Dorothy Cipolla - CFO and Corporate Vice President Jim Gaynor - President and CEO

Matt Koranda - ROTH Capital Partners

Good afternoon and welcome to the LightPath Technologies Fiscal Year 2017 Fourth Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dorothy Cipolla, Chief Financial Officer. Please go ahead.

Thank you and good afternoon. Welcome to LightPath Technologies Fiscal 2017 Fourth Quarter Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted to our corporate Web-site. Today's conference call will be hosted by Mr. Jim Gaynor, President and Chief Executive Officer. Following management's discussion, there will be a formal Q&A session open to participants on the call. Before we get started, I would like to remind you that during the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any of them can prove to be inaccurate and there can be no assurance that the results would be realized. In addition, we will also be making reference to certain non-Generally Accepted Accounting Principles or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in our SEC filings and press releases. With that out of the way, it's now my pleasure to introduce Mr. Jim Gaynor, President and CEO of LightPath.

Thank you, Dorothy, and welcome to everyone who has joined us on the call today. We appreciate your continued interest in LightPath. I will open with an overview of operational results, highlights, and recent developments, and then we will turn the call over to Dorothy for a more in-depth review of our financials. Following that, we will open the call to your questions. Before going any further, I'd first like to note that our thoughts and well wishes go out to those impacted by the recent hurricanes. With Harvey and Irma, we have seen unprecedented disruption and destruction to life and property in the Southwestern and Southeastern United States as well as in the Caribbean. Irma was such a large storm that at one time it covered the entire state of Florida, and as such the entire state was impacted. LightPath's headquarters in Orlando, Florida was left without power due to Irma from Sunday night, September 9. In advance of the storm, we implemented a prepared strategy which involved reallocation of certain manufacturing to our other global operations and had full IT backup and redundancies in place for remote management. To the extent possible, for about seven days before the storm, we accelerated the production and shipping of orders that had been scheduled for our Orlando facility. Given that we do not expect to get our power restored until this weekend, there could be some impact to our Q1 results in 2018, although we do think it will be minor. As for the fiscal fourth quarter ended June 30 that we are here to discuss today, we are pleased to report very strong financial results. We delivered significant growth in key performance metrics, including revenue, earnings per share, cash flow, adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA, a non-GAAP measure. Here are the highlights from the quarter. Revenue for the quarter increased 90% to $9 million. Total cost and expenses as a percentage of revenue continued to decline, improving to 36% in the fourth quarter of fiscal 2017 as compared to 41% in the fourth quarter last year. Operating income was $1.1 million, which was an increase of 117%. Net income was $6.4 million, as compared to $331,000 for the fourth quarter of fiscal 2016. The fourth quarter of fiscal 2017 includes a benefit of $5.4 million for an adjustment to the valuation allowance for deferred taxes, which Dorothy will explain in her comments a little later. Adjusted net income for the fourth quarter of fiscal 2017, which excludes non-cash income or expense related to the change in the fair value of the Company's warrant liability, was $1.2 million as compared to last year at $359,000. Adjusted EBITDA, which excludes the non-cash income or expense related to the change in the fair value of the Company's warrant liability, was $6.4 million in the fourth quarter of fiscal 2017 as compared to $349,000 in the fourth quarter of fiscal 2016. 12-month backlog rose 41% to $9.3 million at June 30, 2017, and our cash and cash equivalents balance at the end of fiscal 2017 was approximately $8.1 million, up 178% from the end of the prior fiscal year. We are clearly delivering on our imperatives to improve profitability and cash flow through top line growth and operating leverage. As a result, we have seen meaningful increase in our adjusted EBITDA margin. This margin, which excludes the non-cash warrant liability impact, improved to 26% in the fourth quarter of 2017 from 14% in the same period of the prior fiscal year. For the year, our adjusted EBITDA margin was 22%, or 47% improvement over fiscal 2016. Our focus on driving cash flow is aided by this margin expansion. Net cash provided by operating activities in fiscal 2017 increased by more than 2x with $5 million generated as compared to $1.5 million in the prior year. As mentioned, our cash balance significantly rose to $8.1 million at the end of fiscal 2017 from $2.9 million at the end of the prior year. Our goal is to grow responsibly through the diversification of our business lines, whether through organic growth or acquisition, and effectively manage our cost to