LightPath Technologies - $LPTH - Ep:009 - Nano Cap Podcast

Absolutely. Thanks for having me, Will.

Yeah, absolutely. It's funny you should mention it. It's like, you know, if something isn't on LinkedIn these days, it doesn't exist, right? That's sort of the assumption there. Yes, I've actually, as you can see on my LinkedIn, I spent my whole career really in optics. But the way I got at it is very interesting because it's actually—I almost like to say it's in my DNA, inherited. My dad worked at Laser Industries, which was the first company to ever make a medical laser. And so I remember growing up as a child hearing from him about all these wonderful things that they do. And I'm a techie—I probably knew by the age of five that I'm going to be an engineer. And so growing up hearing about all this amazing technology of optics and lasers and what it can do and how the first lasers are shipping, can be used in an operating room, almost left me no choice but to really point my life in the direction of going into optics. And so by the time I went into university to start my undergrad, I already had a few years of optics under my belt just from the symbiosis of being near my dad and hearing everything he talks about and his work. And at some point he started his own business and like many other small businesses at first was working from home. So I literally had an optics company in the room next door to me. So it really pointed my life in that direction, which I'm very, very happy about because what ended up being is I was so immersed in this life that halfway through my undergraduate in electronic engineering, I already was publishing papers and started academic research and started a PhD when I was already in my third year of my undergrad. And so from there it was a very easy path into starting my own startup, which we're talking about late '90s in Israel. In Israel in the late '90s starting a startup was like a national sport. All you needed to do is have an idea related to optical communication and you could get funding pretty much. And that was the case. And so on my fourth year of my undergrad, when I was already deep into the PhD, my adviser and I started a startup company called Exite, which was commercializing fast-switching optical lasers. So lasers that could change their wavelength really quickly. And the idea was back in the '90s everyone felt that the networks will not be able to handle the amount of data that is needed. Optical switching is the key for the future. Valves based on silicon are just going to not handle the load. So you have to do switching in the optical level. Going very technical—it actually happened but it happened 20 years later. So what we were working on 20 years ago is happening now pretty much. And so that startup could—changed direction like many startups do. Ended up actually still selling it off to a telecom company. So was able to do a bit of money and then moved to the US and did my MBA and from there already LinkedIn started. So probably you can track the rest of my life just by looking at the profile.

Yeah. Yeah. I mean, it's great. It's funny—I get notifications about papers that I published if they get referenced and suddenly some paper from 24 years ago is getting referenced a lot now and it's really that point where I realize that what we were working on back then is now being commercialized but it's just satisfying to see it happen. There's a great coffee table book of companies that failed in the late '90s, early thousands during the dot-com bubble and every single one of them is some sort of unicorn today where it's food delivery on demand, cabs called through the internet, and all these things where everyone was right but they were all wrong at the same time.

Yeah. So, you know, I went to business school at NYU Stern, which everyone that goes there goes either into investment banking or consulting. And so, I came from technology manufacturing, but there's something about the environment around you. I don't want to call it peer pressure, but when you go to school with 250 others that are all talking about investment banking and consulting and all the people that come to interview, no one comes to business school at Stern to interview someone that can be a CEO of an optics company. So the interviews and the opportunities for internships and everything are all around consulting and banking. Banking for me was out of the question. I'm just not that type of guy. Consulting was something I felt like I wanted to try, but marketing specifically is something I always felt like is really the essence of everything we do. I mean, when you talk about starting a startup, putting the technical idea aside, half of what you're doing is marketing. You're out in front of venture capitalists, you're out in front of investors, you're trying to raise money. That's marketing all day long. And so I took an opportunity of going to work with a brand consulting company, which was incredible to be honest. I learned some incredible things there. And I also learned that it's really not for me. Sometimes that's also important. I had to explore that, check that box. See, okay, I tried to go the mainstream, that's not me. I really need to go back into the manufacturing world, the technology world. I need to make product, not just PowerPoints. But there was something I did learn very, very interesting in that company. Eric, the founder and owner of the company, is a brilliant branding person who wrote some of the best books out there on it. But I learned from him something very interesting and that is the perception part. So we worked with a company, O'Neill, that is a surfing company and when you work with O'Neill you see they have a very strong brand perception of hardcore surfers. In fact when we went to visit their headquarters every day at noon everyone drops everything and goes out surfing. That's how hardcore they are. But at the end of the day, most of their revenue comes from school bags, t-shirts, sunglasses, sandals, everything else. That's where the real money comes from. But everyone that buys that buys it because of that sort of secondary effect of feeling like a professional surfer. So sure, you can go out to the store and buy a dozen t-shirts from other companies that might have a surfing board printed on them or a wave or something. But the feeling you get wearing a t-shirt that is O'Neill, which is definitely considered the most hardcore professional surfer, you get a secondary effect there. And learning that and understanding how much the perception is really the key to it was key because that goes into many, many other things that you do every day in marketing.

