Our priorities for 2016 center around two themes. First is continuing to improve our bottom line. With the size of the company today, the synergies we can realize and the opportunities presented by our growth initiatives, we believe we will get there. It will take us a few quarters, especially given the level of amortization expense that was added as a result of purchase accounting that as you can see from our improving adjusted EBITDA, we are on the right path, and we are focused on that goal. Our planning activities for 2016 have been squarely centered around that objective.
Our second priority is to deliver on our two strategic growth initiatives. This means driving hard on growth in the area of high-speed optical receivers and in the adoption of our ODiSI platform for distributed strain and temperature testing. We continue to make good progress in ODiSI sales into the composite market as it provides a compelling value proposition with a significantly better resolution and lower cost.
In 2015, we were successful in penetrating key players in the aerospace and automotive industries. Our high-speed optical receiver initiative centers around capitalizing on the growing 2.5G fiber to the premise market, especially in Asia and the emerging 100G data center communication opportunity.
I re-read My's comments again this morning. Not a mention of the word terahertz!
The only substantive discussion of terahertz in fact was as a result of questions I asked on the conference call:
Randy Knudson
I thought it was a good quarter, so thank you gentlemen. I am excited for the future. I wanted to see if you could provide me with a little more color in regard to Terahertz which is my main interest as Rob is aware and I guess I come at this from a couple of directions. Is Terahertz, we don't hear anything at all about Terahertz. I assume that it's primarily being moved by your VARs, your value added resellers?
Rob Risser
Yeah. Hi, Randy, this is Rob. So that VAR channel is continuing to mature. Terahertz is still crossing the chasm, but there is more traction today than it was the same time last year. There's more product revenue coming out of it, but it's still - and there is less contract revenue that is going in. So Terahertz is still not contributing to profits or positive EBITDA yet, but it is gaining traction in the market and marching ahead, those VARs they take some time to really get up to speed and to get the product adapted out of the pilot play ups and into the production facilities, so that is moving ahead and progressing well. It's just - it's a slow and steady pace. So it's not really a big contributor to the top line yet and it's not a contributor at all to the bottom line right now.
Randy Knudson
And I assume that there are some kind of confidentiality agreements in place with the VARs because I have reason to believe and I won't mention names, but there must be some confidentiality because I see some products that appear or that maybe I understand have API technology now Luna Technology, Picometrix technology embedded into them especially in the plastic extrusion.
My Chung
That's right. Yeah, you are right. We do have confidentiality and they protect that, their processes and their adoptions of things so tightly that you are probably doing some [indiscernible] that gives you information that we wouldn't be able to provide publicly.
Randy Knudson
Well, and it's just a shame because the investing public doesn't have any real way of determining what the footprint is of Picometrix, Luna and Terahertz and I think it's one of the more exciting things going forward that you have. So I wanted to also ask about the anomaly detection device that I know in the last conference call I asked about and I think My mentioned that there might be some opportunities overseas where people were actively looking at that in the security market and I'm wondering if you can comment any further on that?
My Chung
Not really. The new distributor that we put in place in China was getting a lot of interest in homeland security in that technology. We have now brought them in in terms of what we can offer but as of date no real progress in that other than they are obviously investing there a little bit differently than the US market is today.
Randy Knudson
Understand. And then last thing is also related to Terahertz and it’s Luna side of Terahertz. I know that you mentioned on the last conference call that you are – once your engineers there in Virginia found out about or got involved in Terahertz that you are actually doing some other design wins maybe for the government on some Terahertz issues, I'm just wondering we don't see anything about maybe it's once again proprietary confidentiality, but it is a shame there is no mention on your webpage when you click on Terahertz, you just go back to the Picometrix page. And I am wondering in the future if could give us something about what you are doing there because I know in your skunk works or whatever you call your advanced technology working in nano materials and those kinds of things, so I find that real interesting and I think the public would be - investing public would find that interesting as well.
My Chung
Actually, we're also in the process of trying to merge the two websites together. It turns out that the code that API website was written in is different than ours, so it will take us still little of bit of time. We're also trying to upgrade the information as of currently on the site so that our investors as well as customers have a complete view on Luna. But as I said, it's taken us a little bit longer because of the way each of the sites were created.
With regards to the technology development side, indeed the two entities, the Group in Ann Arbor or our group in Virginia here has worked fairly closely together especially in the last couple of months trying to leverage off of the capabilities of each and going after some of these government contracts. Clearly our team when we announced it internally was really excited about Terahertz, they see it. They haven't gone after it, and they say, hey, there are activities out there.
Randy Knudson
Good. And going forward you see that just progressing? We should see continued improvement in the Terahertz division I guess on both sides.
My Chung
I would hope so. When we've done internally at the traditional Luna is we put a process in place as far as how we scour what proposal is being requested, what contributions we can make, what our likelihood is winning the follow-on contracts, right, outside of the initial study. Those processes we're trying to transfer over to Rob's group in Ann Arbor. I think there's been a lot of cooperation and receptivity to that.
Rob Risser
Yeah, good collaboration.
Randy Knudson
I think last thing I just wanted to applaud you for having Rob on the telephone. I know for a lot of us old, API investors it's nice to hear Rob on the conference.
My Chung
We had a drag and screaming and yelling.
Rob Risser
It's good to hear you, Randy. It's good to talk to you.
Randy Knudson
Good. Thank you all.
Rob Risser
Thank you.
I guess my take-away from the conference call is that Terahertz development at LUNA is still on-going and active, but it's HSOR, fiber to the home sales primarily in China, and the continuing development of the LUNA ODiSi, used in the inspection of composite materials in airplanes and automobiles, has become the primary focus of the company.
It's pretty clear to me that Irl Duling Head of the Picometrix, terahertz division is continuing to make significant progress in the commercialization of THz. The problem is that most of these contract "wins" are subject to strict confidentiality agreements, making it difficult to evaluate the scope of the current market penetration. However, the company did disclose some customer names in 2014 at the Liolos Conference, and then was asked to remove these references. However, I had posted those customer names here:
Of course, we know the identity of some of the other VARS, (value added resellers, who are employing Picometrix, THz technology in their product lines such as:
Thermo Fisher Scientific:
Automation and Control Technology (ACT):
Seltek, LTD:
Most of these relationships were disclosed by API, back in 2014-2015, but there is reason to believe there are many more. (Of course, this discussion omits the significant contract which continues and is on-going with the USAF on the paint inspection of the new F-35, which has been mentioned extensively on this blog).
Although the company has never disclosed any relationship, I have reason to suspect that Picometrix supplies THz technology to INOEX for use it's terahertz product line for the inspection of corrugated pipes, and foam core pipes among other products:
I think it's also important to note that LUNA's Applied Research and Technology Division also now has a focus on next generation THz development adding their extensive background and knowledge in metamaterials and nano-technology to the strong THz foundation created in Ann Arbor by Steve Williamson, Irl Duling and others.
I think that while THz is not in the news at LUNA, it continues to show signs that a break-through on multiple areas remains likely, and that the explosive growth of the HSOR, fiber to the home market which is driving LUNA's growth will help fund and better insure such a future.
THESE ARE ALL MY OPINIONS. PLEASE PERFORM YOUR OWN DUE DILIGENCE.