drive long-term value for shareholders. This is in fact what we have done in fiscal 2017. Based on this progress and amid our key long-term catalysts remaining intact, we are encouraged by the outlook for fiscal 2018. Now I'd like to review some of these key catalysts. LightPath experienced strong demand for its industrial tool, telecom/Datacom, and defense products in fiscal 2017 fourth quarter as well as for the entire year. Total bookings were 21% higher in the fourth quarter compared to third quarter and 66% higher than the fourth quarter of last year. As we continue to ship products against some large annual contracts and due to our improved manufacturing efficiencies and yields, we have seen our backlog at the end of the year decrease from the end of the third quarter. As these annual contracts renew, our backlog will increase commensurately, which will be further bolstered by the new orders generated from our accelerated sales and marketing initiatives. The outlook for our underlying business remains robust for fiscal 2018 amid some short-term weakness with specific customers in the telecom area due to inventory builds in China and the United States. An important differentiator for LightPath is our diversification, which enables us to mitigate completely or partially any particular weakness through our global operations. At the end of the fiscal year, no single customer or product contributed more than 10% of revenue. We really enjoy this diversification as it avails us opportunities around the world and through different product and market cycles. As our revenues grew 64% year-over-year, the inventory carried on our balance sheet increased at about half that rate. This further demonstrates our emphasis on cash flow, which is benefiting from higher inventory turns. Inventory turns were 3.1 for fiscal 2017 as compared to 2.3 for the prior year. Based on our sales pipeline, the drivers of the secular growth for telecom products, which represented 13% of our consolidated revenues in fiscal 2017, remain intact as we look out through the end of the calendar year. We are pursuing an increasing number of projects from current and new customers pertaining to data center expansion, metro core upgrades, Internet of Things applications, video/data transmission growth, and other emerging opportunities around the world. We continue to work with OEMs, including many of our largest customers, on next-generation products. One particular line that we are excited to be working on is for LiDAR, or Light Distance and Ranging. LiDAR sensors are being developed for self-driving autonomous and semi-autonomous car revolution. LiDAR sensors provide the visual component that allows vehicles to see what's around them. This can be used for personal transportation, warehousing, shipping and logistics, and other commercial transportation applications. This position-sensing technology is a critical component for the transportation and robotics industries. Many major auto manufacturers and technology companies are playing parts in the autonomous vehicle arms race, including GM, Ford, Baidu, Uber, and Caterpillar. One of our key partners in this race, OLE-Systems Laser Technology Co., a subsidiary of GreatStar Group, where we are involved in design and manufacture of an optical system assembly based on our proprietary high power fiber delivery technology. The fiber delivery system will allow production-level position mapping for mission-critical applications, such as those for use with autonomous vehicle instrumentation where accuracy and calibration are of paramount concern. On this and other LiDAR or fiber delivery products, we are working with multiple industrial OEMs in China and the U.S. We are currently in the prototype supplying phase for multiple customers. In other areas of our operation, the integration of the ISP business continues to proceed as planned. With completion of the second full quarter of the combined company, we are seeing the benefit of larger scale and improved operating leverage. We have increased our product development efforts in the areas of sensing technology, as I just mentioned, in spectrographic instruments, and for other systems. While we'll have more to say in the months ahead on these very interesting initiatives, it is important to note that our strong fourth quarter and full-year financial performance is party to our capital allocation strategy. To this end, the generation of $1.1 million in free cash flow in fiscal 2017 was after investments made in our facilities and equipment, in addition to incremental resources for R&D and sales and marketing staffing, to ensure the Company is well-positioned to take full advantage of its growth opportunities. With strengths across our markets, cross-selling and other synergies between our business groups are beginning to take hold. LightPath is uniquely positioned as a global, vertically-integrated, high-volume and high-quality provider of optical and infrared technologies. Our impressive financial results in fiscal 2017 bear out the successful execution of our strategies and the promise of continued long-term growth. I'll now turn the call over to our CFO, Dorothy Cipolla, to provide additional detail on our financial results for the fourth quarter and 12 months of fiscal 2017.

