Good day and welcome to the iAccess Alpha BuySide Best Ideas Spring Conference 2024. The next presenting company is LightPath Technologies. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the "Ask Question" button on the left of your screen. Type your question into the box and hit the "Send" button to submit your question. I'd now like to turn the floor over to today's host, Mr. Sam Rubin, President and CEO of LightPath Technologies. Sir, the floor is yours.
Great. Thank you, Ali, and good morning to everyone. Happy to be here at the conference and an opportunity to talk about the exciting things we're doing at LightPath. Obviously everyone has read in detail, I would say, Safe Harbor Statement, and we will not be giving any indications or any promises about the future, but there might be some forward-looking statements. LightPath is a company in transition. We will talk a lot about this, but over the last few years, we, the management team, have been taking a company that was staggering and focused on low-level optical components and have been shifting the direction all the way towards complete systems. We're a micro cap.
We're about 30-something-year-old company in the field of photonics, or optics if you would, and are in the midst of a very important strategic shift that is really driving a considerable growth going forward in the company. If you look at it this way, we have been going from making opt individual optical components for $1, $10s, to making assemblies, which are in $100s, to now making cameras, which are in $1,000s. So not only a complete change in ASPs and complete change in the value add, but also the entire interaction and the entire longevity of relationship with customers is changing drastically, as would be expected going up the food chain. As I mentioned, we're in the field of optics, photonics, that is, interaction of light and matter, imaging, and so on.
Part of the beauty of this field is that it's not really one specific vertical or industry, and so we have a very diversified customer base, very diversified end market, obviously extremely important in times like this, and we enjoy that in a sense of not being shocked by any impact of one specific vertical or end market. In our transition into imaging, we look at things and think we have, going forward, three independent pillars of growth. Independent in a sense of what is driving them, end markets are the reason why they're pillars of growth for us, but still common in a sense of all of them are based on our core technologies and very unique capabilities. The first one is going into camera solutions. Just the sheer movement from ASPs of $10s to $1,000s is a growth by itself.
Obviously the unit numbers are not the same, but still, nevertheless, you can grow in a very different way when you're selling products that are in thousands of dollars than when you're selling products that are in tens of dollars. And margins go up and many other great things with it. The second is second pillar of growth is our government and defense business. What used to be barely 10% of our business is now 30% and could grow considerably more, and that is for a few different reasons. First of all, it's obviously the geopolitics and what is going on in the world today, and spend on defense, drones, and so on. But more importantly is we have two unique technologies that are of extreme importance to the defense world.
One is a substitute for germanium and gallium in the use in optics, and those are materials that we make in-house and can be used instead of germanium. Secondly is imaging solutions, infrared imaging solutions that provide unique advantages to the warrior and to the different groups inside DoD as needed. Third pillar of growth, as always, is new applications. New applications is something that forever, or at least in the very near future, is still gonna be driving the growth of photonics. In a way, you can look at it as a term that is constantly growing. Every time optics and photonics find a new application, our addressable market grows. In this case, right now, automotive is a very big driver of that.
Integrating thermal imaging, or what some people call night vision, into automotive and into smart city applications are both a considerable driver for growth and, for us, a possible game changer in terms of being transformative to the type of business we do. So we'll talk about each one of those pillars of growth. What's most important is they're really independent of each other in terms of end market. Under each one of them, there are opportunities and actual contracts that are in tens of millions of dollars a year. So for a company currently doing $35 million-$40 million a year in revenue, that is completely transformative, and we have multiple of those. So looking forward, imaging, infrared imaging is really the biggest market we're playing in and focusing in now. It's a growing market.
This does not even include implementation in automotive, which I think by itself is probably gonna be a complete, whole new section or subset. We've been transitioning, as I mentioned, from components to subsystems, now to systems. 20% of our revenue and backlog are already there and growing. We've been growing also through acquisition. So we started making subsystems, which are optical assemblies that go in front of cameras or detectors, and we acquired Visimid Technologies, a small engineering company that has been doing the same for the video engine and electronics behind the sensors, if you would. And now, while 20% of our business and growing has been coming from the optical assemblies that we've been slowly transitioning into, now we can also customize and offer solutions on the back end.
In a way, we're shifting from supplying glass, if you would, when we were in optical components, to supplying assemblies when we were doing optical assemblies, obviously, to now you can look at it as we're providing pixels. What we sell to the customer are actually the pixels, the images that they go and use. So we're going further and further up the food chain, and we're delivering more and more value to the customer. Part of that value comes from unique solutions. For example, just over a year ago, we announced our first camera solution, which is a uncooled multispectral camera. Without going into the technical details of why that is so important and what is so great about it, I'd just say that today, you can image in midwave or longwave. Those are two separate cameras in infrared. This camera covers both.
