A Primer on LightPath

Introduction

• LightPath Technologies (LPTH) is a vertically integrated producer of optical and infrared components, but it's shifting from being a component supplier toward a solutions provider, moving up the value chain.

• After a 3 year investment phase, the company is now getting ready to benefit from some significant market opportunities.

Products

Products are organized into four groups:

• Infrared components include molded and turned lenses and assemblies using various infrared glass materials, including the company's BlackDiamond glasses.

• Visible components focus on aspheric lenses produced through glass molding technology.

• Assemblies and modules include mounted lenses, optical assemblies, collimator assemblies, and other custom specialty optics.

• Engineering services offer custom product development agreements, a critical pipeline for new product lines.

Some of its most important products are the MANTIS camera, its BlackDiamond chalcogenide glass, and its Optical Gas Imaging (OGI) camera platform.

BlackDiamond chalcogenide glass

• BlackDiamond chalcogenide glass, which enables multi-spectral imaging and reduces the size, weight, and cost of infrared systems,

• It is replacing Germanium, which suffers from significant supply chain risks as Russia and China are the main sources, China banned the export of Germanium to the US. From the Letter to Shareholders:

we have, and continue to, develop a portfolio of materials that not only provide an alternative to Germanium, but actually outperform Germanium in some of the most critical aspects such as (lack of) temperature sensitivity and ease of use in manufacturing.

• This technology is exclusive to LightPath and is licensed from the U.S. Naval Research Laboratory, but LightPath keeps innovating with the help of research grants from the military.

MANTIS Camera

• Multispectral Capabilities: The MANTIS is an innovative, broadband or multispectral infrared camera, combining the functionality of a Mid Wavelength Infrared (MWIR) and Long Wavelength Infrared (LWIR) camera in a single housing. This is a significant advantage because traditional infrared materials typically only operate in one band.

• Unique Materials: The MANTIS's capabilities are made possible by LightPath’s exclusive BlackDiamond materials.

• Groundbreaking Design: The MANTIS is considered to be groundbreaking in its design. It is not only innovative but also practical for applications in harsh and high-sensitivity environments.

• Technology Leadership: The MANTIS demonstrates LightPath's technical leadership in infrared imaging, and it keeps innovating, a new version targeting the $500 million global furnace monitoring market was introduced in September.

• Cost-to-Performance: With a price tag of $30K, the MANTIS is positioned as an industry leader from a cost-to-performance perspective. This is significant for LightPath's future growth, as selling cameras at this price point has a much greater impact on topline growth compared to selling individual lenses.

• Strategic shift: The MANTIS demonstrates LightPath's transition from a component company to a solutions provider, which they refer to as "LightPath 3.0". This shift involves moving from selling components with ASPs of a few dollars to selling systems with ASPs in the thousands of dollars, like the MANTIS

• Market Impact: The Mantis camera is designed for precise, real-time monitoring of high-temperature processes in power plants and other large-scale industrial facilities. It supports more effective environmental compliance, helping to minimize greenhouse gas emissions and enhance operational efficiency. The MANTIS has opened doors with several high-profile customers, establishing LightPath's reputation for producing advanced cameras. It has allowed LightPath to enter markets like fire detection and industrial furnace and boiler inspection.

• Continued Development: LightPath is developing new versions of the MANTIS, including a version for furnace inspection and a version for long-range detection.

OGI Platform

• Optical Gas Imaging (OGI) camera platform. OGI cameras were introduced in October 2024 to detect fugitive emissions like methane. This positions LightPath to capitalize on the expanding gas sensor market, which totaled $2.5B in 2023, with significant upside expected as global regulations tighten.

• This was followed in December 2024 by another version of this camera to detect ammonia and sulfur hexafluoride (SF6) emissions. Both of these cameras use the proprietary BlackDiamond glass.

Competitive advantage

• Precision Molded Optics (PMO): LightPath has an established leadership position in precision molding of optics, being the original developer of the technology. The company continuously invests in advancing the materials that can be molded, as well as the shapes and sizes of the optics they can produce. LightPath believes it is the preferred vendor for the most complex, high-end projects utilizing PMO. This technology is well-suited for high-volume production and for creating unique shapes that would otherwise require lengthy and complex polishing processes.

• Vertical Integration in Infrared Optics: LightPath is vertically integrated in infrared optics, from raw materials to assemblies and engineered solutions. The company manufactures its own chalcogenide glass, including the proprietary BlackDiamond material, which provides a lower-cost alternative to germanium. This vertical integration enables LightPath to create technical advantages for customers by optimizing glass manufacturing to produce unique materials and better overall system performance. The company's BlackDiamond materials also provide supply chain risk mitigation and price consistency.

• Proprietary Materials: LightPath's BlackDiamond glasses (see above).

• Engineered Solutions and Assemblies: The company offers design, assembly, and testing capabilities, allowing customers to avoid large investments in developing those capabilities in-house.

• Manufacturing Flexibility: LightPath has manufacturing facilities in the United States, China, and Latvia, allowing for diverse manufacturing flexibility. The company is able to address a range of opportunities that some larger competitors may ignore. LightPath can produce lenses from very small sizes to over 300 millimeters, and with focal lengths from approximately 0.4 millimeters to over 2000 millimeters.

• Technology Development: LightPath continues to focus on developing, acquiring, and licensing new capabilities and technologies in all of its engineering and manufacturing groups. The company is investing in areas such as infrared imaging technologies, optical assemblies and testing, materials, and high precision molded lenses. Recent developments include a novel approach to shutterless imaging, early detection of flames and fires, and integration of AI accelerator hardware into camera pipelines.