Thank you, Jim. First, I'd like to mention that much of the information we are discussing during this call is also included in the press release issued earlier today and in our annual report on Form 10-K, which we'll file today with the SEC. I encourage you to visit our Web-site at lightpath.com, and specifically to the section titled 'Investor Relations'. Before reviewing the financial performance and operational details from our fiscal 2017 fourth quarter, which ended on June 30, I want to remind everyone that the acquisition of ISP closed on December 21, 2016. Simultaneously, with the closing of the acquisition, LightPath completed an underwritten public offering of 8 million shares of its Class A common stock for a portion of the purchase price of the acquisition of ISP. This offering is the primary reason for the change in our outstanding share count from the end of year. Now, on to the results for the fiscal 2017 fourth quarter; revenue for the fourth quarter was $9 million, an increase of approximately $4.3 million or 90% as compared to $4.7 million in the prior year period. The growth is attributable to an approximately $3.5 million increase, or 544%, in revenues generated by infrared products, primarily attributable to ISP; an approximate $550,000 increase, or 40%, in sales of high volume precision molded optics or HVPMO lenses; and an approximately $318,000 increase, or 17%, in sales of low volume precision molded optics or LVPMO lenses. The substantially higher revenues were only partially offset by an approximately $84,000 decrease, or 12%, in revenues from specialty products, due to orders from one of our defense customers who experienced reduced demand for its products. Moving to our geographic revenue mix, 37% was from the United States, 26% was from Asia, 27% was from Europe, and 10% was from rest of world. Our geographic mix has risen to 63% international sales for the fourth quarter this year, up from 58% last year. For our vertical market sales review, in the fourth quarter we had 19% of sales from distribution and catalog, 13% from telecom and wireless, 5% from medical, 35% from industrial, 12% from instrumentation, and 16% from government and defense sectors. Similar to last quarter, notable shifts in vertical market orientation included increased sales of over 96% to the industrial and government sectors for infrared products sold through ISP. Gross margin in the fourth quarter was $4.4 million, an increase of 77% as compared to $2.5 million in the prior year. Gross margin as a percentage of revenue was 48% for the fourth quarter of 2017, compared to 52% for the fourth quarter of fiscal 2016. The change in gross margin as a percentage of revenue is primarily attributable to the inclusion of revenues generated by ISP, and the associated cost of sales for the full quarter. Total cost of sales was approximately $4.6 million for the fourth quarter, an increase of approximately $2.4 million as compared to last year. This increase in total cost of sales is entirely due to the increase in volume of sales, primarily as a result of the acquisition of ISP. Outside of lower-margin infrared products, we continue to benefit from an improved mix for the balance of our business, with increased higher-margin sales of HVPMO model in lenses. Fourth quarter total operating costs and expenses were approximately $3.2 million, an increase of approximately $1.3 million compared to last year. The increase was primarily due to $1.2 million in expenses related to the acquisition and integration of ISP including the amortization of intangibles, wages, professional fees, and travel expenses, and an approximately $88,000 increase in research and development expenses. Consistent with our growth strategy and included in total operating costs and expenses, we increased our research and development spending by 104% to $382,000 in the fourth quarter compared to $187,000 last year. In the fourth quarter of fiscal 2017, the Company recognized non-cash expense of approximately $10,000 related to the change in the fair value of warrants issued in connection with the June 2012 private placement. In the fourth quarter of fiscal 2016, the Company recognized non-cash expense of approximately $27,000 related to the change in the fair value of these warrants. The applicable accounting rules for the warrant liability require the recognition of either non-cash expense or non-cash income, which has a significant correlation to the change in the market value of the Company's Class A common