Not only does it cover both midwave and longwave, but typically in the midwave when you want to image today, you need to use cooled, cryogenically cooled cameras that cost as much as $100,000. This camera is in the range of $10,000-$15,000. So this is a game changer for quite a bit of the applications in infrared imaging, and we're seeing a considerable growth coming from that and very strong interest and a lot of really long-term contracts and implementations being built around it. The government and defense, I mentioned, is another area of growth, and that is for a few reasons: the materials and the technologies of imaging. We have an exclusive license from the Department of Defense to commercialize infrared glass that was developed at Naval Research Laboratory over the last few years.
This license is exclusive to us, is in perpetuity, is at a very low cost to us, and most importantly, it is a key element for the DoD in its efforts now to find alternatives and build sustainable supply chains that are not based on germanium. Germanium, which comes mostly from China, used to be China and Russia, then China, is a key material being used in all infrared imaging systems. The U.S. imports hundreds of millions of dollars of germanium a year. We produce in Orlando already two materials that are alternative to germanium, and with the nine new materials that we licensed from Naval Research Laboratory, we will offer very soon a complete suite and family of materials that not only will replace germanium but actually outperform germanium in many ways.
So germanium, as everyone knows, is now limited in export out of China as a retaliation to some of the restrictions or export wars, if you wanna call it, or geopolitics altogether. The U.S. has a stockpile of germanium held by DLA, Defense Logistics Agency, for a case like this but does not have actually sources of germanium right now available. Everyone is dependent on China. These materials, as an alternative to germanium, are a key for DoD. We've been working on commercializing them, receiving around $3 million, and growing in funding from DoD and different agencies for them. As I mentioned, the materials are not only a replacement for germanium but actually better than germanium.
The reason is these materials are multispectral in nature, meaning if today in infrared imaging you have three different bands: shortwave, midwave, longwave, and for each one of those bands, you have independent systems, separate cameras, separate optics, separate everything. With these materials, one can start combining now multiple cameras into one. And if you remember from one of the previous slides, our own Mantis camera does that. Our camera is a combination. It images both midwave and longwave simultaneously. The reason that camera can do it is because of those materials. We own those materials exclusively, and without them, you simply cannot design such a camera. So defense is a major growth area. As I mentioned, each one of those three pillars have underneath it multiple opportunities that are potentially transformative to the company. I'll talk about some as an example.
You know, we'll talk about automotive, but let's start with defense. We were awarded by Lockheed Martin a contract to develop essentially a camera system for a new missile system that they are developing. That development is a $7.5 million development contract, which is really nice and great over the next two years, and we're already enjoying that. But what's the real cherry on top or the icing on top is that if Lockheed Martin gets selected because they're competing against Raytheon, if their system gets selected, we expect to be producing here in Orlando tens of thousands of those cameras for that system with ASPs between $5,000-$10,000.
The initial order from the army is expected to be 10,000 or 11,000 units, and that would be as soon as September of next year when they possibly will make already a decision about this, at which point we will be expected to already start producing it. So we'll be looking at probably setting up productions in the near future for this. But the real key here is, if you let it sink, tens of thousands of systems at $5,000-$10,000 per system. We're talking about $10s of millions of dollars of camera revenue from that one program, $10s of millions a year from that one program alone. So as I mentioned, in the three pillars of growth, multiple opportunities independent, multiple opportunities that are transformative to the company. That is one. Automotive, as an example, is another one.
The Institute of Highway Safety in the Department of Transportation has concluded recently that emergency braking systems that exist today are not sufficient, both in their deployment and in their performance. So they announced their intention of setting a rule mandating that automatic emergency braking will be deployed in all vehicles and mandating an improvement, a significant improvement, in nighttime performance of those systems. The graph on the right is a bit difficult to read, but it essentially is from DoD showing that pedestrian fatalities at night are as much as four or five times higher than during the day because, in their own words, the automatic emergency braking does not function at night. The solution for that is thermal imaging. We've been working on this for nearly four years now. We are fully qualified into one of the largest car companies out of Detroit.
