create value for your customers, because that's where you're going to capture value, that's how you're going to generate profit. Then you focus on that. But again, it goes back to understanding where is the real value. The value of LightPath, the real value of LightPath wasn't in the technology of making a lens. It was in enabling the end application. And once we started focusing on that, we realized, well, we can become much more than just a lens company.

Absolutely. Good to be here, Nate.

Yeah. I'm embarrassed to say it's more like 30 years, but I like to think of myself as a 40-year-old still. So, I'll go 25. But I spent my whole career really in optics and started on the engineering side but always had some entrepreneurship in me. And at some point when I was at FLIR, which is a pretty big company now, you know, three quarters of a billion or so dollars, I got to do a lot of turnaround and fixing and sort of fell in love with that part. I guess I've always been a big change driver and love, you know, changing things for the better. Of course, hopefully for the better. And turnaround and fixing is really a lot about that. So it fit in nicely with that.

Well, first of all, any turnaround always includes all of those, right? One level or another, and depends on the situation. Sometimes you will come into an incredible team and you really don't need to worry about that part too much. It doesn't mean that it's not part of the turnaround. But if you're dealt a good hand and a great team, that's not the driver there. I tend to focus on my technological area always, right? So I'm always around optics and photonics and therefore by nature it turns out to be very innovation or technology-driven, right? And so almost always when I do a turnaround or when I come into a company, I have a very significant effort around the product and offering of the company, because at the end of the day this is a technological field. Photonics, optics is really an enabling technology, right? So the power of optics is in what it enables other industries to do, right? So optics enables your iPhone camera to be a great camera and to be more than just a phone. Optics enable your wireless mouse to work as a pointing device and so on. So when you think about it, at the end of the day, you always have to understand what value you create, right? Because everything is around that. The value that optics creates is enabling other industries, enabling other applications to do something, either do it completely, which it couldn't be done before, or just do it better and faster. And so once you understand where your value is, where you create value for your customers, because that's where you're going to capture value, that's how you're going to generate profit, then you focus on that. And in my world, that tends to be typically around the technology and around sort of enabling to do more things with the same technology.

Yeah. So LightPath, it was very much so. So the reason is not completely just the company. The reason is also a change in the industry. So optics 20, 30 years ago was a very niche technology. You didn't see it anywhere where you're seeing it today. I mean a webcam 30 years ago was this probably massive video camera, camcorder or something like that. And now all of that changed. So along the lines when optics got adopted into more and more industries, the whole supply chain, value chain of the technology changed. And 20 years ago, 30 years ago, LightPath's customers were optics companies, were companies like Lockheed Martin or FLIR or Kodak, companies that optics was a core part of what they do and so they designed the entire systems and all they needed a company like LightPath to do is just make the individual lenses. And that's why it's not only LightPath, 20 years ago there might have been a thousand companies in the US that were making lenses, might be an exaggeration but hundreds of companies and now there are a handful. So the reason is the more optics got adopted into more places, the more customers wanted a complete solution and not just individual components. LightPath failed to realize that beforehand and that's really the change we've been doing. We've been saying okay we have all this great technology, instead of taking it and just making lenses for someone else to build a camera from, we will build a camera. And if you would, instead of selling glass, we're now selling pixels. We're selling images because we're selling imaging capabilities. So this change where now companies that build drones don't want to build the whole camera system themselves. They just want to plug it in. Companies that integrate optics into a flow cytometer for example don't want to design the entire thing. They want to buy an optical engine and so on. So that created the opportunity for LightPath to step up and do that. But again it goes back to understanding where is the real value. The value of LightPath, the real value of LightPath wasn't in the technology of making a lens. It was in enabling the end application. And once we started focusing on that we realized well we can become much more than just a lens company. And now probably more than 50% of our business, we've nearly doubled since then, and more than 50% of our business is systems, is solutions, not the lenses.