stock for the period being reported and the assumptions on when the warrants will be exercised. The likelihood of exercise increases as the expiration date of the warrant approaches. The warrants have a five-year life and will expire in December 2017. The fair value would be re-measured and reported each period until the warrants are exercised or expire. Excluding the impact of the change in the fair value of the warrant liability, the impact of foreign translation, and the benefit of the adjustment in the valuation allowance of deferred taxes, all of which are excluded when computing taxable income, our effective tax rate was 24%. In the fourth quarter of 2017, the Company recorded an income tax benefit of approximately $5.2 million, which is a decrease of $5.2 million compared to the fourth quarter last year. The Company has net operating losses or NOL carryforward benefits of $86 million against net income, as reported on a consolidated basis in the United States. The NOL does not apply to taxable income from foreign subsidiaries. Previously, these NOLs had a full valuation allowance, which is now being adjusted due to the deferred tax impacts related to deferred tax liabilities recognized in conjunction with the ISP acquisition. This was offset by the income taxes associated with the Company's Chinese subsidiaries, and to a lesser extent income taxes attributable to the Company's ISP subsidiary operations in Latvia. The Company extinguished all NOL carryforwards in China relating to its operations in that country during fiscal 2016. Accordingly, the Company now accrues income taxes in China. Chinese subsidiaries are governed by the Income Tax Law of the People's Republic of China, which is applicable to privately-run and foreign invested enterprises and which generally subject such entities to a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. Our Latvian operation is governed by the Law of Corporate Income Tax of Latvia, which is applicable to privately-run and foreign-invested enterprises and which generally subjects such enterprises to a statutory rate of 15% on income reported in the statutory financial statements after appropriate tax adjustments. Moving on to net income, in the fourth quarter we reported net income of $6.4 million, or $0.27 per basic and $0.24 per diluted common share, which includes non-cash expense of approximately $10,000, with no impact on the basic or diluted earnings per share, for the change in the fair value of the warrant liability. This compares with net income of approximately $331,000, or $0.02 per basic and diluted common share, which includes non-cash income of approximately $27,000, with no impact on basic and diluted shares, for the change in the fair value of the warrant liability last year. Net income was affected by the change in the fair value of the warrant liability, amortization of intangibles, selling, general and administrative or SG&A expenses, interest expense, income taxes, and new product development costs, as compared to the prior year. Approximately 66% of the increase in SG&A expenses during the fourth quarter of 2017 was related to the acquisition of ISP. Adjusted net income, which is adjusted for the effect of the non-cash change in the fair value of the warrant liability, increased to approximately $6.2 million in the fourth quarter, as compared to $359,000 in the same period last year. In the fourth quarter of 2017, the increase in net income resulted from the non-cash benefit of the $5.2 million in income taxes due to the decrease in the valuation allowance to deferred tax assets. If we were also excluding the income tax benefit, our adjusted net income was $1.2 million compared to $359,000 last year. Weighted average basic and diluted common shares outstanding increased to 24.2 million and 26.2 million respectively in the fourth quarter of, from 15.6 million and 17.1 million respectively last year. The increase was primarily due to 8 million shares of Class A common stock which were issued in connection with the acquisition of ISP. Adjusted EBITDA, which eliminates the non-cash income or expense related to the change in the fair value of the June 2012 warrant liability, was approximately $2.3 million in the fourth quarter, an increase of 243% as compared to approximately $673,000 last year. The adjusted EBITDA margin for the fourth quarter increased to 26%, up from 24% in the third quarter this year and up from 14% in the fourth quarter last year. I will now briefly review financial performance and