Yeah. I had a boss that used to call it 'a Corvette in the corner.' You go into a showroom and there's a Corvette in the corner. You're not going to buy the Corvette, you're going to buy the mid-level car that you wanted. But just having the presence of the Corvette and knowing that it's made in the same plant and it's the same company gives you feelings that you're getting a bit more than just buying a mid-level car. And so that Corvette in the corner thing, which I learned from the founder of Thorlabs, Alex Cable, is a really powerful expression. I heard that expression not long ago and I started using it a lot because I found often times with engineers you have to stop them. It's like you don't have to keep adding features. You don't have to have the best product, save something for Gen 2, Gen 3, Gen 4. Apple does that incredibly, right? By the time they release a new iPhone, they already have in the labs the next two generations that they're working on that have already new features. They're not holding back that iPhone and waiting to add that in. On the contrary, they want to already know that that one is going to be obsolete soon because they want you to already upgrade to the next version after that. So that's definitely a difference between first generation founders that think that it's all about the features and second generations that understand that you just need to get out there, start getting the revenue, and then yeah, keep adding features, definitely you want to keep the differentiators there.

Oh my god. The funniest thing is while I was interviewing for LightPath, my wife—we were living in the US in Virginia—my wife went to Thailand for a week to visit a girlfriend of hers. And on the way back, she's saying to me, 'Maybe I'll wear a mask. I keep hearing these rumors about this funny virus or something coming out of China and just in case I'll wear a mask.' And she tells me, 'I flew all the way back from Thailand to the US. I was the only person on the flight wearing a mask. I felt so weird.' And three weeks later, a mask became a mandatory fashionable item, right? So yeah, definitely I interviewed while that was starting to unfold. Of course, we all thought that has nothing to do with us, right? We all remember Mike Pence standing out there saying, 'Oh, we contained COVID in the US. We had one plane come in and it's under control and that's it.' And I felt that it's under control. I signed my contract. I announced I'm starting. We were living in Virginia. The company is headquartered in Florida. My plan was to stay in Virginia until the end of the school year and then move the family, fly back and forth all the time. I flew down here on a Monday, spent five days here, said to everyone on Friday, 'Okay, I'm leaving back to Virginia for the weekend. I'll see you on Monday.' And then I couldn't see them for another four months. So my work as a CEO included four days on site meeting like ten people out of 350 and then four months we're meeting no one in person. And then after that even when I could come down to Florida because we just moved in the middle of COVID, I couldn't visit my factory in Latvia for two years and my factory in China for another year. So it was quite an introduction. But apparently you can achieve quite a bit without physically going there.

Yeah. Yeah. So one thing we made sure very early on is because we were worried like everyone of shutdowns or facility shutdowns, we developed a redundancy to make sure there isn't any process that is not done in at least two facilities. So we don't depend on one facility for one process only. The only exception is there's one process done only in Orlando but there also competitors we can use for that process. So if needed we have some external backup for that but that definitely worked out well even though we never had to go through a shutdown in the formal way of an infection and all of that. We did have periods where for example in Latvia 60% of the factory was out in isolation or exposed. And we had a period even in China where people had to sleep in the factory because they were locked down for two weeks. But it did work out well. It helped also now with geopolitics and us deemphasizing our China operation. When I came on board, the company was very, very focused on manufacturing in China. That is something that I was changing from day one. Even before the pandemic sort of hit in our face, it was already the writing on the wall that we can't just depend on China on everything. And so we've been deemphasizing the China operation. Really everything we do in China, have been doing in China, we can do elsewhere. And having another low-cost manufacturing center in Latvia really helps a lot because the cost of labor in Latvia is not that much higher than China necessarily. And so we're able to transition some operations and some activities pretty well.

Yeah. So if you would ask me four years ago, LightPath was an optical component company making lenses and it had some very unique technologies for making lenses, precision molding like injection molding of plastic, some diamond turning and so on. But when I came on board four years ago, it was obvious that that is being commoditized and that remaining as a component company in optical components is going to be just a race to the bottom. And so we worked very hard on our strategy and identified that our unique capabilities that allowed us for years to differentiate ourselves on the component level can also be leveraged to make much more than components. And so we've been transitioning into a system company. We started by making assemblies and saying, 'Okay, instead of buying a few individual components and assembling, let us design the assembly for you and we'll put it together.' Think of a camera lens. Back when we had an SLR camera and you would buy a lens to fit on your Nikon camera, we would make that lens assembly. So that was the first step. That's already 20% of the business. The next step after that through acquisitions and through more of an investment in R&D was to go and make the camera itself. And now we've been transitioning into a camera solution provider. And so you can look at it in terms of what are we selling? Four years ago we were selling glass. We were selling lenses that would cost maybe $2 a lens or maybe $50 a lens, maybe $100 for a really, really high-end lens. We went into making assemblies. The assemblies would sell anywhere from $100 to say $800. Now we're making cameras that sell anywhere from $1,000 to $30,000. So we've been climbing up the food chain by really leveraging the unique technologies that we have on the materials, on the glass, on the lenses, on optical design, and adding more unique capabilities through acquisitions. We acquired a year ago Visimid, which brought in some video analytics capabilities and video engine capabilities. That allowed us actually this week to announce a really, really cool new product that integrates AI into the camera video pipeline on the camera level. You can now deploy AI. So you don't need to even have a separate computer. You don't need to worry about, okay, which GPU do I choose? What computer do I get? A Raspberry Pi, do I get a high-end computer? If you have a model that's already trained and ready, you can just download it directly into the camera and seamlessly it will be already in the video pipeline. So it's differentiators like that that allow us to go from the $20 lens to the $10,000 camera.