So we started the transition five years ago in 2020. Of course it was during COVID so that was a whole set by itself of challenges. It took about two years just to clean up operational stuff in the company where there were a lot of problems globally, there was a lot of waste. We had to really button things up and sort those out before we can even start going down a path of change. And about two or three years later we started taking baby steps. We started doing optical assemblies, saying to a customer okay you're buying from us five lenses. What are you doing? You're putting them together to make an assembly, a zoom lens. Let us do the assembly for you or let us design it for you and do it for you. And that got us to probably about 20%. Then we started making cameras, but then to really make big leaps there and for it not to take 10 years to develop an entire portfolio, we started acquisitions. So we acquired Visimid Technologies that does one type of infrared cameras. It's uncooled cameras. We acquired G5 Infrared that does another type of cameras. Those are cooled cameras for long range detection. So two very complementary products. All of them are based on the technology of LightPath in glass, in optics, in optical assembly. So it's really very synergistic. But instead of developing an entire product line which would take five years plus, you buy it in. That's very natural for a company to do that once you're already set in a strategic direction.

Yeah, so Visimid was about two years ago almost to date. And G5 Infrared was half a year ago.

So historically the company when it was a component company was very focused on low-cost manufacturing and low-cost manufacturing for industrial applications, commercial and industrial, and that naturally led to China. So when I joined five years ago, the vast majority of manufacturing was in China and China was even 35% of our revenue because we were selling to OEMs, to original equipment manufacturers that would buy individual lenses from us, right? Once we started shifting from that to more value-added assemblies and systems, naturally those are done in the US more and the sales end up in the US. China is now less than 5% of our business. Most of our business is now defense and US-oriented. So we've made some very large investments in the US. We tripled our footprint here. We brought manufacturing in. Most of the company altogether is in the US at this point both in terms of revenue and people. The largest manufacturing operation is now here in Florida where before it was in China. So we're a very very different company and that requires CapEx for sure.

Yeah. Some of it was luck, some of it was foresight. You know, I wish I could take credit for it as are all things, right? But I'll gladly take the credit. The reality is that, you know, it's really stars aligned in multiple ways. You know, the geopolitics really drove Chinese customers to stop buying from us regardless. And so we started looking for other avenues and those tended to be more US. We had a feeling that the whole situation with critical minerals like germanium and gallium is going to come to a blow at some point. And we had already a core technology of infrared glass that replaces those materials. We just doubled down on that and invested much more heavily. We went out and we licensed some additional technology for that and we made investments and some of the investments were made actually by the governments that said, you know, we found partners inside the government that understood already four years ago that it's time to start building up manufacturing in the US again. And so there was a lot of good things that aligned. Then it also happened to be that our operation in China had friction going on. So it sort of incentivized me even more to reduce that one and move back to the US. So but everything seems to have worked out really well now.

So we trademarked Black Diamond as a name and that then no one needs to break their teeth trying to understand any chemical compositions. Chalcogenides are actually a family of materials. It's sulfurs and arsenic and selenium and others. And some of the materials we dope, they're not even chalcogenides, they're other materials. But that is sort of some of the beauty of it because historically glass or crystals that were used in infrared optics like silicon, germanium and gallium, those are naturally occurring materials. So the properties that nature gave them are the properties you have. You cannot really change them that much. But once you start making glass, glass is a synthetic material really. It's a chemical composition. Now you can start tweaking it and you can add a little bit more of that, a little bit less of that and come up with now 20 compositions that are slightly different from each other but are so complementary to one another.

So that's the beauty of those materials. And so the functional beauty of the materials then is the ability to integrate both infrared and night vision into the same lens.

So multispectral imaging, so imaging in multiple infrared bands at the same time through one device is a very big part. If you look at any military equipment, but even in the civilian world to some degree, there are different types of infrared cameras. Night vision, as you pointed out, is one. It's actually an infrared camera. There is then a camera called shortwave infrared that you can use to look through clouds for example, or midwave infrared which allows you to image for a very long distance, or long waves. There is different functions for each one of those. Until now each one of them was a separate camera. So if you look at a turret on a plane, on a big gimbal at the border or on a jet or on a drone, you will see multiple cameras there because each one of them serves its own function. You couldn't combine them because each one of them uses different wave bands and that requires different types of glass. So germanium works for one, but it doesn't work for the other one. And silicon works for the other one, but not for that one, and so on. These materials work for all of those. So all of a sudden, you can now start making cameras that can do more than one function. That reduces the size, the weight, the cost, the power consumption even on a drone, everything. So that's one big difference. Another big difference is the complexity of the system because until now optical designers had only a handful of materials to use like germanium and silicon that had set properties to them like for example sensitivity to temperature changes. Those materials are very sensitive to temperature changes. So you can take a camera and you can calibrate it to be focused here, in the room, and then it will go out to the desert and it's 30 degrees more, 40 degrees more and it will be out of focus because the glass changes its properties when the temperature changes around, and with germanium and silicon in a very extreme way. So those cameras now, think about it, not on a handheld device where I can just focus it. Think you put a camera on a drone and the drone is now in the desert at 120 degrees. But then night comes and the temperature changes drastically and drops. You're not going to go up there to the drone to refocus it. You need to add a motor or an engine or something that would move it and refocus it. So these materials can be insensitive to temperature changes. So you can now build a system that does not need to be refocused when the temperature changes.