We are looking at ASPs of $20-$50 per vehicle for us. That one car company is only one of multiple. We're in the process of qualification by others. Each one of those car companies, before the DoD announcement, was planning on rolling this out within five years to 1 million vehicles a year. So again, $20 million-$50 million per car company a year. And this was before the DoD announcement of intention of making it mandatory. Right now, everyone is in a holding pattern waiting to see what will be the outcome of DoD with an announcement of an intention of setting a rule. But we're already ahead of the curve. We are already designed into one car company. We're already in qualification with at least two others, maybe more, and growing.
Again, each one of them alone is tens of millions of dollars a year. In summary, I'd say we're transitioning the company from components to systems. These are growth in ASPs. These are growth in opportunities. These are; we're no longer talking about contracts that are in maybe $3 million a year but contracts that are in the order of $50 million-$100 million a year on some of them. We have three pillars of growth independent of each other but all grounded and based on our core technologies that are really unique and position us in a very special place right now. We are planning a growth of up to at least $150 million a year in revenue in the next three to five years. We have a very detailed plan of achieving that.
Just recently, last week, we added a new VP sales that is driving a lot of this. We expect that the camera business, the solutions, to be as much as 60%, maybe even 70% down the road. Components to continue a moderate growth of 10% and be 30% or so of revenue. Defense to be a key part with about $100 million of revenue. Shipping already automotive within the next three to five years. A modest number in this plan of $150 million includes 100,000 automotive units, so not even reaching 1 million units a year for every car company today. Some acquisitions. We started with a small acquisition of Visimid. It was a way for our management teams that is fairly new together to work together, run process, see that we're running it well. That acquisition bought us that massive Lockheed Martin opportunities.
It is a real game changer for us. It's really setting the tone now for us to continue to grow in similar ways, ways, acquisitions that are either adding technical capabilities in or adding in revenue streams in this strategic direction of growth. Myself, I joined the company four years ago. I was bought in, by the board of directors. My whole career has been in optics. Prior to LightPath, I was at Thorlabs, general manager and right hand of the CEO, helped him grow the company from $30 million to $500 million. Hell of a ride. Lots of acquisitions, six years in China, lots of great things. With me is Al Miranda that I brought on board as CFO, nearly three years ago, as well as Peter Greif that I brought on board as our VP operations. Both Al and Peter have extensive experience in much larger companies.
As you see, that's a recurring theme here because we're building a big company. We're not thinking small company. Experience with larger companies, acquisition, and substantial growth under their belt. Jason Messerschmidt joined us last week from FLIR. He managed over $200 million of camera sales there. And him joining us as VP Sales is really very strongly aligned with the direction we're going into systems, going into cameras. That is where our growth is coming from. Jason joined us because he saw that we have some unique solutions. We can act fast. We can move quickly. And we're really poised for significant growth going forward. Okay. So I think about 20 minutes on the spot. So we'll take some questions. One question is, how do you leverage a competitor?
I'm not sure if the question is, are we a competitor of FLIR, or how are we a competition to FLIR? In any case, I'll address it by saying we have some very unique technologies that we're basing all of this on. The materials are just one of them. I didn't talk at all about our fabrication technologies and, in particular, molding optics. Most of the world, when they need to make optics, the optical components that go in a system use polishing and diamond turning, which are very laborious and are sort of one-by-one lenses. LightPath's claim to fame, and really all it was doing up until 2017, has been a technology that LightPath invented and spearheaded of molding optics. That technology can produce, in the current capacity we have, up to 4 million lenses a year in very cost-effective ways.
So not only do we have unique materials, but we have unique, extremely cost-effective ways to transform those materials into final lenses, to coat them, which is a very complicated area by itself, and then design and build the complete system. So vertical integration and owning key technologies is a key to a lot of our competitive advantage and what we do. Another question, is, can you talk about the Lockheed Martin program you're involved in? I believe you want to start setting up manufacturing. What does that mean by revenue? And discuss timing. Yeah. Absolutely. So as I mentioned, Lockheed Martin is competing against Raytheon on this program, which I cannot name, the program, but it can't be too difficult to find what it is. Lockheed is actually extremely confident in the superiority of their technology.
The camera solution that we, meaning Visimid as a company, we acquired, has developed for Lockheed, can provide a very significant advantage for the Army in this missile system. Sorry. They are actually so confident that they're gonna win this, and they know that the Army is starving for those missiles, that they actually want us to start setting up the production line for it here in Orlando in the next one or two quarters already. That will be financed by Lockheed. Part of that $7.5 million that we got awarded includes setting up both production equipment. There's some CapEx in there. It will be. It's having it here in Orlando actually turned out to be a key element because while Visimid's engineering company we acquired is in Texas, Lockheed's production is also here in Orlando.
