Lightpath Technologies, Inc. (Nasdaq: LPTH), a manufacturer of optical components (SIC: 3674), generated US$28.3 million globally in the year ended June 30, 2017, growing 64.2% over the prior year. The company earned US$7.7 million in net income, compared to US$1.4 million in the prior year, an increase of 450%. Despite this increase, cash flow from operations in the fiscal year ended June 30, 2017 was only 64.8% of net income, compared to 107.8% in the previous year. Based on statements made in the company's annual report, activities in China are driving down operating cash flow.
The company did not provide revenue information specific to China, but it did state that it extinguished all net operating loss carryforwards in China during fiscal 2016 and did not accrue any in fiscal 2017. It did mention, "Revenue from our [high volume precision molded optics] product group had been derived from the industrial tool market in China, which had experienced six years of declining growth." Even though the company is in a declining market, it was profitable this year.
Lightpath Technologies, Inc. did mention China-specific issues related to its operating cash flow. Net assets in China increased from US$9.9 million as of June 30, 2016 to US$12.3 million as of June 30, 2017. The company begins to calculate allowance for accounts receivables starting at the 60-day mark in the United States, but waits until the 120-day mark in China. This implies the company's China-based customers have extended payment terms.
On a global basis, Lightpath Technologies, Inc. is growing revenue and net income, but has poor operating cash flow performance. Much of that seems to stem from China operations, where taxes are being incurred on operations in a declining market, supported by higher net assets, and repaid at extended payment terms.
