Laser Photonics - Q4 2023

Transcript

Operator (participant)

Greetings, and welcome to Laser Photonics fourth quarter 2023 call and webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Siegel from Hayden IR. Thank you. You may begin.

Brian Siegel (Head of Investor Relations)

Thank you, Doug. With me today are Wayne Tupuola, Laser Photonics CEO, and Carlos Sardinas, the company's VP of Finance. Any forward-looking statements made during this conference call, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those that the company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports the company periodically files with the SEC. Laser Photonics assumes no obligation to either update any forward-looking statements that are made or may make or update the factors that may cause actual results to differ materially from those that they forecast. I will now turn the conference over to Wayne. Wayne, take it away.

Wayne Tupuola (CEO)

Good morning, ladies and gentlemen. Thank you for joining us. This morning, we reported fourth quarter and full year 2023 results. As part of our press release, I wrote a letter to investors reviewing our 2023 highlights and provided detailed commentary on what to expect for 2024. On today's call, I will review the quarter, our highlights from 2023, and then outline some of the exciting plans we have for 2024. Before I do this, however, I wanted to introduce Carlos Sardinas, who joined us as VP Finance at the beginning of April. Carlos brings a wealth of relevant finance and accounting experience, having served in these roles at L3Harris Technologies and its predecessors. Welcome, Carlos. We're excited to have you join us. Before reviewing our quarter, I wanted to address our late filings and impending restatement for 2022.

As you know, we are a young public company, and since coming public, we had some turnover in our finance leadership and made an auditor change. These moves came from the lessons we gained throughout the year concerning the auditor change as part of starting of engagement. Our new auditor did a thorough two-year review of our financial reporting and asked us to make some changes. Upon reviewing and auditing our 2022 financial statements, our new auditors determined certain previously reported items required restatement. Specifically, revenue and AR were not recognized in accordance with ASC 606, and there was a liability related to stock that we issued post-IPO, which was incorrectly recorded under cost of goods sold and needed to be reclassified.

These reclassifications drove the restatement of our 2022 results and the delay in filing our 2023 10-K as we corrected these items as well as early quarters. We are working to hopefully file our 10-K today. Now that we're addressing these audit concerns and have brought on Carlos to oversee our finance and accounting, we hope to improve our transparency and financial reporting. We had a strong fourth quarter and revenue growing 673% to $0.8 million versus the restated $0.1 million last year. We saw strength in our CleanTech product lines, which made up 80% of our, the unit sales during the quarter. We also made significant progress on the customer front by adding 10 customers. These customers came from industrial aviation, energy, maritime, and educational industries. Next, I'd like to remind you about the re...

Reasoning behind the noticeable shift in our operating expenses compared to last year. As we said at our IPO and repeated throughout the year, we expected to make significant strategic investments in sales and marketing activities to penetrate existing customers, further identify new potential customers, and educate the market about the benefits of our CleanTech product line. One of these investments was participating in a major trade show that attracted more attention than we initially anticipated. The fact that the show helped us win several new orders while building a $70 million-plus pipeline of opportunities for us to pursue over the next 12 months. Based on these early returns, we are confident that the positive impact of these strategic investments will carry us throughout the remainder of 2024, setting a strong foundation for sustainable growth and profitability in the near future.

On the cost side, the higher revenue and improved gross margin helped reduce operating losses from $3 million last year to $1.9 million this year. While net losses decreased from $3 million-$0.4 million, our loss per share improved from $0.38-$0.05. During 2023, we had numerous milestones I believe will set us up for future success. With respect to our CleanTech products, we introduced a 3,000-watt system, which will help further differentiate LPC from expanding our laser cleaning capabilities at the high end of the market. We also developed the CleanTech robotic cell enclosures to reduce safety risks significantly. This programmable enclosure will have the ability to leverage AI to handle several important tasks simultaneously, providing significant efficiencies and reducing human risk.

We also launched two industry-specific product lines, DefenseTech and Marlin. DefenseTech addresses laser cleaning and engraving applications for the military and U.S. Department of Defense. It leverages both CleanTech and MarkStar products that has seen early success in the U.S. Army, U.S. Navy, and U.S. Air Force. I will talk more in a little bit about our sales and marketing efforts for this market in conjunction with Photon Technologies. Marlin is targeted at the maritime industry, specifically smaller craft vessels. We see this opportunity as having a $1 million Total Addressable Market, and our portable handheld system is ideal for the smaller cleaning surface treatment areas. Next, I'm going to discuss our relationship with Photon Corporation. In 2023, ICT transferred the bulk of its LPC stock to Photon, making the company our largest shareholder.

Photon has a portfolio of exciting IP for laser, semiconductor, and additive manufacturing technologies, including CleanTech, that it plans to monetize through Laser Photonics Corp and its other subsidiaries. In the coming months, we expect to restructure both organizations, with LPC becoming a publicly traded, majority-owned subsidiary of Photon Corporation. Once the reorganization occurs, LPC will focus on sales, marketing, and product development for industrial markets, while also serving as Photon's manufacturing arm. At the same time, our sister subsidiary, Photon Technologies, which is set up as a government military contractor, will continue to focus on sales and marketing of our DefenseTech line and those customers.

