Good morning and welcome to the Laser Photonics First Quarter 2023 Results Webcast. Please note that this event is being recorded. I will now turn the call over to Brian Siegel, Senior Managing Director of Haydenir. Thank you, sir. You may begin.

Thank you, operator. With me today are Wayne Tupuola, Laser Photonics CEO; Peter Evans, who recently joined us as President; and Bill Campbell, who just joined us as CFO. Wayne will introduce the company and its opportunity to disrupt the market for corrosion control and other applications; Peter will discuss the strategy and the plan for this year; and then Bill will review the financial results for the quarter ended March 31, 2023. 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 which the company anticipates. These risks and uncertainties include, but are not limited to, the specific risks and uncertainties discussed in the reports that we file periodically with the SEC. Laser Photonics assumes no obligation to either update any forward-looking statements that we have made or may make or to update the factors that may cause actual results to differ materially from those we forecast. I will now turn the call over to Wayne, Laser Photonics Chief Executive Officer.

Thank you, Brian. Good afternoon, everyone. We reported a solid quarter in Q1 with year-over-year growth of 35%. This growth was led by solid performance across all of our product lines, especially in our high-power laser cleaning processing applications and affordable entry-level systems. We attribute this growth to our continued investment in sales and marketing and capitalizing on our existing and newly installed customer base. We are also making investments in R&D to develop world-class products that meet the demands of our customers in industrial, automotive, MRO, and nuclear facility decommissioning markets. Moving to our growth investments, which, as we said on our recent fourth quarter earnings call, would negatively impact profits this year. From a personnel perspective, we brought on Peter and Bill, two C-level executives with proven success in relevant verticals at larger companies. We also expanded our marketing department to 13 people to support anticipated growth and added 4 outside sales professionals to target the DoD, automotive, and energy industries and strategic geographic areas. Furthermore, we are building an AI and big data team, which will primarily focus on targeting specific end users, such as plant managers, department managers, and chief engineers, from selected industries and verticals, including the automotive, aeronautical, and maritime sectors, to enhance lead creation while decreasing customer acquisition costs. For R&D, we maintain several programs and activities to improve our technology and processes to enhance performance to reduce the cost of our laser cleaning systems. In Q1, we increased R&D investments to stay ahead of our competition. We equip our application center with state-of-the-art laser blasters and develop new complementary technologies, such as remote particle removal for energy transmission power lines and infrastructure projects, maintenance, repair, and construction. Moving forward, we intend to make further investments in R&D to innovate and guarantee the company's long-term future. Now I'd like to turn the call over to our President, Mr. Peter Evans, for a detailed review of our sales and marketing efforts.

Thank you, Wayne. As I mentioned last month on our fourth quarter earnings call, our strategic plan for the next 12 to 24 months revolves around two key areas: sales, customer support, and dealer distribution channels. Starting with sales personnel, we are looking to recruit senior key account managers that are proven hunters and closers with deep vertical experience and existing contacts with key decision-makers at current and potential customers. To accomplish this, we have brought on a number of leading search firms that specialize in our key verticals, from automotive, DoD, shipbuilding, maritime, aerospace, energy, manufacturing, oil and gas, heavy-duty industries like over-the-road type vehicles, agriculture, and construction. I believe this will provide efficient coverage to optimize opportunities while exercising financial prudence. This quarter, I'm happy to say that we brought on two senior account managers to focus on DoD and government customers. We also added an account manager in the automotive space and one in energy. Our plan is to continue to grow our team of account managers across our key verticals and geographies. Additionally, we want to double the number of inside salespeople from the current team of four to eight persons. Further, we plan to hire and integrate a strong customer service group to support our broader sales team. Finally, we plan to invest in and expand our distribution and partner networks. We recently spoke to investors for the first time about our Service Partner Network or SPN. We are very proud to support American entrepreneurs in creating MRO service businesses using our CleanTech technologies. Through the SPN, we help them secure equipment financing, if necessary, to purchase one or more CleanTech systems and then provide warm or hot leads and other support to help them establish their businesses. The key benefits are accelerated market penetration through the establishment of service businesses using our CleanTech systems. SPN members will also go out and do demos at our potential customers that can drive incremental sales and the potential to identify and penetrate smaller industries and customers that we may not have been identified by our existing sales efforts. As you saw over the past few weeks, we have received orders from our SPN members. What's great about this is that as members expand their business within their territories, they will need to buy additional systems. So it's a win-win proposition. Today, we have 15 members, up from 12 at year-end 2022, and we are looking to grow this number significantly over the next 12 to 24 months. To accomplish this, we will need to put in place a dedicated team to support these members. Finally, we are in the early stages of building a strategic global dealer distributor network. This network will focus on well-connected, experienced partners with a strong financial base. Now I'd like to review the expectations or targets we recently set for these initiatives. For our key account manager, our goal is to fill these roles as quickly as possible. To date, we have hired four of the seven identified positions. By hitting this goal, we will give these new team members approximately six months in 2023 to become productive and bring in revenue. I expect these sales to come from low-risk, high-yield businesses that our experienced hires would have immediate access to through prior experience and relationships. I also expect additional sales will be realized from our increased inside sales efforts. Beyond this year, we expect to continue to build the pipeline for our more highly engineered systems, which have a six- to twelve-month sales cycle and will therefore help drive sales growth in 2024 and 2025. With respect to setting up our SPN and dealer distributor network, our efforts in 2023 will be spent vetting potential members and partners. And therefore, any sales through these channels will be incremental to our growth rate. In summary, in 2023, we fully expect to report higher revenues versus 2022 from the initiatives I've outlined. Of course, it will be an investment year with the goal of positioning the company to drive accelerated sales growth over the next several years, and I'm excited about the opportunity to create significant value for our shareholders.