operational details for the full year, which ended on June 30. Revenue for the year was approximately $28.4 million, an increase of approximately $11.1 million or 64% compared to last year. Gross margin as a percentage of revenue for fiscal 2017 was 52%, compared to 54% last year. Gross profit in the year was $14.7 million, compared to $9.3 million last year, an increase of 58%. Total cost of sales was approximately $13.6 million for the year, an increase of approximately $5.7 million compared to last year. During fiscal year 2017, total operating costs and expenses were approximately $10.6 million, an increase of approximately $3.3 million from last year. The increase was primarily due to $2.9 million increase in expenses related to the acquisition and integration of ISP, which includes the amortization of intangibles, wages, professional fees, and travel expenses; $104,000 increase in expenses for trade shows; and $250,000 increase for other expenses. The Company recognized non-cash expense of approximately $468,000 related to the change in the fair value of the warrants in fiscal 2017. In the same period last year, the Company recognized non-cash expense of approximately $52,000 related to the change in the warrants. For fiscal 2017, the Company recorded an income tax benefit of approximately $4.3 million, a decrease of $4.5 million from last year. Excluding the impact of the change in the fair value of the warrant liability, the impact of foreign translation, prior period adjustments, and the benefit for the adjustment of the valuation allowance of deferred tax assets, which are all excluded when computing taxable income, the effective tax rate for fiscal 2017 was 30%. The effective tax rate for fiscal 2016 was 10%. Net income for fiscal 2017 was $7.7 million, or $0.39 per basic and $0.36 per diluted common share, which includes non-cash expense of approximately $468,000, or $0.02 per basic and diluted share, for the change in the fair value of the warrant liability. This compares with net income of approximately $1.4 million, or $0.09 per basic and $0.08 per diluted common share, which includes non-cash expense of approximately $52,000, with no impact per basic or diluted common share, for the change in the fair value of the warrant liability last year. The Company had foreign currency exchange income for the year due to the changes in the value of the Chinese Yuan and Euro in the amount of approximately $78,000, which had no impact on basic and diluted earnings per share. This compares to foreign currency exchange expense of $369,000, which had a $0.02 impact on earnings per share last year. Adjusted net income, which is adjusted for the effect of the non-cash change in the fair value of the warrant, was $8.2 million for fiscal 2017, as compared to $1.5 million last year. Adjusted EBITDA, which eliminates the non-cash income or expense related to the change in the warrant liability, was approximately $6.3 million in 2017 as compared to $2.6 million last year. The difference in adjusted EBITDA between fiscal years was principally caused by increased revenues and operating income, offset by the increase in SG&A. ISP contributions were recorded for just more than two full quarters in fiscal 2017. Cash and cash equivalents totaled approximately $8.1 million as of June 30, 2017, a 178% increase from June 30 last year. There was a 19% increase in cash from the end of the third quarter this year. All our four quarters of fiscal 2017, the Company has had double-digit increases in cash. Cash flow provided by operations was approximately $5 million for fiscal 2017, compared with $1.5 million last year. During fiscal 2017, the Company expended approximately $2.2 million for capital equipment, while growing its cash balance, as compared to $1.1 million last year. The current ratio as of June 30 was 3.4-to-1, compared to 3.5-to-1 for the prior year. Total stockholders' equity as of June 30 was approximately $29.7 million, a 172% increase compared to approximately $10.9 million as of June 30, 2016. This reflects the common stock offering in December of 2016 and accumulated net income. As of June 30, 2017, the Company's 12-month backlog was $9.3 million, compared to $6.6 million as of June 30, 2016, an increase of approximately 41%. This backlog includes $5.6 million for infrared products and $3.7 million for optical products. With this review of our financial highlights concluded, I will turn the call back to the operator so we may begin the question-and-answer session.

