Every drone, every missile, every jet needs a lens to strike its target. But almost all of them are built from a critical metal that China controls and has banned the US military from using. One company saw it coming and their stock is up over 240% in the last year. Sales doubled in the most recent quarter while the backlog tripled as they serve customers like Anduril, Lockheed, and Raytheon. Today you'll learn about LightPath Technologies, one of the most exciting small cap defense stocks. Please enjoy my conversation with LightPath CEO Sam Rubin.
Okay, everybody. I'm here with Sam Rubin, the CEO of LightPath Technologies. Sam, I'm going to give you a break and excuse yourself from introducing yourself here. So, Sam has been CEO of LightPath since March 2020. Before that, he was general manager at Thorlabs running their imaging systems division. He previously co-founded an optical communication startup, Xlight Photonic, and holds an engineering degree from Ben-Gurion University and an MBA from NYU Stern. Yeah, I guess I'll just get into the first question, which is your stock's up 240% in the past year. It's incredible. But we've seen just such weakness in drone and defense names over the past few months, and it's almost like everyone just kind of lost interest and excitement about the defense category after the Iran war. Can you tell us where the defense sector is right now in terms of sentiment and why we're seeing such weakness and maybe why retail investors this might be a good time for them to look back at the defense space given there's been so much volatility in AI and maybe defense has been less, more ignored.
I think one of our customers said recently, you know, there's no risk of world peace breaking out anytime soon. So unfortunately for us as citizens of the world, you know, this is just getting worse and worse. And so while defense sentiment in the markets might have been weaker, when you look at the numbers, it's the exact opposite. Europe is now building armies again, percentage of GDP are well above even the 2% Trump wanted the European countries to invest. You look at Germany, you look at Spain, you look at those countries and it's enormous amounts being poured into defense and then you look just at how much money was spent or how much munition was spent in the last few months in the Gulf and what it would take just to rebuild that, not to mention to prepare for additional conflicts that are certainly coming. It's just getting started. I mean, from what we're seeing, doubling every 12 months is going to be almost a norm for us in the near future.
Trillions of dollars getting spent on defense. And it makes me think people are getting excited about AI infrastructure stocks because trillions are being spent on it. You know, why might the market not view massive government budgets in the same vein as hyperscaler capex?
Yeah. What's interesting is you know the AI infrastructure is like you said infrastructure and the span and repeatability of spending there is completely different. Now I'm no investment advisor and I'm not going to tell people what to invest in and what not to invest. But let me just say that what we make is pretty much consumables. A missile gets fired once. A bomb gets dropped once. You know, we're looking at spending that is for years to come and to repeat itself. So, I think the two things are fairly different.
Interesting. Just an interesting dichotomy for sure. I want to talk about IR sensors, infrared. You know, when I think of infrared, I think of like playing Call of Duty and using a thermal scope where you can see your enemy's hiding, right? Why is infrared and why are these sensors so necessary in this modern battlefield that we've entered this new warfare environment?
Yeah. So infrared sensors of different types have capabilities that our eyes don't have. Seeing through smoke, seeing in complete darkness from very very long ranges. So you know when you look at our cameras for detecting drones for example they can detect the drone from 15 miles away because the light in the atmosphere the infrared light transmits much better than visible light. So ranges distances in infrared are far superior to regular vision. And so it's always been a thing in defense, but in the last few years, multiple things came together to make the infrared technology far far more attractive and therefore embedded into far more platforms and capabilities. Even in the civilian world, you look at firefighters, every one of them has today a thermal camera. 10 years ago, a thermal camera for firefighters was like, you know, maybe the chief of the station had one. There's just so many things that have happened in terms of pricing technology capabilities that came together that thermal imaging now is in pretty much every single platform, every single system.
Yeah, that's incredible. Thermal imaging requires germanium. Germanium, China controls the majority of it. It's a byproduct of refining other metals. So it's not something that you like mine specifically for. And the US is banning use of germanium in optics. So you guys have are positioned around this with a germanium-free product. It's this Black Diamond glass. It's a proprietary product that was spun out of a laboratory that I believe it was from the Navy. So and it gets around this problem of depending on this Chinese controlled rare earth mineral. I guess my big question is like how unique is your technology that that gets around the germanium problem compared to alternatives and like how deep is the moat around this like IP that you have with this Black Diamond?
Yeah. So so the materials is a portfolio of materials. It isn't one that replaces germanium. It's about 20 materials nearly. And the important part here is they're not only germanium alternative when you look at them as a whole they outperform germanium significantly. So they make systems smaller, lighter, cheaper. You know, if you're talking about the drone carrying a camera, if the weight of that camera is lighter, the drone can go further away, right? I mean, this is the power consumption and so on. Our materials are an alternative to germanium, but also perform better in many, many aspects. Of the 20 materials that we have, 18 of them are completely exclusive to us. No one else produces them. Formulation is ours. No one knows about it. Two of them are more commonly known and you can see them with companies like Schott and Vitron that produce materials similar to that. But the 18 of the 20 are, you know, unique to us or exclusive to us. And what we've done there is we've taken the advantage we have from those materials and helped position us as a system company. So instead of saying hey I have an alternative to germanium buy this material from me and I would get only a small portion really of the market. I said okay you know what I'll go and buy G5 Infrared which is a leading company that makes cameras. They like FLIR depended on germanium. We infused them with our materials and so now G5 Infrared can make as many cameras as they want while FLIR and other companies are struggling with it. So we took that lemon, lemons if you would and made a real lemonade from them by giving us a very unique advantage on a much higher level of integration. That's how we transformed the company into what it is today.
