New Luna CEO Scott Graeff talks about exciting developments at Luna and with terahertz

My Note: I listened to the Luna Innovations, 3rd Quarter conference call yesterday. It was a very upbeat presentation. Although the main focus of the Luna operations continues to be in the development of innovative silicon photonic devices, and sales of the ODiSI, fiber optic sensing for composites to the aerospace and automotive markets, Scott Graeff was also very upbeat about the significant and growing opportunities in Ann Arbor with the Luna terahertz division. Here are his comments and my follow-up questions. 

https://finance.yahoo.com/news/edited-transcript-luna-earnings-conference-232509529.html;_ylc=X1MDMTE5Nzc4NDE4NQRfZXgDMQRfeXJpZANkNTgyNHVsZDFiNm5uBGcDZFhWcFpEeHVjejR3TWpRME1EbGtOQzFoT1dZd0xUTmpZek10WVRrNU1pMDBNV0kzT1RBNE4yWmtNRGgxZFdsa1BHNXpQa3hWVGtFPQ0KBGxhbmcDZW4tVVMEb3JpZ19sYW5nA2VuBG9yaWdfcmVnaW9uA1VTBHBvcwMwBHJlZ2lvbgNVUwRzeW1ib2wDTFVOQQ--?.tsrc=applewf

Scott Graeff, Luna Innovations Inc. - President, CEO

"Performance in the terahertz area has been pretty consistent since the API merger. Our focus in that area right now is in reducing the size of the sensor and engineering some of the cost out of the unit, both in terms of the component cost and the manufacturing time in order to bring the price down to meet the necessary specifications for penetrating additional industrial process control markets that we have been pursuing.

Reducing the cost in these markets will allow us to penetrate manufacturing applications which would in turn lead to multiple unit orders over long periods of times....

Like I talked about on the terahertz side, we believe that engineering some cost out of that product is beneficial and we have some opportunities out there right now that could take off if we’re able to get that price down in that unit to be able to buy the multiple purchase. So, that is our focus right now."

Randy Knudson

Good afternoon. I wanted to congratulate you as well and tell you I certainly sensed your excitement today and I got excited listening to you. So thank you.

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Scott Graeff, Luna Innovations Inc. - President, CEO [69]

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Yes. Thank you, Randy. I appreciate that.

RK

I want to ask you about your terahertz. One of my concerns or thoughts when you spun off the HSOR was that you were perhaps planning to spin-off your terahertz there in Ann Arbor, but it doesn't sound like that?

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Scott Graeff, Luna Innovations Inc. - President, CEO [71]

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Yes. Last -- I will say, Randy, last week -- last week, we spent quite a long time going through with Steve -- and Steve Williamson and his team out there, you know, IRL, with BD and [John] with sales and really got into it and even had one of our board members participate as well in one of the meetings, he was in the area, and I think we all left with pretty exciting technology.

Now, what's the timeline and what can we do with that and what needs to be invested in that to get it where it needs to get to, but there are certainly some opportunities. And when you talk to customers that have this system and it's working in their -- in their long [line], they're excited and they say - couldn't live without it.

So, we need -- we need to fully evaluate that and say - what is the next step for this? - but I can tell you everyone left at room independently pretty excited about what that technology could do and where it is, is it -- is it finally the day of terahertz? People have been saying it for years. Is it really the time that that's been turned into a product that could be used in the manufacturing space.

RK

And so, you mentioned that you're -- the goal with terahertz is to make it smaller and cheaper. And does that being done that being done in Ann Arbor? Is there some help coming from the Virginia side at all or is that all being done in Ann Arbor?

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Scott Graeff, Luna Innovations Inc. - President, CEO [73]

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Well, that -- it's being done in Ann Arbor right now, but we are actually having Brian visit and getting involved a little bit. We're having James, our Vice President of TDD, the contract group, look at that and providing help where we need. We probably will need to probably beef up the team in Ann Arbor if that's direction we go, but we are -- we are definitely deploying some help to get Steve what he needs to try to reduce the cost on the sensor and on the system itself.

RK

And you mentioned that you had an opportunity if you were able to accomplish those goals of multi-sale contract. And I'm just wondering if you can tell us, have they moved out of paper, plastics, roofing, aerospace. Is there some new niche that maybe is going to be in automotive? Can you speak to that issue at all?

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Scott Graeff, Luna Innovations Inc. - President, CEO [75]

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Well, I think we continue to look at a bunch of different markets, certainly the ones that you mentioned as well as others. But we have -- we've talked and got some customers excited if the price points was X and I think we need to get the cost of the system to Y that allows that delta to be manageable. So, -- but it's not far out of reach. So I think it's something that could be done and that is really the goal right now of Steve and his team to drive that cost down.

RK

And my last question just relates to the work on the F-35 once again with terahertz and --

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Scott Graeff, Luna Innovations Inc. - President, CEO [77]

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Right.

RK

-- paint application, the radar reducing stealth paint. I've never heard anything on Luna ever mentioned about that. And I look in your investor guides that come out and that always seems to me to be something that would gain the investing public's attention. That's what got me hooked with API way back when is their initial work with NASA and just the quality of work and the customer base that they were developing it.

Terahertz is a difficult technology to work with as you know, but it seems to me that group of Picometrix really was at the cutting edge and could continue to be at the very cutting edge and has all these client bases that we could move into. So, I hope you will fund that and consider that to be a product for the future and for the company.

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Scott Graeff, Luna Innovations Inc. - President, CEO [79]

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Yes. And I'll tell you I wish we could talk about a lot more, but the restrictions that kind of the Lockheed put on us and other folks out there. I think Brian wishes he could ramble off the top five aerospace and automotive that he's working with and some of these things are just you know these bigger companies or especially if its comes from the government side they just really restrict us on what they can say -- what we can say. But yes, it's absolutely out there and it's exciting work.

RK

Well, Great. Well, congratulations again and I thought your presentation was excellent and thank you again.

As always this is not investment advice and perform your own due diligence.