Thank you, Peter, and welcome, everybody. Our first quarter revenue increased by 2% to $1.24 million. While this number was up slightly both year-over-year and sequentially, as Wayne and Peter communicated, we expect this growth rate to accelerate as market awareness of our capabilities and resources devoted to sales and marketing increase. Our gross margin on those Q1 sales increased by 500 basis points to approximately 80% as our mix was more heavily weighted toward our higher-margin CleanTech systems. Our GAAP operating loss in Q1 was $1.2 million versus operating income of $0.4 million last year. About $1 million of this loss was attributable to noncash stock issuance costs related to our IPO and both cash and noncash costs related to the severance agreement for our former CFO, both of which were settled in April, and therefore, needed to be marked to market and accrued at the end of the quarter. Beyond these noncash and one-time costs, the most significant change in our operating structure was the increase in sales and marketing resources, NASDAQ and SEC compliance costs, and rent for our new facility. The other loss of $200,000 represented a bad debt reserve for a prior-year sale. GAAP net loss was $1.4 million, and loss per share was $0.18. Non-GAAP net loss and net loss per share was $0.4 million and $0.05, which excluded the $1 million in previously referenced operating expenses. From the balance sheet and cash flow perspective, we finished the quarter with $10.8 million in cash and no debt. This balance represents a $1.4 million decline during Q1, resulting from our operating activities. Net working capital remained fairly constant. Now I'd like to provide some commentary about the full year 2023. We believe our gross margin percentage may decline from the 80% in Q1 based mostly on mix shifts. However, our gross margin percentage should still exceed the prior year's 58%. Looking at operating expenses, given our continued growth investments in sales and marketing and expanding our distribution channel, we expect these costs to further rise throughout the rest of the calendar year. In Q2, we expect to see an offset to operating expenses of approximately $0.6 million related to the referenced mark-to-market stock update. This offset represents the change in our stock price from the end of Q1 to when the shares were actually settled in April. We will adjust this out from our non-GAAP numbers for Q2. That concludes the prepared remarks for today. We can now move to questions.

Okay. There are no phone questions. Do you have any questions?

Yes. There are some questions online. The first is for Bill. Could you elaborate on the nonrecurring events that have affected results? Should we expect any more of these in Q2? And then there are a couple of follow-ups.

Yes. Thank you, and thank you for the questions. There were two nonrecurring events identified that were recognized in Q1. The first one involves the continuance of our IPO costs, which was based upon it being a stock-based payment and had to go mark-to-market at the end of the quarter. The second one had to do with the severance for our former CFO and, as referenced, that the total cost flows in Q1 approximated $1 million. As indicated in the call and disclosed in our 10-K, that will be partially reversed approximately $0.6 million in Q2 as we sold those transactions on April 17, and the mark-to-market resulted in a reversal of some of those expenses. There were no further nonrecurring items, and there have been none since the end of the quarter.

Great. You mentioned in a news article towards the end of last year that you expected revenue between $7 million and $10 million for 2023. Does this projection still hold?

This is Peter. Yes, this projection still holds. We're very encouraged with our hiring process, both in marketing and sales, and we see us going in a very positive direction.

Great. And then, Bill, do you see yourselves being able to turn a profit this year?

Again, there are three main factors involved. The first one obviously being the top line, and Peter gave the indication along those lines. The second most significant variable is the gross margin percent. And as we indicated, we anticipate being between the 80% that we experienced in Q1 and the 58% that we experienced last year. The third item involves how quickly we start to ramp up some of the other expenses in anticipation of the increased revenue. After each of those items, I do expect with time, yes, our profitability will be increasing. So the target that we have would be to achieve profitability by the end of the year. But we are not formally providing any guidance or specific numbers at this time.

Great. Regarding the buybacks, did you buy back any stock this quarter? And what is your plan for the rest of the year?

Yes. Understood.

There have been no stock buybacks during this quarter, nor since quarter close. Thus, there have been none to date. We have secured board approval for the buybacks, but we monitor on a daily basis the opportunities that we have. And there has not yet been the determination that we should proceed with that stock buyback. As the gentlemen indicated, Wayne and Peter, we have significant opportunities that we're considering right now, and we want to use the cash wisely.

Okay. And this question is for Wayne or Peter. You've built yourself as a rust removal laser company, and this is a huge vertical. Why is adoption not happening more quickly? And what is preventing that from that growth curve from really taking off?

Yes, I'll answer that question. When we introduced laser blasting or laser cleaning, we aimed to disrupt the abrasive sand blasting market and tackle the corrosion control challenges faced by both government and private sectors. Recently, standards for measuring laser cleaning have been developed and published by corrosion control organizations. Agencies like MAVC and SOCOM are exploring these procedures to integrate them into their corrosion control programs. We're currently in a model that focuses on gaining acceptance and scaling this technology. While we cannot predict when companies will decide to adopt it, we have received positive feedback so far. Some companies have already produced white papers to update their processes. This indicates they are considering how to apply this technology not just to their existing facilities but also to others both domestically and globally. As such, it requires time to propagate, but I believe it will gain momentum now. We're at the early phase, and I anticipate it will really take off this year and in the coming years.

Great. That's all the questions we have online. So operator, you can close it up.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.