An example of why we are doing this happened last October when we expanded our market opportunity into laser cutting with, by licensing, Photon's high-power Turbo Piercing technology, which enables cold cutting of materials that would otherwise warp under the heat of a laser. This technology will serve as the basis for our SaberTech product line and as another way for us to expand our total addressable market. In summary, we see our relationship with Photon as a very synergistic relationship for the companies and shareholders, and we plan to keep you apprised of any developments as things move forward. As we look to 2024, I foresee an exciting year ahead. So far, we announced a significant expansion in our distribution and technology partnerships.

During the first quarter, we linked a distribution agreement with Fastenal, a large industrial distributor, for our laser cleaning and protective personal protective equipment products for the industrial market. More recently, we announced a technology partnership with Brokk, the leading manufacturer of advanced remote-controlled demolition machines, where we will integrate our technology into the robots. This is a great deal for us, as Brokk is one of two companies that provided, provides these machines for nuclear decommissioning, which brings a large pipeline for repeated sales as these robots become contaminated and need to be replaced frequently. On the government and military side, Photon and LPC signed a sales and distribution agreement with Incredible Supply and Logistics, or ISL, a leading marketer and distributor to these bodies. We believe this will help expand and accelerate our sales of the DefenseTech product lines going forward.

Moving to our product roadmap, we expect to release several exciting new products and next-generation upgrades this year. Starting with the latter, we plan to introduce the next-generation CleanTech systems. Some of the key new features include the ability to customize the power and frequency setting of the system, enable a wider range of materials that can be cleaned. Certain models will be also, reduction in form factor, lower power requirements, and other upgrades. Higher power systems will be IoT-ready and come with Ethernet and Wi-Fi support. We believe this next-generation system will enhance the user experience while expanding our sales funnel. Returning to SaberTech, we will revamp the TiTAN FX, our large format cutting system.

The new system will come with automatic sheet metal loading and unloading systems that will load metal sheets, cut them, and unload the pieces into a rack system. With this automation, customers can run the Titan 24/7 to have plenty of material ready for them production shifts. Finally, we will reinvigorate sales of our legacy laser engraving systems by introducing the MarkStar VIN. This initiative directly responds to the recently passed California Senate Bill 55, which requires all motor vehicle catalytic converters to be marked with VIN. This system will have specific capabilities and features targeted at complying with this new legislation, ensuring that automotive manufacturers and repair shops can easily adhere to the law.

By incorporating this legal requirement into our product's capability, we aim to explore and capitalize on untapped potential within the automotive market. In summary, with our new products, distribution and technology partnerships, and increased sales and marketing efforts, we have built an estimated pipeline of over $70 million. While this won't all close this year, we believe it sets us up for improved results in 2024 and beyond, and bodes well for our medium to long-term growth prospects. That concludes my prepared remarks for today. We can now move to questions.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment while we poll for questions. There are no questions in the queue at this time.

Brian Siegel (Head of Investor Relations)

Okay, I've got an online question. Wayne, with sales to such key customers as GE, Emerson, the U.S. Military, when might we begin to see some repeat orders? It appears many of these sales are one and done, test orders, and they haven't led to anything more substantial. Thanks.

Wayne Tupuola (CEO)

Yeah, thanks for the question, Brian. So, these opportunities are developed in our pipeline as we acquire these interest levels from high-profile customers. And, these customers are inquisitive of the technology, and how to incorporate it into environment. And these are sometimes long and drawn-out processes because, as you know, laser cleaning is a new technology to disrupt sandblasting, abrasive sandblasting. And, therefore, there's a monumental task of developing standard operating procedures to replace the old and introduce the new.

So, with that being said, once we incite interest from these high-profile customers, such as GE or Emerson, they basically decide at the high level to make these changes within their companies, because it's just a monumental change throughout the entire organization. Procedures need to be developed, and therefore it takes time for the change to happen. But nonetheless, these changes happen rapidly. Once these systems are in place, procedures are drawn and they can proceed with the purchase.

Brian Siegel (Head of Investor Relations)

Okay, great. I've got one, another question. This one's about Photon. Photon has existed for more than a decade under the control of ICT and its controlling shareholder. If Photon has strategic advantages that Laser Photonics does not have, why was Photon not taken public in the first place rather than Laser?

Wayne Tupuola (CEO)

What we've seen was the development of behind-the-scenes work that Photon has done with Laser Photonics. And obviously, it was a success story with Laser Photonics going to market, which is the ultimate goal. When you're developing technology and you're commercializing it, you know, it took a while for Photon to position itself for entrance into the public market. So, at the time, it wasn't ready, so now we're ready.

Operator (participant)

Okay, that appears to be all the questions we have today. Operator, you can close the call. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.