So having been acquired by LightPath, a much larger company with production capabilities and already a key supplier to Lockheed here in Orlando, is very appealing to Lockheed in this, which is why part of why this program got awarded in such a way. And we're looking to start setting up that manufacturing here. Revenue-wise, until we actually start shipping product, the revenue will be that $7.5 million over the next two years, from the development. Very, very heavy on the later part just because of the recognition of revenue has to be by milestones and sorry, by milestones. And so even though Lockheed is already paying us now for everything we're spending, we're not gonna start recognizing the revenue yet. Questions about us going up the food chain, breaking out the new business?
I know we're running out of time, so I'll go through things. So I'll go through those pretty quickly. Gross margins for the new opportunities are expected to be over 40%, as is what we expect our gross margin down the road to be. At some point in the earlier part of COVID, when we were shipping a lot of assemblies, we actually already had those gross margins. And so we know those are achievable. We know exactly how to get there. It's a matter of a product mix more than anything else at this point. The breakout of new business, I think we show a bit in one of the slides there. But essentially, we expect 70% of the business to be down the road from cameras, 30% from components—sorry, 70% from solutions, most of it cameras, some of it assemblies. But again, that's by revenue.
The sheer fact that cameras are in the thousands of dollars already would always give them a higher percentage point. Question about update on the automotive opportunity. None as of yet. The last update was that while we were expecting to be already in low-rate production right now, that got delayed because the automotive companies are reshuffling their pipeline and their product line. Our solutions related to emergency braking system and driver ADAS were all tied in at the time to EVs, not because it's a EV-related technology, but just because at the time, the car companies were putting all new technologies into EVs. Everyone knows right now how things are changing, and everyone is sort of waiting to see what will happen. We expect them to shuffle around their pipeline and for us to start seeing our products being qualified into internal combustion engine vehicles as well.
But no major update as of now. We're still very optimistic. We see a lot of activities on the smart city. That is where thermal cameras get mounted on top of traffic lights to count vehicles and to dynamically change the timing of traffic lights. That's very big. It's less volumes in the implementation in automotive, but it's a higher average sale price for us as, in those cases, we oftentimes look at a complete camera solution. Last question I see right now. This is more, but do we envision raising money for more equity to build the balance sheet? Right now, we're cash flow positive from operations. So and we said this a year ago when we raised money. We went out in January 2023 to raise some money to expand the operation in Orlando. Our goal was to raise $6 million.
We got offers for $27 million. So we increased a little bit the offering. We ended with $9 million on the balance sheet. Most of that money went towards expanding operations and capabilities in Orlando and in Latvia, some of it for the acquisition, $1 million of it to pay off the debt. But as of now, we don't see a need to raise money. The Lockheed project is being financed by DoD, so we don't need to invest too much of our own dollars in it. The only two situations we would probably go to raise money right now would be, one, a major acquisition, two, a major award like an automotive that comes with some caveats that require us to make an investment.
For example, Ford can decide that for us to get awarded their pre-production for them, we need to set up a facility in Michigan right next door to them, or that we cannot make manufacturing in China, and we need to move that facility to Thailand. That moving a facility or setting up a new facility is a $4 million-$5 million investment. It's not massive. It's not huge. But we would only do it if it's tied to specific revenues that would come with that. Last question is going into details on the Black Diamond opportunity. How do you recognize revenue, how quickly it will ramp up? Yeah. So great question. That I'd say there are three revenue streams there. One is optics, and we're already starting to see that.
Our customers are working on qualifying new assemblies, new systems designed with Black Diamond materials instead of systems that are currently designed with germanium. That is going very well, extremely positive feedback from customers. And we expect to be able to talk more about that publicly soon. The second revenue stream, which is smaller in dollars but actually fairly profitable, is selling the material itself. And we do some of that to help even our competitors in some cases. And the third one is the Black Diamond are really a great enabler of our camera business because with our Black Diamond materials, we can design camera systems that outperform other camera systems in optical performance. And so we take those materials. We not only make great money I mean, this is 50% of our business, is, infrared components.
We not only make great money from that those components and from that part, but we also use it as a stepping stone and leverage to go into the camera business. And with that, I believe our time is up.
Thank you. Sorry. Thank you. This concludes the LightPath Technologies presentation. You may now disconnect. And please consult the conference agenda for the next presenting company.