[Operator Instructions] Our first question comes from Matt Koranda with ROTH Capital. Please go ahead.

Maybe just one housekeeping one to start off with, could you help us break out for the infrared products, I know you provided the revenue, but could you help us understand what was core LightPath IR product versus ISP?

I don't think we can. Do you have that, Dorothy?

Yes, you want it for the year or the quarter?

Just for the quarter would be great.

All right, okay, give me a second and I will get it for you.

Got it.

For the quarter it was $243,000.

Okay, got it. So core LightPath $243,000, ISP made up the difference, so that's essentially – and then you guys gave, was it $3.5 million of – or sorry, $4.1 million of infrared product?

In the total, correct.

Okay, got it, all right. So, that still means organic growth is running somewhere around in the high-teens essentially by my calculations. Is that roughly right?

Yes, I think it's around 18% – well, total growth was around 18% I think.

Right, okay. All right, got it. So, in terms of the backlog, I was looking at the 9.3 and I think that suggests somewhere around $7 million in order flow during the quarter. Could you just help us sort of set expectations about where that order flow should be during the first half of this fiscal year that we are in now? I know you mentioned that there are some annual contract orders that you would expect to kick in here. Have you received any of those yet during the first half of the year, when would we expect to see them, and then what does that mean for sort of quarterly order flow cadence? Should we bump up above that $7 million and get toward the double-digits or what's sort of a reasonable expectation here on our end?

I think, Matt, first to all, we are not through our first quarter for 2018. I mean it's, so you're I think talking calendar year and we are talking fiscal year, so we need to get on the same calendar I guess. And we really don't want to give a lot of guidance. We don't give guidance. But I do think the kind of growth rates that we saw last year, we expect it will be in those kinds of growth rates for the business. We have incorporated now the effect of ISP acquisition, and so now we are going to start seeing pretty decent growth rates. We'll have a little bit of further impact from the acquisition because we'll have a full year instead of half a year of ISP, right. But I think from an organic growth point of view, what we have put out in the past is, it will be in that 20% range, plus or minus 3% to 5%, something like that.

Okay, got it. So, no change in terms of the expectations for the organic growth rate going forward?

No, but I do think we may see some cycling a little bit. We're seeing some shifts in the telecom sector, as I think you are pretty aware. That seems to be slowing a little bit and we are shifting some of our product growth into some other areas. So I think our growth will continue. It may not be as much of the telecom as it has been in the last couple of years.

Got it, okay. And then just in terms of those large annual contracts, coming back to that one more time really quickly, what are those generally associated with? Can you help us understand, is that more on the infrared side or is that more on the traditional high-volume/low-volume PMO stuff that you do? Help us just understand sort of where the lumpiness lies in the business.

I think the contracts, the largest ones that we have are associated with the infrared business and predominantly with the ISP products, even though some of those contracts are involved with molded product as part of it. I mean some of the large contracts we have that are in the sporting equipment area involve both segments, some of the diamond turn product from ISP as well as molded product from the core business of LightPath. But that particular contract we probably, we expect it in late October or early November. So the other parts of the business, predominantly the precision molded optics, the core businesses still remains predominantly a purchase order business from the contracts. So we do have some blanket orders that come in on a quarterly basis, but they are not annual type deals, more like quarterly deals. Although with some of the larger customers, we are starting to see propensity to move more towards larger annual contracts that involve multiple products.

Okay, that's helpful. Just an update on cross-selling, you just mentioned in your response to my last question, the sporting equipment contract that involves both turned and molded optical components, but just wanted to get a progress report or a status update on sort of your efforts there as it pertains to winning new customers, and should we expect to see more wins announced this fiscal year or is that something that's going to take a little bit longer? I mean, my understanding was I guess it will take a few quarters from the time they integrated ISP, but how are we feeling on that front?

I think the opportunities are there. We are certainly pushing it, particularly in that line. I think there are good opportunities with it, and as people get more comfortable with our capabilities and our expansion that we did with the ISP acquisition, I think we'll see that occur. It's still building and I think it's still going to take another quarter or two to flesh out.