• Customization: LightPath has the ability to provide custom high-performance optical components. Many customers are looking to improve their products vis a vis competition and push the boundaries of performance. LightPath designs optical solutions tailored to customer needs, often using unique technologies that they own.

Growth

• The company distinguishing three pillars of growth:

Proprietary cameras and optics

• This pillar is centered on LightPath's development of unique camera solutions, which is a key part of its strategic transformation from a component supplier to a system provider. This involves integrating their proprietary materials with camera technology to create advanced thermal cameras and imaging systems. Here are some key aspects of this pillar:

• The main proprietary solutions here are the MANTIS and OGI cameras (see above).

• Camera Technology Development: LightPath is involved in other camera technology developments.

  • They have been developing new versions of existing cameras, including a version of the Mantis for furnace inspection and one for long-range detection.

  • LightPath has also been working with Maris-Tech in Israel to integrate AI accelerator hardware into their camera pipeline. This integration allows customers to easily implement AI-trained models directly into the video pipeline, which LightPath calls EdgeIR.

• Acquisition of Visimid Technologies: The acquisition of Visimid Technologies in July 2023 has been crucial in advancing LightPath's camera technologies.

  • Visimid's expertise in thermal imaging has been integrated with LightPath's proprietary materials.

  • Visimid provides design and consulting services for the U.S. Department of Defense (DoD) contractors, commercial and industrial customers, and original equipment manufacturers (OEMs) for new products.

  • Visimid's core competency is developing and producing custom thermal and night vision cores.

• Market Opportunities: The market for thermal cameras is estimated to be $9 billion and growing rapidly.

• Faster Revenue Cycle: The camera business is expected to translate into revenue faster than other areas of the business, with many orders expected in the first half of the calendar year.

Defense

LightPath's strategic focus on the defense sector leverages the company's unique technologies and expertise in infrared optics to position itself as a key player in the defense industry:

• Leadership in Infrared Optics: LightPath has established itself as a leader in the field of infrared optics based on ints proprietary BlackDiamond glass, which has an exclusive license from the government to commercialize new materials developed at the Naval Research Lab.

• Partnerships with the DoD: LightPath has partnered with the Department of Defense (DoD) and the Defense Logistics Agency (DLA) with the goal of replacing Germanium in DoD applications. They have become a go-to partner for anyone looking to phase out Germanium.

• The company has received Phase 2 funding from the DoD via the Defense Logistics Agency (DLA) to support the qualification of additional BlackDiamond glasses. Phase 1 was successful, resulting in the qualification of several new proprietary BlackDiamond materials. These materials are now being designed into multiple programs of record and demonstrate significant value beyond just replacing Germanium. The validation of these materials directly translates to new defense programs that rely on LightPath as the exclusive supplier. BlackDiamond materials are produced domestically and have a secure supply chain, which is a key advantage.

• Government Contracts: LightPath has received funded development contracts from the U.S. DoD, the Defense Logistics Agency, the European Space Agency, and the U.S. Army.

• European Defense Market: LightPath has obtained a European defense license, which opens up opportunities for growth in the European defense market.

  • The company has received an initial development contract from a new European defense customer for the use of BlackDiamond glass.

  • A follow-on order was received from a European defense customer for infrared assemblies for use in First Person View (FPV) drone applications.

  • The European defense market is expected to see significant growth and some customers could potentially turn into 10% customers.

• Lockheed Martin Program: The company is developing a new camera system for Lockheed Martin that will be part of a missile system.

  • This program is on an accelerated timeline and has already achieved airworthy qualification of its subsystem.

  • If Lockheed Martin wins against Raytheon, this could lead to revenues of between $50 million to $100 million a year. From the Letter to Shareholders (our emphasis):

The longer-term potential is even more transformative. Based on the production volumes of legacy predecessor programs, we estimate that the total addressable revenue opportunity could be in the range of $500 million to $1 billion over the life of the program.

• The technology developed for this program is also being integrated into at least two additional Lockheed programs, which they have already been awarded.

• Other Defense Programs: There are now 6 defense programs providing LightPath with $10M+ revenue opportunities each (see our upcoming Quick Take).

• Defense Sales: More than 30% of LightPath's sales come from the defense sector, most of which are in the U.S., with the European market offering future growth opportunities. The company anticipates that defense will account for close to 50% of its business at some point.

• ITAR Compliance: The Orlando facility is International Traffic in Arms Regulations (ITAR) compliant and registered with the U.S. Department of State. The Riga facility has a DSP-5 ITAR license and Technical Assistance Agreement, enabling it to manufacture ITAR-related items.

New applications

• LightPath's third pillar of growth focuses on expanding into new commercial applications, leveraging its core technologies and expertise to address emerging market needs with a special focus on the automotive industry.

• Automotive Market and ADAS: LightPath is actively working with several Tier 1 and Tier 2 automotive OEMs to develop and qualify thermal imaging solutions for use in ADAS.

• A mandate from the NHTSA (National Highway Traffic Safety Administration) states that by 2029, all new cars should include an emergency braking system capable of identifying pedestrians in pitch-dark conditions from a certain distance, opening up a huge opportunity for LightPath’s thermal imaging solutions.

• Leveraging Existing Technology: The development of new commercial applications often leverages existing company know-how, without incurring significant additional development expenses.

• Camera Business Growth: The camera business, which includes both industrial and defense applications, is expected to translate into revenue faster than other areas of the business.

  • Many orders are expected to come from the commercial industrial space, driven by their budget cycles, and are expected to be seen between January and June.

  • The company is seeing a faster turnaround in the defense side of the camera business in areas such as safety drones, as the DoD is moving quickly to adopt commercial technologies.

Stay tuned for our Quick Take with some updates and a discussion of the financials and investment considerations.