So think of drones that go through temperature cycles like that. A satellite which during the daytime is baking in the sun and during nighttime is freezing in cold space. Those are all systems that are extremely sensitive to temperature change today and our new materials solve those.

So I'm not a tactician, a war tactician or strategist to be able to say you know, drones are the future or not. They definitely seem to be playing a much bigger role today. Of course it's a new technology but our materials are very new. I mean we're just now starting to roll them out. So we're already making cameras that are using those materials. Two weeks ago, we actually announced two new long range zoom cameras that are using our materials and therefore completely germanium-free. So this is as far as I know the first in the industry to have that. So all other cameras are still using a lot of germanium and still using inventories of germanium that exist in the west or finding some ways to get sources of germanium.

Yes. Yeah exactly. So now it's even worse, right? Before we were sourcing it from countries we didn't want to source it, now those countries won't even sell it to us. So China stopped selling germanium to the US eight months ago. Now there were pretty significant inventories in the US and everyone was going through them and using them but at the same time everyone or a lot have been working with us to redesign their systems to now replace germanium with our materials.

Yeah. So Black Diamond is a family of products. Two of them are generic products that their formulation is publicly known and there are at least two other companies that make those products as well. All other materials in our Black Diamond family we own exclusively and we do not publish the formulation for those and therefore they're only ours. And so those proprietary compositions are what's in that new long range.

And those are under an exclusive license from the government. They were developed at Naval Research Laboratories some years ago and we have an exclusive license to them and we've been working to commercialize them and those are the real game-changers if you would in performance systems. The other two, what we call BD6 and BD2, are very generic, exist, there's another German company that makes them for example, and are comparable. The materials that the German company makes and what we make in terms of BD6 are very similar to one another. But the only difference is we're a US company. We make it completely in the US. And we're fully qualified by Department of Defense.

Well, you should. You should.

Weights went down for the last two days.

The micro-caps have been hammered. Defense and micro-caps have been hammered for the last two days.

Well, first of all, we're a growth company. So we're more focused on gaining market share and growing right now than on generating profit for dividends or anything like that. I mean, there's a time and place for everything and there's the right thing to do at the right time. Right now, our focus is topline and aggressive growth and market share. With it will come, already is coming the cash flow and will come the profitability later on. But I don't think people buy our stock because they think, oh, these guys are going to generate for me a dollar a year in terms of profit so I can spend five dollars on a share and within a year I'll get a dollar back in profit. They're buying us because they see, okay, this company was 30 million for a long time in revenue, is now going to be 50 to 60 million, is next year maybe 100 million or whatever. I'm not guiding or giving any numbers. I'm just implying how people might look at it. And they say, okay, that's what I'm buying. I'm buying the exponential growth and what the company will deliver down the road.

The numbers are very big. To a point of, if you look at one application alone, border patrol, up until a few months ago they were talking about putting a few tens of new towers and cameras along the southern border, then it went up to 300, now they're talking about more than a thousand new towers and cameras that go in there are hundreds of thousands of dollars a piece. So not too difficult to make the maths there in terms of what it could be. Another one is the next generation Stinger missile. So we make a camera that goes inside that missile. If we go into production for us, it will be somewhere between 50 to 100 million a year in revenue. That doubles the size of the company, right? Pretty much. So there's big money. That's the difference between selling lenses for 30 dollars a lens and selling cameras for 30,000 dollars a camera or 300,000 dollars.