Okay, got it, then a couple of more quarters here. And on OLE, I guess it sounds like you guys are particularly excited about that development effort that you are working on with them. I think you've mentioned on the last call as well as this one. But you've said sort of don't expect much in the near-term. What is fair I guess in terms of factoring in meaningful revenue from that opportunity? Should we see it in fiscal 2018, should we see it further out, is it a couple of years out? And then what particular products do you think would be impacted by that the most? Is it sort of the PMO traditional optical components that you make or is it some of the infrared stuff that you have been developing?

I think, as I mentioned, those are in – we are supplying prototypes and those kinds of things to multiple customers there. Those products, the products that are involved have to do with Fiber Delivery Systems. So, it will tend to be more collimator type products which are a higher-end product. Although there are also some molded lenses involved with some of the applications. So, it's really the PMO on a smaller scale but the larger part of those types of developments are around collimator type products that we build.

So those collimator products would be reported in the specialty product line.

Yes.

Got it, okay. So, if we are going to model the impact, it should be on your specialty products. And then, just Jim, I don't know, the timing-wise, just help us kind of gauge sort of when – if successful in some of the development efforts, is it reasonable to assume that we would see some revenue, some commercial scale revenue this year, or is it something that's sort of coming down the pipeline in later fiscal years?

I think there will be some small production level starting in the back half of 2018, our fiscal 2018. But the bigger volumes I think will approach in 2019 to 2020.

Got it, okay. You mentioned Irma and just sort of the impact to your operations. Is there just, for modeling purposes, I mean could you help us just quantify the impact a bit more there? I mean, what should we be expecting for your fiscal Q1 and sort of how this temporarily impacts you? And then, I would assume you guys essentially just make up the difference in the next quarter, but help us kind of game out or think about how the impact flows through your P&L over the next quarter?

I think the good news, Matt, is that we didn't suffer any physical damage to the buildings or equipment, so we don't have any of that kind of concern as a result of the storm. The only issue we have is getting the power restored to the Orlando facility. Now, the majority of our products are manufactured in other locations and we tried to shift a lot of, as much as we could, to those. We also tried to shift as much early as we could, ahead of the storm. Several, particularly several of our distributors and catalog houses were very interested in taking anything we could give them before the storm hit. So, we are fortunate from that standpoint. I can't gauge the size of the impact here in Orlando until I know when I'm going to get our power back. I don't envision – I mean what the power company has told us is that by this weekend we should have it back. Now whether that means Saturday or Sunday, I don't know. That means that we've lost about four to five days operation, which we should be able to make up from the standpoint of shipping once we get the stuff in-house. And our China facility is cranking it up, our Latvian facility is cranking it, and so is our New York facility. So, I think the impacts will be relatively minor and will certainly be made up in the following quarter. The timing is unfortunate, because we do tend to ship heavily at the end of our quarters, which September is. And so, it's going to be hard to gauge that very much, but I think it is a very temporary impact which we will recover very quickly in Q2.

Got it.

I don't know how to give you a better answer, Matt.

No, that's sufficient, that's helpful. And then, to your knowledge, Jim, I guess any large distributors or customers that you would typically ship to that were impacted by any of the events by Harvey or Irma, and if [indiscernible] into the future in any way?

Not to my knowledge, no. No, I don't think so. I don't think any of our customers or bigger distributors, those kinds of people, we have not heard of any impacts there from this type of storm. So I think it's relatively limited. Fortunately, from our point of view to just our office here in Orlando, and from an office point of view, we are able to operate remotely. We didn't delay our costs as a result of the storm, for example. We were able to do that and file things as necessary. So, the sales impact, the sales guys are also working. They are all working out of their homes and wherever they can. So the office side of it is minimally impacted. It's just a little bit of production that we do here. And as we did, we had really accelerated our tooling deliveries, particularly to a Chinese facility, ahead of the storm. So they are in good shape and they have not been impacted from a production scheduling point of view in terms of what they needed that comes out of Orlando. And if we get going the end of this week, we'll make that up very quickly. So I don't anticipate that to be too big a deal.

