LightPath's Q1 2026 Earnings Call: Contradictions Emerge on Gross Margins, G5 Backlog, and Supply Chain

Date of Call: November 11, 2025

Financials Results

• Revenue: $15.1M, up 79% YOY (vs $8.4M in prior-year quarter)
• EPS: $0.07 loss per basic and diluted share (net loss $2.9M), vs $0.04 loss per share in the prior-year quarter (net loss $1.6M)
• Gross Margin: 30% of revenue (gross profit $4.5M), down from 34% in the prior-year quarter; gross profit up 58% YOY
• Operating Margin: Approximately -16.6% (operating loss ~$2.5M), roughly flat vs prior-year operating margin of -16.7% (operating loss ~$1.4M)

Guidance:

• Expect fiscal 2026 margin expansion and continued revenue growth; management is aiming to match Q1 revenue in Q2.
• Focus on converting ~$86–90M backlog into revenue at healthy margins.
• Scaling production: moving to larger Texas facility, adding Black Diamond glass capacity and in-Orlando G5 camera build; hiring manufacturing/engineering.
• Continue reporting adjusted EBITDA as key metric; $8M strategic investment to support commercialization and capacity.

Business Commentary:

* Record Backlog and Growth: - LightPath Technologies reported a record backlog of approximately $90 million, more than four times the levels of just a few short quarters ago. - The growth was fueled by a strategic shift up the value chain, integrating proprietary materials and design expertise into complete imaging systems, particularly those using Black Diamond Chalcogenide glass as a domestic alternative to germanium.

• Strategic Investments and Partnerships:
• The company announced a strategic $8 million equity investment from Ondas Holdings and Unusual Machines.

• These investments are intended to accelerate the commercialization roadmap, focusing on uncooled infrared solutions for drone applications, while also supporting the reshoring of advanced optical and imaging technologies to the U.S. and Europe.

• Gross Profit and Margin Expansion:

• 
• Gross profit increased by 58% to $4.5 million, or 30% of total revenues in the first quarter of 2026, compared to 2.8 million, or 34% of total revenues in the same year ago quarter.

• This trend was driven by the growth in higher-margin systems and subsystems, which now make up more than two-thirds of the company's backlog, despite certain non-recurring orders impacting the gross margin as a percentage of revenue.

• Diversified Product and Market Expansion:

• Revenue from assemblies and modules accounted for 39% of consolidated revenue, with significant growth in the defense, public safety, and industrial markets.
• This expansion is supported by the transition from germanium-based to Black Diamond glass-based systems, which offer improved performance and supply chain resiliency, helping LightPath penetrate these markets more effectively.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized a record backlog (~$86–90M), 79% YOY revenue growth to $15.1M, successful $8M strategic investment, multiple large orders ($18.2M for 2026, $22.1M for 2027), and statements that the business is at an inflection point with expected margin expansion and production scale-up.

Q&A:

• Question from Richard Shannon (Craig Hallam): Are you seeing China loosen germanium exports and how fast are you converting your camera portfolio and subassemblies to Black Diamond?
  Response: China may signal some loosening but management believes availability will remain restricted for defense; customers who moved to Black Diamond intend to stay; conversion pace is limited by engineering resources and hiring priorities, with current focus on delivering backlog before accelerating conversions.

• Question from Richard Shannon (Craig Hallam): Where else must you improve capacity (internal or suppliers) and on what timeframe?
  Response: Capacity needs exist across fabrication and glass production; investing in Orlando glass capacity and Texas fabrication, working with focal-plane vendors where constrained; investments are underway immediately but demand often fills newly added capacity quickly.

• Question from Richard Shannon (Craig Hallam): Any guidance on December quarter sales progression and EBITDA?
  Response: Management declined formal guidance but said they are aiming to repeat Q1 revenue in Q2 and expect continued positive adjusted EBITDA.

• Question from Glenn Matson (Ladenburg Thalmann): Is the NGSRI award still expected in late 2025/early 2026 and does the Texas facility investment signal high confidence?
  Response: Timeline remains uncertain due to government scheduling; Lockheed testing is progressing and the capacity investment is a shared, preemptive bet with Lockheed to be ready to scale quickly if awarded.

• Question from Glenn Matson (Ladenburg Thalmann): Direction for gross margin medium/long term given shift to systems/subsystems?
  Response: Target is to increase gross margin toward ~35% by fiscal year end (March); Q1 mix included higher-volume IR components (lower margin), but management expects margins to improve as systems mix scales.

• Question from Glenn Matson (Ladenburg Thalmann): Will scaling operations materially increase Opex?
  Response: No major Opex step-up expected; most near-term spending is capex (furnaces, equipment) and modest assembly-line investments; Opex generally remains in line with fiscal 2026 plan.

• Question from Jason Schmidt (Lake Street Capital Markets): How many $10M+ annual-revenue opportunities are in the pipeline?
  Response: Management cites roughly seven to eight such opportunities in the pipeline.

• Question from Jason Schmidt (Lake Street Capital Markets): Should we expect gross-margin noise from capacity expansion in the December quarter?
  Response: CFO: expansions were modeled to avoid margin drag and the company expects margin improvement, not degradation.

• Question from Jason Schmidt (Lake Street Capital Markets): Is G5 still about two-thirds of the backlog?
  Response: Yes—G5 remains the majority contributor, roughly ~60% of the backlog, though proportions ebb and flow as product ships.