Yeah. I mean that's the dream, right? Vertical integration, claiming more margin, owning more of the stack. And speaking of that, right? So, the US said they're trying to buy 200,000 drones by 2027 and we're already halfway through 2026. I want to know like with how much funding is going into drones. I believe it was something like 75 billion in the most recent proposal. You know, how big is that opportunity for you from a TAM perspective? Because drones are really what people think of when they think of LightPath.
We're starting to see orders come in for products related to drones. In those small FPV drones, we make the what's called the objective lens, the lens that goes on the camera, but not the whole camera. We're looking at something that for us is north of $10 million a year, probably as much as 20 or $30 million a year, just from those FPV drones, just from those first person view. Then on larger drones like the platforms and ISR drones and such, we make complete camera systems. And there you know we're talking about additional tens of millions of dollars. So this is a very significant part of our business. What's also very interesting is you know a drone needs to operate in many different temperature ranges. Cold up there, hot down here. Materials like germanium are very sensitive to temperature. One of the advantages of our materials, our Black Diamond, it's insensitive to temperature. So, it's another place where our materials far outperform germanium and other materials by making the drone much more resilient to temperature changes.
Yeah. And it sounds like drones are actually just the tip of the iceberg. So, you guys are also in border surveillance towers, you're in missiles, you're in other products. So, could you break down a few like real world examples of like how your optics are installed on various systems?
I would say that the biggest part of our business right now is actually detecting the drones. probably as much as 30% or more of our revenue is large camera systems that scour the sky looking for drones. We can detect drones from miles and miles away using our infrared cameras. Again, back to why infrared because you can see better through the sky and you can see at complete night and no lights and darkness and through clouds and smoke and so on. That's a massive part of our business here and now already. And then we have cameras we're installing along the border for detecting intrusions. We have cameras that we embed into missile as a heat-seeking missile for shooting down the drones or planes or so on. So we're getting into pretty much every platform. I'd say at this point in time there I would be very surprised if there's any new program that involves infrared imaging that is we're not part of it in one way or another.
Very cool. And speaking of programs you guys are working with Anduril, which is of course you know for one incredible to have their logo in your presentation and just such a beloved company by retail investors who of course can't own the business but uh are incredibly passionate about what they do and the products they make. Can you shed any light on working with Anduril or is there no official program?
Yeah, we work with them on a few programs around different areas mostly counter-UAS is probably the majority of what we do with them. But it's down to multiple other programs. In some of them they embed and buy complete subsystems cameras from us. In some of them it's assemblies or just optical elements. But they're by far becoming one of our largest customers, more than 10% of our business for sure. And they would probably get really upset if I talk too much about what we're doing with them. But we definitely enjoy working with them. They move fast. We love moving fast. And they don't let any of their history or legacy that some of their larger primes have, you know, ties them down. So, we love that because we're the same thing. We, you know, was a newcomer in the street. We weren't a defense company a few years ago, like you pointed out. And, you know, we have a similar DNA and mentality.
Yeah. One of, me and my partner's specialties was finding these small caps tied to Anduril in any way, shape, or form back last year. So, I mean, just the relationship is something that people really care about, you know, as an investor. I want to get into your recent quarter. So, it looked really good. Revenue was up near... more than double year-over-year. It was your third straight quarter of positive adjusted EBITDA. Backlog at 110 mil which is was up significantly. Your margins were expanding as well which is great. What's the big bottleneck to convert this huge backlog that you guys have generated into revenue?
The backlog is you know sometimes people talk about backlogs they think about late deliveries. So this is not late deliveries. This isn't like we were supposed to ship 111 million and we haven't shipped it. This is future scheduled deliveries, right? So these are this is a growth for the next 12 months. So this is what we're shipping in the next, you know, few months and so on. But altogether, it's about the capacity. It's about growing a manufacturing company doubling in size. We were $37 million last fiscal year. This fiscal year just ended. We're probably north of 70 million. Next fiscal year, we probably close, you know, over 100 million. Analysts put us, you know, maybe even much more than that. You know, that's a very, very tall order for a manufacturing company that makes everything. I mean, we're vertically integrated from making the glass, the lenses, assemblies, the cameras. So there's simply a lot of effort across the entire company at adding much more capacity. I think pretty much every function we have and any manufacturing capabilities that we have, we're probably doubling or more in size. And there's much more yet to come. So, this isn't we're not planning on growing or adding capacity just to be able to serve 111 million. We're looking at 150, 200 million.
Those are going to be around the corner. I know you authorized something like six million of capex last quarter. And but it can't be deployed just yet. What's kind of like the blocker in getting that?
Well, the lead time, lead time on equipment. Everyone is growing, everyone is growing the industrial base in the US which we're grateful for. You know it puts a strain just like you know we have strain on our manufacturing. Our vendors have strain on their manufacturing. Some of them were not used to you know delivering equipment too fast on high demand. So, so it takes some time, but we're we're looking at going even further than that, and we're in discussions with different groups in the government about that and potentially doing some things together to scale the manufacturing even further.
Yeah, there's this company called Performance Drone Works. They got a $820 million loan from the Pentagon Office of Strategic Capital. I think you've mentioned, you've talked with them before. You know, is that a strong possibility to get that federal... I mean, we've seen Trump take even stakes. He's even discussed taking stakes in some of these private drone companies...
There's multiple discussions and multiple angles. You know, I don't know if it would be a loan or an equity or a grant. The different vehicles that that OSC is deploying. We are in discussion with multiple different vehicles like that inside OSC and I'm pretty sure we're going to... there's going to be something. I can't share what, but there will be.
That's it's really interesting to hear about. And that ties directly into like fundraising, how you fund the business, right? So to open a maybe slightly more unsavory topic, the share count is up quite a lot, about 55% of that. So 69%... about 55% of it came in just the last 13 months. Two equity raises recently. You know when do you think LightPath stops needing to tap the equity market for dilution?