Okay, good to hear. Maybe just one more and then I'll leave it. On the balance sheet, I mean very strong cash balance here, guys, and potential for I guess either accelerated debt repayment or some interesting acquisitions out there. Could you just talk about priorities for cash deployment and sort of where you see deploying cash over the coming maybe 6 to 12 months, and do you see that being allocated toward accelerated debt repayment or more toward acquisitions that look interesting to you, or other priorities?

I think where we will focus the excess – I'll call it, it is probably a bad word, excess cash or some of that cash is into investments for the growth of the business. We have multiple opportunities here, from making sure that we have the right capacity in place to stay ahead of the volume requirements that we see coming from the different opportunities that we have, as well as we are also trying to put the right assets in the right facility to make sure that we continue to manage our costs down. So, we are really trying to do two things with that, ensure we have the capacity for the volumes, as I said, and ensure that we continue to cost-reduce our manufacturing, and one of the ways we do that is making sure we have the right capabilities in the right place, whether that's Asia, Europe or North America. So that's the first priority for some of the cash from a capital investment point of view. So we are doing some things along those lines to make sure that we are positioned properly to take advantage of these opportunities that we have. Now, it's pretty exciting to me when I look at the different market segments and the diversification that this Company has. For example, we see some really good opportunities in the defense sector, and we have the products to do it, whether they are diamond turned assemblies or elements as well as molded elements and assemblies. We can do windows and things like beam-splitters, the collimator products that we mentioned, all fit very nicely in the defense sector, whether that's missile systems or night vision applications or aiming and illumination, those kinds of things, or even with some training application. Automotive is another sector that we see that we can have some opportunities in. We have molded chalcogenide elements and assemblies, we have diamond turned germanium elements and assemblies, we can do some things with our collimators in terms of laser-assisted headlights, LiDAR as I discussed in my comments. So there's multiple opportunities and applications there. Datacom is best sweet spot for us in the precision molded optic type things as well as some collimating type opportunities. And then instrumentation, particularly medical instrumentation, things like endoscopes or microscopic and spectrographic type instruments, those are all really good applications that we have products in our portfolio that we can manage for those growth opportunities. So I really see that given the opportunities, the types of products and capabilities that we have across those types of applications and growth opportunities, we will be able to generate the revenues and the volumes that we need and that will more than offset any changes that we see in the telecom sector with that slowing down a little bit. And there may be a quarter or two of transition, but from that standpoint I think we'll see very good growth, and from a macro sense I think 2018 looks very good to us at this point.

Okay, got it. I lied. One more maybe, just Dorothy, I was curious if you could help us understand sort of the net impact of the changes in currency that have been happening recently and sort of how that may impact the business? It seems like net-net, a strength in the Euro, that would be a benefit to LightPath, but also if you could give us the puts and takes on the Chinese Yuan and just where things stand and how that impacts the business for the next year, that would be helpful.

Right. For the year, the impact of foreign exchange was a hit, an expense of $78,000, and last year it was a pickup of $370,000. So, it's very definitely related to if the dollar strengthened or weakened. And it's mostly the impact that the inventory and fixed assets in the country have, now that they are being revalued, it's basically that. So, as you say, I think what we're kind of seeing right now is maybe one of the currency is going in one direction and the other one going in the other. So, I'm thinking the exposure is mitigated with that, a little bit that way. It's hard to predict where they will go, but it's really the impact of revaluing the assets and inventory.

Okay, all right, got it. I'll leave it there, guys. Thank you.

Thanks Matt.

[Operator Instructions] This concludes our question-and-answer session. I'd like to turn the conference back over to Jim Gaynor for any closing remarks.

Thank you. In conclusion, we appreciate the support of our shareholders and the dedication of our global and expanding team at LightPath. With our strengthened presence around the world, we remain focused on our efforts to drive top line, bottom line and cash flow growth. Thanks again for participating in today's conference call and we look forward to speaking with you next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.