• Question from Oren Hirschman (Aigh Investment): What is primarily driving the sizable potential awards—Black Diamond or long-range cameras?
  Response: Most opportunities are driven by Black Diamond glass advantages (supply resilience and performance) and long-range/counter-UAS camera demand; counter-UAS is an advanced, growing near-term driver.

• Question from Oren Hirschman (Aigh Investment): Are there alternative technologies that match thermal cameras for long-range UAS detection and engagement validation?
  Response: Other sensors (radar, RF, acoustic) exist but thermal imaging uniquely provides night/through-weather visual validation needed for kinetic engagement, making it essential.

• Question from Oren Hirschman (Aigh Investment): Are systems shipped directly to the military or to integrators?
  Response: Cameras are sold primarily to integrators (defense primes and smaller integrators); some optical assemblies are shipped directly to military customers.

• Question from Oren Hirschman (Aigh Investment): Do integrators use your systems to keep targets under surveillance and perform engagement calculations?
  Response: Yes; integrators pair cameras with pan-tilt systems and perform tracking and calculations (e.g., azimuth, range estimates, environmental data) to support engagement decisions.

• Question from Oren Hirschman (Aigh Investment): Are there other missile programs using similar technology in the pipeline?
  Response: Yes—two additional missile programs are in earlier stages; prior development work clearing environmental and G-force requirements should accelerate their integration timelines.

• Question from Oren Hirschman (Aigh Investment): Do you have a non-GAAP OpEx number excluding crisis-related charges?
  Response: No, management does not have a non-GAAP OpEx figure excluding those charges available.

Contradiction Point 1

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

Can you discuss gross margin trends and expectations? - Glenn Matson(Ladenburg Thalmann)

2026Q1: Gross margin was impacted by sales mix, particularly high IR component sales. Target is to increase margins to 35% by year-end, reflecting expected higher contributions from systems and modules. - Al Miranda(CFO)

What is the pipeline size after converting to backlog? - Richard Shannon(Craig-Hallum)

2025Q4: We aim to increase gross margins to 35% in the short term and potentially 40% in the midterm through product mix changes. - Albert Miranda(CFO)

Contradiction Point 2

Backlog Attribution to G5

It involves clarification on the attribution of the backlog to G5, which impacts revenue and growth expectations.

How is G5 backlog affecting overall backlog? - Jason Schmidt(Lake Street Capital Markets)

2026Q1: G5 backlog still contributes about two-thirds to the overall backlog. - Sam Rubin(CEO)

What was G5's revenue contribution in the last quarter, and what portion of the $90 million backlog is attributed to G5? - Jaeson Schmidt(Lake Street Capital Markets)

2025Q4: The $90 million backlog has about 2/3 attributed to systems and subsystems that G5 is part of. - Albert Miranda(CFO)

Contradiction Point 3

Impact of Converting Germanium to Black Diamond Glass

It affects the company's ability to meet customer demands and maintain the existing order pipeline.

Can you discuss the germanium market and your transition of camera and sub-assemblies to Black Diamond glass? - Richard Shannon(Craig-Hallum)

2026Q1: We are in the middle of those conversions. Priorities are on short-term revenue. We are in the middle of those conversions. - Sam Rubin(CEO)

What does expanding Visimid capacity signal? - Glenn Mattson(Ladenburg Thalmann & Co.)

2025Q4: We have lots of manufacturing capacity. We've got more than 3-quarters of the production capacity that's needed to support the G5 scalable growth. - Sam Rubin(President, CEO)

Contradiction Point 4

Supply Chain Resiliency and Capacity Improvements

It directly impacts the company's ability to meet production demands and deliver products on time, which is crucial for customer satisfaction and revenue.

Can you discuss supply chain resiliency and capacity improvements? - Richard Shannon(Craig Hallam)

2026Q1: Capacity is being added across all areas except molded optics. Key investments are in glass production and camera assembly. Some constraints from supplier focal plane arrays are being addressed through alternative materials or replacement. Vertically integrated supply chain is being expanded. - Sam Rubin(CEO)

Are there capacity constraints on the G5 side, and can production be relocated to Orlando? - Scott Buck(H. C. Wainwright)

2025Q3: Capacity is not an issue, but there are complexities in sourcing components. The single vendor for detectors and obtaining optics could be supported by LightPath's operations. - Sam Rubin(CEO)

Contradiction Point 5

Sales Progression and EBITDA Trends

It involves the company's guidance on sales progression and EBITDA expectations, which are crucial for investor confidence and financial planning.

Can you provide guidance on sales progression and EBITDA trends? - Richard Shannon(Craig Hallam)

2026Q1: We're not offering specific guidance, but we're satisfied with Q1 sales. For EBITDA, we aims to maintain positive EBITDA, supported by margin improvements as higher-margin systems contribute more to revenue. - Al Miranda(CFO)

Will the combined company be profitable in the next few quarters, given G5's seasonality? - Brian Kinstlinger(Alliance Global Partners)

2025Q2: We're doing well on sales. We're not offering specific guidance. But we're on track to meet our annual sales plan. From an EBITDA perspective, the first half of the year was encouraging, and we should see a slight margin expansion sequentially. - Al Miranda(CFO)